You’ve probably experienced it as a shopper.
You log into your favorite online store or walk into a physical one, excited to purchase a product you’ve been wanting, only to be met with the dreaded “Out of Stock” sign. Nothing sours a shopping experience faster.
But for a business, stockouts can be costly. Beyond the immediate lost sale, stockouts trigger a chain reaction of negative impacts, such as paying extra for emergency restocking or expedited shipping that eat into profit margins. Customers who can’t find what they need may turn to competitors, leave negative reviews, or even abandon your brand entirely.
In 2024, inventory distortion (which includes shrinkage, overstock, and stockouts) was estimated to cost global retailers up to $1.7 trillion.
As a retail business, you can’t afford to have frequent stockouts if you want to remain competitive while maintaining customer satisfaction.
In this article, you’ll learn the most common causes of stockouts, how they can hurt your business, and the strategies and tools you can use to prevent them.
In retail and supply chain management, a stockout refers to a situation where customer demand cannot be met for a particular product because you’ve run out of inventory. This can happen in a physical store, an online shop, or even in a warehouse that supplies other businesses.
Stockouts can be classified into two main types:
What Causes Stockouts in the First Place?
Stockouts can affect any business. Sometimes, they are the result of an unavoidable one-time event or disruptions, such as a natural disaster or transportation delay.
But if stockouts are happening quite frequently in your business, it usually signals deeper issues in inventory management, forecasting, or supply chain coordination. The most common causes of stockouts include:
Inaccurate forecasts of consumer demand are one of the biggest causes of stockouts. If you're not accurately predicting how many units you'll sell during a particular period, you’ll either order too much (leading to excess inventory) or, more commonly, too little (leading to stockouts). This is where modern retail demand forecasting tools become essential, helping businesses strike the right balance between product availability and overstock.
If your physical inventory count doesn’t match what your system says, you may believe you have stock when you don’t. Such discrepancies often result from data entry errors, misplaced items, theft, or untracked movements within the warehouse.
The time it takes for items to arrive from your supplier once you place an order is called a lead time. If this period is long or constantly changing, it becomes extremely difficult to time your reorders correctly, exacerbating the risk of stockouts.
Even when stock arrives on time, stockouts can occur due to business inefficiencies. Delays in receiving shipments, errors in sorting or shelving products, or slow transfers from warehouses to sales floors can result in products inaccessible to customers.
For instance, items may remain in backroom storage while store or online shelves run low, creating inventory gaps that impact sales.
Unexpected increases in demand can rapidly deplete inventory and trigger stockouts. These spikes can occur due to viral trends, successful marketing campaigns, competitor shortages that send customers your way, or even sudden shifts in consumer behavior.
If you don’t have flexible replenishment strategies, you may struggle to respond in time, leading to missed sales opportunities.
Businesses with multiple sales channels, such as physical stores, online stores, and third-party marketplaces, can experience stockouts if inventory is not allocated effectively.
Your warehouse may hold sufficient stock overall, yet individual stores or channels may run out of popular items. Proper distribution planning and real-time visibility into stock levels across all channels are essential to ensure consistent product availability.
Even if a business has accurate inventory records and can predict demand effectively, it may lack the funds necessary to place timely orders. For example, a retailer might see that a popular product is running low, but because of limited cash flow, they may delay reordering to cover payroll, rent, or other operational expenses.
To prevent this, businesses need to align purchasing with cash flow, set aside a budget for high-demand items, or negotiate flexible payment terms with suppliers.
Stockouts can hurt your business in several ways.
As we saw earlier, the most immediate impact of a stockout is a lost sale. When a customer can't buy what they want, you lose that revenue. Then, there is margin erosion. To recover from a stockout, you may have to use expensive, last-minute solutions like express shipping or a costly emergency resupply from a different vendor, both of which eat into margins.
Customers who repeatedly find an item out of stock become frustrated, which chips away at their confidence in your brand and pushes them towards your competitors. For retailers trying to build a strong brand presence, this loss of trust can be even more damaging than the initial revenue hit.
What’s more, a poor shopping experience can also lead to negative word-of-mouth, with unhappy customers sharing their frustration online or with friends and family members. This deters potential new customers who may never even give your business a chance.
The highly connected nature of today’s marketplace means a single poor inventory experience can snowball into lasting reputational harm.
Frequent stockouts also limit your ability to capitalize on market trends. For instance, if a promotional campaign increases interest in a product which ultimately runs out of stock, the increased traffic and marketing spend fail to convert into sales.
In e-commerce, this challenge often intersects with ecommerce returns management. Retailers who plan for both stockouts and returns gain more flexibility in their supply chains and can keep products circulating effectively even when demand fluctuates.
Similarly, during seasonal peaks like holidays, back-to-school, or new product launches, insufficient inventory prevents you from meeting heightened demand. In these situations, competitors who have stock readily available capture sales that could have been yours. The result: immediate losses in revenue, and missed opportunities to gain market share.
A stockout can throw your entire supply chain off balance. Instead of following a planned and efficient process, your team has to go into crisis mode, including rushing to reorder stock, diverting inventory between locations, adjusting production schedules, or expediting shipments.
Furthermore, staff must handle a higher number of order cancellations, customer inquiries, and complaints. All of these tasks divert time and resources away from strategic initiatives, slowing down long-term planning and reducing overall operational efficiency.
Overall, stockouts can create a cycle of constant firefighting that complicates smooth, predictable supply chain operations.
The following practices can help you reduce the frequency of stockouts in your business.
Perhaps the most effective way to avoid stockouts is to improve forecasting accuracy by predicting what your customers will buy and when they’ll buy it.
Some top ways to improve demand forecasting include:
Another practical way to stop stockouts is to establish reorder points for each product. A reorder point is a specific inventory level that acts as a trigger, signaling when to order a new item to avoid a stockout. For example, if the reorder point for a shirt is 20 units, your team knows to place a new order once stock reaches that level.
Reorder points are a critical part of a well-managed inventory system. They ensure that enough inventory is on hand to cover demand while a new shipment arrives.
Safety stock is a small amount of extra inventory you keep on hand to guard against unexpected supply delays or demand spikes. It acts like an insurance policy, making sure you can continue fulfilling orders even when actual sales exceed forecasts or shipments are late.
For maximum effectiveness, both reorder points and safety stock should be tailored to each product and location. High-demand or fast-selling items require higher safety stock levels, while slower-moving products can be maintained with smaller buffers. You can also adjust these levels based on historical variability in sales and supplier reliability.
Strong coordination with vendors and suppliers is crucial for preventing stockouts. One of the most impactful steps you can take is sharing your demand forecasts directly with suppliers.
When they have visibility into what you expect to sell in the coming weeks and months, they can adjust their own production and inventory levels to match your future needs. This prevents them from being caught off guard by a large order and helps you avoid a stockout.
In addition to sharing data, it is also helpful to establish clear communication practices and channels. This can include regular check-ins to discuss potential issues, review performance, and jointly plan for seasonal shifts.
Furthermore, you can strengthen supplier partnerships by setting Service Level Agreements (SLAs). SLAs define clear performance standards such as lead times, fill rates, and order accuracy, so suppliers know exactly what’s expected. If issues arise, you have concrete benchmarks to hold them to. These agreements also provide a framework for evaluating performance and addressing recurring issues.
Having real-time visibility into inventory across all channels, both online and in-store, is essential for preventing stockouts. It allows you to identify low-stock items before they run out and take action to replenish them promptly.
Furthermore, real-time visibility allows for smarter product allocation. For instance, if one location is running low while another has surplus inventory, you can make transfers quickly to balance stock.
Removing the human element from replenishment workflows can also help avoid stockouts.
For example, a modern inventory management software like Cin7 can automatically monitor stock levels against your predefined reorder points. The moment inventory dips to that level, the system can trigger an alert to your purchasing manager or even automatically generate a purchase order to your supplier. This automation ensures you never miss a restocking cue because someone was busy or overlooked a report.
Automated workflows also streamline operational processes. Staff no longer need to constantly check inventory levels, which frees them to focus on more important tasks.
Once you understand the root causes of stockouts, the next step is to find the right tools to help. A good inventory management solution with the following features can help ensure consistent product availability.
A good solution should provide a clear view of stock levels across all locations and sales channels. Centralized visibility allows you to spot potential shortages before they happen and make timely adjustments.
Look for software that can automatically generate purchase orders or transfers when inventory reaches predefined thresholds. This reduces reliance on manual processes, saves time, and prevents errors that can occur when stock monitoring is handled manually.
The best inventory management also integrates demand forecasting into inventory visibility and planning. They analyze your historical sales, seasonality, and even upcoming promotions to create accurate forecasts. They then use these forecasts, along with your supplier's lead times, to tell you when to order, what to order, and how much to reorder.
A good inventory management solution should provide detailed reports and dashboards that show critical data, such as sell-through rates, top-selling products, seasonal fluctuations, and items prone to stockouts. You can use these insights to identify patterns, refine inventory strategies, and continuously make data-driven decisions that prevent future stockouts.
For businesses selling both online and in-store, a key feature of an effective inventory management solution is real-time synchronization across all channels. When inventory changes in one channel, whether a sale, return, or transfer, the system automatically updates stock levels everywhere else.
This capability prevents overselling and ensures consistent product availability. It also allows businesses to respond quickly to demand shifts. For example, excess inventory at one location can be reallocated to a location experiencing higher demand.
A good solution also tracks supplier performance, reliability, and lead times. It should alert managers to potential delays so orders can be adjusted, and alternative suppliers or stock reallocations can be arranged.
Avoiding stockouts doesn't always mean you have to invest in expensive systems or complex software. If you are a small retailer with a limited budget, there are effective, low-cost strategies you can implement to always keep your shelves stocked and customers happy.
Stockouts are a persistent challenge for many retailers and supply chain managers, but they can be effectively prevented with the right strategies and tools.
To start, conduct a thorough audit of your current processes. Identify inefficiencies, gaps, and risk points, whether in demand forecasting, inventory tracking, supplier management, or internal logistics, that could leave your business vulnerable to stockouts.
Once you understand where your vulnerabilities lie, implement targeted strategies to address them, including those we have discussed here. Improve forecasting accuracy, set safety stock levels, strengthen supplier coordination, and implement real-time inventory visibility.
Cin7 can be a powerful partner for retailers and other businesses looking to eliminate stock shortages. Its cloud-based inventory management software features centralized real-time visibility across all sales channels, AI-powered demand forecasting, and automated replenishment workflows.
Through these features, Cin7 helps make sure products are always available when your customer needs them. This protects your bottom line, improves customer trust and satisfaction, and keeps your overall operations running smoothly.
Don't let stockouts hold your business back. Start a free trial of Cin7 today and say goodbye to stockouts forever.