Retailers’ plan on out-of-stocks: Buy this instead!
Summary
- To deal with sparse selection, companies ask consumers to change their shopping lists
Retailers are pushing holiday shoppers to accept substitutions for items that are out of stock or in limited quantities due to supply-chain woes. Some consumers aren’t quite sold on the idea.
Chains from Foot Locker Inc. to Home Depot Inc. have long sought to prevent shoppers from leaving their stores or websites with empty carts. But this type of suggestive selling took on greater urgency during the pandemic, when overseas factories temporarily shut, making many items scarce.
As factories have reopened, a shortage of available shipping containers, dock workers and truckers have also conspired to slow product deliveries. The resulting limited selection has made some consumers more open to alternatives, executives said.
Out-of-stock messages to online consumers have risen 32% since June, with August levels being highest for apparel, followed by sporting goods, baby products and electronics, according to the Adobe Digital Economy Index.
“We are seeing more of an opportunity for substitutions," Jared Briskin, chief merchant of sporting goods and apparel chain Hibbett Inc., said in August. “But at the same time, consumers frequently want what they want."
That is the case for Jamie Hobbs of Denver, who said substitutes won’t cut it for her husband’s Christmas gift. The 28-year-old publicist said that even though she is having trouble finding Sony Group Corp.’s PlayStation 5 game console, she won’t purchase a similar item from another brand. “It’s not like I’m going to buy him an Xbox," she said of the Microsoft Corp. videogame system.
Retailers have been working overtime to try to avoid problems in the first place. Walmart Inc. Chief Executive Doug McMillon said the company’s merchants are working with multiple suppliers to find alternatives for out-of-stock items. “When supplier A has an issue, they can move to supplier B, C, D, E, F to try and compensate in some way," he said at a September industry conference.
Suggesting alternatives is more straightforward when shoppers are in a physical store and can interact with a salesperson. It is harder online, but retailers are using data science to try to divine what customers are really looking for when they type in search words.
“When people search for latex gloves, they don’t literally need gloves made of latex," said Peter Curran, general manager of digital commerce at Lucidworks Inc., which uses machine learning to help retailers identify substitutes. “They need something to protect their hands." Lucidworks will suggest alternatives such as nitrile gloves made of synthetic rubber, as opposed to the natural rubber used for latex.
He said suggesting substitutes can lift purchase rates to levels similar to those for in-stock items, but added that customers are less likely to accept them for more-expensive goods.
The success of the strategy also varies depending on the item, said Patrice Louvet, chief executive of Ralph Lauren Corp. Shoppers are more likely to substitute coats, for instance, than dresses, where they might be more wedded to a particular style or pattern, he said.
Ms. Hobbs, who wouldn’t substitute a pricey videogame console, felt differently about the out-of-stock jeans in a pale-blue wash she was eyeing at Abercrombie & Fitch Co. The retailer offered the same style in a slightly darker, more distressed finish, which she opted for instead.
Some online retailers rely on personalization algorithms that scour browsing and purchase histories to suggest similar items to customers, said Faisal Masud, CEO of e-commerce platform Fabric Inc., who has worked on inventory and fulfillment projects at Amazon.com Inc., eBay Inc. and Alphabet Inc.
While these recommendation engines—primarily meant for upselling—will offer shoppers similar alternatives to desired items, they might be more expensive or take longer to ship. “You may be on Wayfair buying a chair that should have shipped today, and now you’re being sold on an upsell that won’t arrive for another 10 days or might not have good ratings or might be a very high price," he said.
Consumers shopping for home goods care more about finding the perfect item than fast delivery and tend to browse different price points before settling on an item, a Wayfair representative said.
Wayfair CEO Niraj Shah told analysts in August that the home-decor retailer is using its selection of 22 million items to suggest substitutions for popular, yet unavailable goods. Out-of-stock listings are pushed to the end of a user’s search results, and product pages offer a carousel of similar items to try instead.
Dropshippers like Wayfair, which has its suppliers send orders directly to customers, have more flexibility to make substitutions because they aren’t sitting on inventory, according to Oppenheimer & Co. analyst Brian Nagel.
This approach doesn’t mean Wayfair can find a viable alternative for every customer, which Mr. Shah acknowledged during the company’s earnings call Thursday. “This is not a new feature and does not totally absolve us of losing out on some revenue if a customer decides to look elsewhere when faced with elevated out-of-stock levels on bestselling products," he said.
Avigail Lev of San Francisco, recently turned to another online retailer to find a teal-colored dresser when the one she wanted to buy at Wayfair wasn’t available. “A lot of stores serve up substitutions," said the 40-year-old psychotherapist. “It’s a great way to see other things you might like."
Retailers might be overselling the potential of substitutes to prevent lost sales from supply-chain shortages, said Sucharita Kodali, an e-commerce analyst at Forrester Research Inc. “If a consumer was open to a substitution in the first place, they didn’t know what was available to them to start with and what’s out of stock."
The National Retail Federation forecast holiday sales—those in November and December—could reach $859 billion, a 10.5% increase from the comparable 2020 period. More of those dollars could end up going to sales of secondhand goods and gift cards, as shoppers take the search for viable alternatives into their own hands, analysts and industry executives said.
Americans are expected to spend roughly $69.2 billion on previously owned items between October and December, up 24% from a year ago, according to research from online marketplace Mercari and research firm GlobalData PLC. Shoppers are expected to spend 27% more on gift cards this year, compared with a year ago, according to payments provider Blackhawk Network Holdings Inc.
Jared Rohrer, a 29-year-old Atlanta resident, said his wife wants a Louis Vuitton Speedy Bandoulière handbag that he has had trouble finding. While he plans to hunt for her gift, he will get gift cards for friends. “Any time I can’t find a specific item that someone wants for the holidays, I’ll get them a gift card instead," he said.
This story has been published from a wire agency feed without modifications to the text