All Demand, No Supply Is A Recipe For Disaster

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This article, written by Paul Kirwin, originally appeared on Forbes.com on September 14, 2021.

Retailers have been facing constant change for the past decade, and that pace has only accelerated since Covid-19 struck. The rate of e-commerce penetration in the U.S. grew by 10 years in 90 days in 2020, reaching around 33%, according to data from McKinsey. This surge in online shopping has now started to stifle retail supply chains.

In August 2020, Target reported the most significant quarterly sales growth in its 58-year history, with online sales nearly tripling during the quarter. According to a financial statement, U.S. e-commerce sales for Walmart rose 37% year-on-year in Q1 2021 and 49% across its international markets.

At the same time, Amazon and others have raised expectations on getting products delivered in one day or less. Retailers need to offer the best products, at the best price, in the least amount of time to thrive for the long term. Bain & Company research shows that U.S. retail e-commerce penetration will grow to nearly 30% of total sales by 2025.

With online sales reaching an all-time high, we’re starting to see the scales tipping, with too much demand and insufficient supply. The result? Retailers are losing money and market share due to a lack of inventory. Polaris reported a 40% increase in second-quarter sales but said North American dealership sales were down because of low stock from an unusually high interest in outdoor pursuits during the pandemic. 

If it were simply a matter of making more products, it wouldn’t be a problem. But the challenges are much more profound and require retailers to find new ways to balance supply and demand. Retailers are making investments to tackle this issue. A recent study indicated that 40% of retailers are investing in improving the accuracy of inventory management.

Given economic uncertainty and changing buying behaviors, retailers need to constantly monitor the performance of the goods they’re selling — and listen to what consumers are saying. In the near term, if they don’t get a handle on things, they won’t deliver for the holiday season.

Supply chain prices are rising along with raw material costs. Inventory will be weak and retail prices are rising. Being the first line of defense, both online and brick-and-mortar retail will suffer growing consumer frustration. This pressure will be felt by the brands from their retail partners and their own online and brick-and-mortar stores.

The most powerful research tool that consumers have is online research. They will rely on that even more to find the products they want and, if available, a short price comparison. But they won’t wait long to order.

Critical for retailers is:

  • Inventory and price transparency
  • Presenting daily updates when necessary
  • Offering alternatives that make sense to a consumer (same quality, same approximate price)
  • Being honest about the problems and what the brand is doing to fix them

Critical for brands is:

  • Inventory and price transparency to retail partners
  • Expected date of new shipments
  • Weekly updates on those shipments

Critical for consumers is:

  • Transparency
  • Expected delivery of a product
  • Priority order options
  • Alternatives regarding same general prices and quality

Looking into our platform and pulling about 250,000 worth of reviews, only 500 reviews mentioned the words “out of stock.” The interesting thing is that the star average was 3.99, which is not bad at all. So, consumers expect inventory problems right now. No one knows how long that will hold up.

Looking at the price, only 18% of consumers are grumbling about the prices out of a three-month data set of 7,000 reviews mentioning the price. We conclude that consumers expect inventory problems for now. What happens when the pressure of the holidays is upon us is anyone’s guess.

We know retailers are paying attention to their reviews, but are they looking at all reviews across the internet? Most brands only produce 15% of all reviews created regarding their brand and products.

Here are a few steps retailers can take to get better insights on consumer demands and predict the next viral product before it’s viral:

  • Get an accurate view of your review landscape (all reviews of your products).
  • Measure consumer sentiment to gauge the frustration level on a per-product basis.
  • Manage inventory and the supply chain by measuring the bottom of the funnel — the consumers.

Consumers are a significant force in driving demand. Buyers who publish reach a massive audience of shoppers — shoppers who trust the buyers. Measuring this force is predictive analytics, which can guide product development, marketing, inventory and pipeline management. For years, brands have invested heavily in push strategies and, many times, ignored the consumer. That is now changing.