Online order cancelled? That’s because the retailer may have no idea where the item is located

Michael Rempell has a problem with his hands. The retail manager can’t figure out where a quarter of American Eagle’s jeans, sweaters and other inventory is located. That means the company sometimes puzzles over when it’s trying to offset the surge in online orders in the pandemic era, potentially ending transactions with missed sales or cancellations.

While it may come as a surprise to shoppers, most retailers don’t have real-time accounting of exactly what’s in stock and where. Full inventory checks are regular and labor-intensive, like the night shift that American Eagle conducts once a year, where employees fan out across the country to collect thousands of garments of multiple sizes and colors from more than 950 stores. The rest of the year, like many other retailers, it can only account for about 75% to 85% of its products.

“It’s more important than ever that we know exactly what we have,” said Rempell, American Eagle’s chief operating officer. “The accuracy needs to be close to 100%, and today it’s not.”

The widespread problem has taken on new urgency during the pandemic as brick-and-mortar retailers seek to compete with Amazon by transforming their stores into fulfillment centers and offering customers the ability to pick up online orders or schedule quick delivery. Suddenly, stores have to guarantee online shoppers that an item is where they expect it to be — and not placed in a shopping cart, attached to a mannequin, stranded in a fitting room, stolen or lost. Busy stores, many of which are understaffed, are ill-equipped to do double duty, according to McKinsey, with inventory accuracy rates of 70% to 90%, well behind distribution centers at over 99.5%.

“You need a level of accuracy to deliver a seamless customer experience that retailers couldn’t provide,” says Michael Ryba, partner at Boston Consulting Group. “The pandemic has put inventory management in the spotlight in quite a dramatic way.”

When retailers don’t know where a tenth of their inventory is, it could potentially disrupt one in 10 online orders that are fulfilled off-store, says Forrester analyst Brendan Witcher, calling it an “unmanageable” Number. In a recent Auburn University study, researchers found that only 13% of retailers have accurate inventory counting on their website. That means they might be promising items they don’t have. However, it’s difficult to quantify exactly how many canceled orders or lost sales this causes.

Frustrated shoppers have little understanding of what is going on. When Bill Foster, 49, placed an online order for children’s cold medicine and six boxes of Kleenex to be picked up as soon as possible at a Seattle-area Walgreens, he received an email about an hour later saying the order has been cancelled. “It’s no big deal,” he said. “Just seems a little odd.” A nurse in New York spent several days searching online for available Covid-19 tests when she came across some “in stock” at her local Walmart one night. She placed an order online for next day pickup and her credit card was charged, but the order was canceled before she could get what she wanted.

It’s not just high-demand items like test kits that are hard to come by, but everything from toy Tonka trucks to Ford pickups. This comes at a time when buyers are scrambling for a more limited number of products thanks to the ongoing supply chain crisis, which Adobe says led to a record six billion out-of-stock reports during the all-important holiday shopping season.

American Eagle, Sam’s Club, and other retailers are testing high-tech tags, robots, and other inventory-tracking technologies. Store associates can also fulfill online orders faster when they know exactly where an item is located. According to McKinsey, in-store picking is typically 1.5 to 2 times more expensive per pick than in distribution and fulfillment centers.

In December, American Eagle, in partnership with a tech startup called Radar, began installing a combination of sensors and cameras on the ceilings of 10 of its stores that would track RFID tags attached to each item of clothing and wirelessly transmit their location. If it works as expected, the retailer plans to roll it out to all of its stores over the course of about a year.

“This technology offers omniscience to retailers,” said Spencer Hewett, founder and CEO of Radar, which has raised $30 million from retailers like American Eagle, Gap and Founders Fund. Gap is also exploring the use of the technology.

Once heralded as a game changer for retailers, RFID has been slow to catch on, with failed attempts by retailers like Walmart and JCPenney. According to IDTechEx, only about 26% of global apparel retailers use RFID today.

Still, the technology could have new appeal as retailers pay more attention to inventory levels and costs have fallen, with a tag that used to cost $1 now costing three to five cents. Sales of RFID technology have grown double-digit over the past three or four years as retailers like Nike, Lululemon and H&M have adopted the technology for hundreds of millions of items, says Tom Bianculli, chief technology officer at Zebra Technologies, a public company that is the largest provider of RFID technology.

“Pretty much every pure-play clothing retailer is involved with RFID in some form or way,” says Bianculli.

Lululemon is now tagging its entire inventory, giving itself a bird’s-eye view that has enabled it to ship online orders from stores even when they were closed in the early days of the pandemic because it “accesses products at any point on our network.” CEO Calvin McDonald said in a 2020 earnings call. Macy’s has tagged 100 million items, which “has proven increasingly critical with the move to omnichannel,” chief supply chain officer Dennis Mullahy said in an email.

Retail is also experimenting with artificial intelligence. Last year, Sam’s Club began testing robots from Brain Corp., whose floor scrubbing machines were re-equipped to gather inventory information as they roam the hallways. “Now it can walk and chew gum,” said Josh Baylin, Brain Corp’s vice president of product. The company is also marketing the new feature to existing customers like Walmart, Kroger and Menards, who are already using the robots to clean their entire store fleet.

Trax, a Softbank-backed company that uses a combination of robots and shelf and ceiling cameras to monitor inventory levels, recently began touting its ability to “make online shopping better for everyone by aligning your website with your shelf linked”. It targets grocery stores that are struggling to limit substitutions and out-of-stock items amid a boom in online ordering. For example, if a shopper wants cholula chilli garlic hot sauce, a retailer using the company’s software can tell them in advance if it’s available with certainty, Chief Revenue Officer David Gottlieb says, rather than handing them a bottle to miss with the normal taste .

San Francisco-based Focal Systems, which raised $30 million this month, has deployed 40,000 shelf cameras at retailers including Walmart Canada and Wakefern, which owns ShopRite, Fairway and several other grocery stores, up from 10,000 a year ago. Another 200,000 cameras will be installed this year, they say.

Cost and ease of use remain issues. Macy’s aimed to add RFID tags to all of its merchandise by 2017, but its suppliers have been slower to respond than expected, and the retailer has yet to meet that goal. Walmart ended its relationship with Bossa Nova in 2020, whose two-meter-tall robots were used in about 500 stores to roam the aisles and track inventory. The retailer reportedly decided the job would be better done by regular, old-fashioned human workers.