When stores don’t keep products in stock, customers turn to Amazon instead

A customer’s journey is different when it’s Prime
A customer’s journey is different when it’s Prime
Image: Reuters/Lindsey Wasson
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Consumer buying behavior is shifting online, driven in part by the availability of products in online stores and convenience of Amazon Prime. A new report by retail-industry analysts at IHL Group found that 55% of American households are now Prime members, along with 69% of households than earn over $100,000. According to the report, Prime members behave differently than consumers who don’t have access to the free, two-day shipping that Prime provides. This is especially true for Prime members who can’t find what they want in a brick-and-mortar store.

IHL’s research suggests Prime members approach buying products differently than non-Prime members. A Prime member will first ask themselves if they need what they’re after in less than two days; if so, they’ll then head to the store.

But then they may encounter a problem: the product they’ve come for is out of stock. This can happen to consumers in as many as one-third of all shopping trips, according to IHL’s founder and president, Greg Buzek. People tend to visit stores because they need the product right away or they want to try something out, so when a retailer is out of stock, the Prime customer feels that the retailer has wasted their time, the report suggests.

In this situation, Prime members are 52% more likely to immediately take out their phones and buy the item on Amazon, or elsewhere online. When finding out a product is out of stock, Prime members will buy it online instead 29% of the time, whereas non-Prime members will only do so 17% of the time. And, Buzek says, once the consumer makes their first order of any particular item online, they are far more likely to continue buying it online, and may not return to the store.

IHL calculated that ”upwards of 24% of Amazon’s current retail revenue comes from customers who first tried to buy the product in store.” In other words, IHL estimates that between $20 and $24 billion of Amazon’s North American sales in 2017 (totaling roughly $106 billion), are because a brick-and-mortar retailer did not have a product that a customer went to their store to buy.

The solution, according to Buzek, is for retailers to better understand what customers experience when something’s out of stock. Products tend to be out of stock in stores between one-quarter and one-third of the time, the research indicates, which drives purchases online, given the availability of products on Amazon, and its convenience.

Technology can help retailers better manage their inventory. It’s not unusual for retailers to only carry out a physical stock-check twice a year. Over the course of six months, the difference between what the retailer thinks they have in store versus what they actually have in store can vary by as much as 25%. And the solution can be relatively simple, Buzek says. A fashion retailer, for example, could dramatically reduce their out-of-stock problems by using using RFID (radio frequency ID) technology on their clothes to track stock.

Traditional retailers who fail to understand a customer’s in-store experience drive loyalty to Amazon at their own expense. The big risk is that once a retailer loses a customer to Prime, IHL’s research suggests, they’ve lost them for good.