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The Real Cost of Stockouts for Ecommerce Businesses

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We’ve all been there. You’re online, looking for that perfect something.
You find it and get excited, only to find it’s out of stock! Disappointed, you seek an alternative supplier.

This is why the phrase “Out of Stock” should never, ever show up on your ecommerce site.

The Dreaded “OOS”

People opt to purchase goods and services online for a number of reasons. One of the biggest benefits is convenience; ecommerce sites are available when and where customers are ready to shop. Online stores also allow buyers access to goods and services that may be unavailable at nearby shops.

But what happens if shoppers visit your ecommerce store or marketplace listing and see the words “Out of Stock” displayed? Let’s look back at one of America’s most beloved toy stores. Toys ‘R” Us left an indelible mark, as we grew up with this behemoth of a company. Yet, the giant toy store struggled to keep up with the new service standards associated with an omni-channel customer experience.

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On Black Friday and Cyber Monday 2015, the Toys “R” Us site failed to accurately show inventory available at local stores. In an interview on the site Retail Dive, a former employee claimed inventory tracking was off and orders were made that couldn’t be filled, resulting in thousands of unhappy customers. Moreover, Toys “R” Us ran out of top-selling toys during the most critical selling season of the year. It was a PR and branding nightmare for a company that had always touted itself as the biggest toy store in the country.

Today’s buyers expect to drop the item they want directly into a virtual shopping cart, click checkout and have it shipped immediately. If you don’t have the item in stock, they won’t hesitate to take their business elsewhere. If you sell on Amazon, stockouts can be even more costly. As a top 250 Amazon seller, Chad Rubin explains, “…to Amazon, your empty inventory translates to a view of unreliability to which they must make you suffer by stripping your sales ranking.” Diminishing your online visibility only gives your competition an even greater advantage.

Are You Properly Managing Your Inventory?
If you’re like most online sellers, you purchase goods from different manufacturers to satisfy your customers’ needs. You may also make bulk purchases in anticipation of future orders. This can tie up the cash within your business for months – especially if you’re sourcing internationally – and make it difficult to keep your inventory steady.

Larry Davis, Vice President of WD Music, knows the importance of cash flow and inventory management all too well. As a multi-faceted manufacturing and distribution company catering to the wholesale guitar trade, WD Music established relationships with big customers which challenged their cash flow even more. Larry explained, “We had to lay out a lot of money prior to receiving and shipping goods — 30% upfront, and the remaining 70% before our cargo shipped,” Larry added. “That was money we couldn’t use to order more goods. Basically, our capital was in our inventory. And our inventory was in transit. They call it a ‘vicious cash-conversion cycle’ and now I know why.”

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WD Music already had a revolving line-of-credit with their bank. But, according to Larry, it just wasn’t the best product to meet their business challenges. “Our problem was cash flow, plain and simple,” Larry said. “And I was losing sleep over it.” Reaching his breaking point, Larry turned to UPS Capital Cargo Finance®. This alternative financing solution allowed WD Music to borrow against the commercial invoice amount of their in-transit inventory, with no collateral required. Larry notes, “It’s given us the working capital to buy more inventory, fill more orders and go after larger accounts that, previously, we would not even have thought about.”

Proper inventory management is a critical priority for online sellers.

Ask yourself:

  1. Do you have a system in place helping you forecast future purchases?
  2. Are you using an electronic inventory management system that automatically monitors inventory levels?
  3. Do you have enough cash on-hand to support any unanticipated costs associated with your company’s rapid growth?
  4. Do you have options to increase liquidity in the event inventory is needed?

Access to Capital to Support Business Growth

Because of the time gap, cash flow issue and difficulties with traditional financing, many online retailers are now choosing alternative financing options to free up capital. With the UPS Capital Cargo Finance service, you obtain a line of credit as soon as your goods leave the country of origin, whether that be by air or ocean. Essentially, instead of waiting until the goods arrive on U.S. soil to secure a loan, you can have cash on hand as soon as the goods are in-transit. This could take weeks or months off the typical cash-conversion cycle and allows retailers to inject cash back into their business quickly, keeping other lines of credit open since this operates as an unsecured line of credit.

As ecommerce continues to transform the global marketplace, businesses seek ways to increase their competitive advantage. Ensuring inventory on hand for the next customer purchase is critical for success. An alternative financing solution like UPS Capital Cargo Finance can help you purchase critical inventory, improve your customer experience and grow your company into the successful venture you envision.

Loans are made in California pursuant to a Department of Corporations California Finance Lenders License. Products may not be available in all areas and may be modified based on requirements. Check with your UPS Capital representative for local availability. Credit availability is subject to approval.


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