Lost sales opportunities, or LSO for short, are reflected in our customers’ shopping carts every single day as potential products to be bought. The approach of Carrefour Romania on this subject focuses on detecting LSO in an actionable timeframe and on sending alerts and reports to our colleagues in stores.
When it comes to retail, lost sales opportunities represent the sales that Carrefour misses out on because of different reasons. It’s like leaving money on the table, and that’s something no retailer wants.
As a brief notion, the LSO is represented by the products our customers have written on their shopping list but were unable to buy from the store due to various reasons. In this article, we’ll dive into what causes LSO, why it’s a big deal, and explore some practical ways to tackle this problem.
At first, there was the client, and then the lost sales opportunities. Recognizing the significance of demand forecasting, we realized the need to measure sales that did not occur due to local objective reasons. We sought a fast and cost-effective approach to determine these potential sales.
After initial iterations, we discovered that the information we generated could be operationalized. As a result, we approached store managers and presented the idea to them. Initially met with skepticism, they acknowledged its potential. Thus, we created a version to discuss further.
Incorporating feedback from various stores and formats, we adjusted and modularized the proposed solution into two streams: one providing comprehensive reports to managers for morning briefs and another simplified stream of intra-day alerts delivering updates to store staff via SMS. We made the decision to forgo more complex dashboards at this point due to technological and logistical limitations.
Between iterations, aimed at consolidating the feedback from store managers, there were three optimization and refactoring iterations supported by our entire Data Science team. The purpose of these optimizations was to reduce runtime and operational costs, making the solution more approachable for scalability.
We embraced from the beginning the agile philosophy tailored towards our needs and resources and in the end we were happy to receive lots of positive feedback from business and operational colleagues. We take this as an encouragement and enthusiastically continue to write the LSO story.
The 3Cs of interested parties
The LSO process as a whole impacts Carrefour from three points of view, also described by us as the 3Cs:
Customer: First and foremost the customer should be the focus of any problem-solving in retail. The main impact of LSO on the customer is the possibility of losing interest in our stores due to us being unable to provide all the requested products. The main take is that we do not want to leave the customers with a not fully crossed-out shopping list.
A collaborator re-shelving – Carrefour market Caramfil Bucharest, Romania
Carrefour: refers to the potential revenue that our business could have earned from a customer, but did not. This point of view focuses mainly on the additional money we will be able to receive if we solve all (or most of) the causes of the LSO. This also means improved demand forecasting and lower losses due to deterioration (e.g., fruits and vegetables or other perishable products).
Competition: focuses on the situation when a potential customer is interested in a product or service offered by Carrefour, but ultimately chooses to purchase from a competitor instead. This is a big issue not only due to the loss of additional money a customer could have spent in our stores but also because there is a high probability of the customer switching their store of choice for day-to-day shopping.
Sales gone astray: demystifying the factors behind lost revenue opportunities
LSO in the retail industry can be attributed to various factors, both within and outside the store. Understanding and addressing these issues can help Carrefour reclaim missed sales opportunities and maximize revenue potential.
A. Shop-floor actionable causes of lost sales opportunities.
- Shelf out-of-stock (sOOS): when the desired item is missing from the shelf
One of the leading causes of lost sales opportunities is when customers find empty shelves instead of the products they desire. Inadequate inventory management, inaccurate demand forecasting, or supply chain disruptions can result in shelf out-of-stock situations, leading to missed sales.
- Wrong and missing labels: the frustration of unclear product information
Incorrect labeling or the absence of labels, particularly in the fruits and vegetables section, can create confusion for customers. Without proper information about product origin, nutritional details, or pricing, shoppers may hesitate to make a purchase, resulting in lost sales. Additionally, if they make the purchase they might unintentionally mislabel the product they are purchasing during the weighing process.
- Bad-looking products: the power of visual appeal
The appearance of products plays a significant role in attracting customers. Poorly presented, damaged, withered, or expired items are less likely to appeal to shoppers. Unattractive products fail to capture attention and can result in lost sales opportunities.
- Blocked pathways or hidden products: when accessibility hinders sales
If the layout of a store or the arrangement of displays creates barriers or obstructs easy access to products, customers may become frustrated and give up on their intended purchases. Blocked pathways hinder convenience and can lead to lost sales.
- Products moved from usual place to low-traffic areas: lost in transition
When products are relocated from high-traffic areas to less frequented sections of the store without proper signage or communication, customers may struggle to find what they are looking for. This confusion and the resulting inconvenience can lead to missed sales.
B. Other factors contributing to LSO
- Warehouse out-of-stock (OOS): when the backstage fails to meet demand
The unavailability of products in the warehouse or distribution center due to inventory mismanagement or supply chain issues can lead to out-of-stock situations in stores. If the required items are not replenished in a timely manner, retailers risk losing sales opportunities.
- Cannibalization: internal competition for customers’ attention
Cannibalization occurs when multiple products within a store’s assortment compete with each other for customer attention and sales. In such cases, customers may opt for alternative products within the store, resulting in missed opportunities for specific items.
- Phantom inventory: the illusion of available products
Phantom inventory refers to the discrepancy between the listed stock levels and the actual availability of products. This can occur due to inventory inaccuracies, theft, or system errors. Customers may be disappointed when the promised products are not actually in stock, leading to lost sales.
- Mislabeling as theft: the hidden cost of deceptive actions
In some unfortunate cases, mislabeling can occur as an act of theft. Certain individuals may intentionally switch or tamper with product labels to deceive cash register staff. This deceptive behavior not only impacts sales but also introduces an element of theft, further exacerbating the financial loss for retailers. Vigilance and proper security measures are necessary to mitigate the impact of mislabeling as a form of theft and minimize lost sales opportunities.
Powered by GCP, developed with Python
Our algorithm is built on the Google Cloud Platform (GCP), offering a unified environment for storage, integration, computing, scheduling, and pipeline management. Python, along with various libraries, was used for algorithm development, leveraging its versatility. This technological stack enabled us to create a secure and manageable environment, ensuring efficient implementation of data analysis and machine learning tasks.
Delving into the algorithm’s approach
Our approach began by prioritizing the client’s perspective, aiming to transform their perception of Carrefour. To address the issue of shelf out-of-stock, we focused on determining the expected sales per product, store, and day. By closely monitoring sales at the point of sale (PoS) in near-real-time, we could assess the condition of shelves.
In summary, we established a threshold stating that product “X” should achieve a minimum of “Y” sales per hour. When the actual sales fall below this threshold, we sent alerts promptly to the store staff. These alerts serve to highlight significant discrepancies between current sales and the expected norm, such as unexpected sales drops caused by the above-described factors.
Through this professional and data-driven approach, our solution enhances operational efficiency and ensures a proactive response to potential out-of-stock situations, ultimately delivering an improved customer experience at Carrefour.
Enhancing in-store efficiency: the power of hourly SMS alerts and daily reports
In the fast-paced retail environment, staying ahead of intra-day challenges and effectively preparing for the next day are crucial for minimizing lost sales opportunities. Below we will explore a solution that can greatly enhance in-store efficiency: the implementation of hourly SMS alerts for in-store staff and daily reports for managers. By adopting these communication tools, Carrefour can address problems intraday without overwhelming the store staff, empower their teams, and make informed decisions to optimize operations, ultimately reducing lost sales opportunities.
1. Hourly SMS alerts: real-time problem resolution
Hourly SMS alerts provide a direct and efficient communication channel towards the in-store staff. Relevant information, updates and notifications can be delivered promptly through these alerts, which enables swift problem resolution. Here’s how this solution can help tackle intra-day challenges:
In-store SMS alert with product reference, name, potentially lost quantity, and store real stock.
- Out-of-stock situations: In cases where products run out-of-stock during the day, hourly SMS alerts can inform staff immediately, allowing them to take necessary actions such as restocking, providing alternatives, or informing customers about future availability.
2. Daily reports: insights for improved decision-making
Daily reports play a vital role in enabling managers to understand the previous day’s challenges, identify patterns, and make informed decisions to optimize operations. Here’s how daily reports can contribute to reducing lost sales opportunities:
- Identifying sales patterns: Daily reports provide valuable insights into sales patterns, highlighting peak hours, popular products, and customer preferences. Armed with this information, managers can allocate resources effectively, ensure adequate staffing during high-demand periods, and minimize lost sales due to understaffing.
- Stock management and replenishment: Daily reports can shed light on inventory levels, out-of-stock incidents, and stock movement trends. Managers can prioritize restocking efforts, streamline inventory management processes, and ensure a sufficient supply of popular items, reducing lost sales due to out-of-stock situations.
Demo of in-store LSO daily reports organized by products (left), hours of the day (below) and the scale of money lost probability (right).
The report provides managers with a comprehensive overview of issues that transpired during the preceding day, represented by color-coded indicators, along with an assessment of their financial implications denoted by the color intensity. This enables a systematic tracking of sales-related challenges throughout various time intervals, facilitating the implementation of timely corrective actions during the ongoing day.
Conclusion and future plans
Incorporating hourly SMS alerts for in-store staff and daily reports for managers can significantly improve in-store efficiency and decision-making, leading to a reduction in Lost Sales Opportunities. Real-time problem resolution through SMS alerts empowers staff to address issues promptly, while daily reports provide managers with valuable insights for better planning and optimization. By embracing these communication tools, Carrefour can enhance its operations, improve customer satisfaction, and ultimately maximize sales potential in the highly competitive retail landscape.
The LSO algorithm is undergoing continuous refinement as we strive to incorporate additional features such as cause determination, phantom inventory probabilities, and the development of a unified application. Our vision extends beyond the current scope, aiming to scale this solution nationally and integrate all departments grappling with Lost Sales Opportunity (LSO) challenges.
To discover Carrefour’s data projects, visit the data section of Horizons!