This is the first in a series exploring the IHL Group’s comprehensive Inventory Distortion Study, research that exposes the staggering scale of global retail’s inventory crisis and the path forward. 

Picture this: $1.7 trillion in lost value every year from inventory that’s either missing when customers want it or sitting unsold when they don’t, a figure that matches South Korea’s entire GDP. However, it’s not a projection or a hypothetical what-if scenario. This figure comes directly from IHL Group’s recent study and analysis of inventory distortion worldwide, representing the true cost of a retail planning crisis.  

What makes this crisis particularly challenging is that inventory distortion has inventory distortion has become as unpredictable as the consumers retailers serve, exposing brittle planning processes still anchored in outdated cycles.  

The IHL Group found that while inventory distortion as a percentage of retail sales has improved 6.5% in 2025, down historic highs, the absolute scale of the problem continues to grow. Despite mounting tariffs and protectionist pressures, global inventory distortion demonstrates that retailers cannot retreat from the complex, interconnected supply networks that modern commerce demands. 

Perhaps most significant is the expanding performance chasm separating retailers who have modernized their planning strategies from those stuck with rigid, legacy approaches. 

 

The Planning Problem Behind the Numbers – Overstock and Out-of-Stock 

 These aren’t just replenishment hiccups. They are the symptoms of planning horizons that are too short, forecasts that lack external signals, and siloed processes that fail to reconcile finance, merchandising, and supply.  

Empty shelves account for $690.1 billion of the total distortion, over 65% of all out-of-stock losses worldwide. Yet, this isn’t only about replenishment failures, IHL Group shows systematic gaps in demand sensing, supplier coordination and the shirt planning horizons that leave retailers always reacting to shortages versus anticipating needs or staying ahead of demand. 

When customers can’t find help in stores or associates can’t locate items that show as “available”, we’re seeing the downstream effects of planning processes that haven’t evolved to support today’s complex retail and inventory reality.

 

Similarly, the overstock picture reveals supplier issues drive $198 bullion in excess inventory annually, while buying and planning failures contribute to another $149 billion. These aren’t simple operations hiccups. They reflect planning approaches that struggle with volatility, lack real-time visibility and operate in functional siloes.

 

Regional Realities: Different Markets, Different Challenges  

The IHL Study reveals distinct regional patterns that underscore why one-size-fits-all solutions tend to fail.

• APAC Leads in absolute losses at $642 billion but shows the slowest improvement trajectory. Meaning, rapid expansion without corresponding operational sophistication.  

• EMEA demonstrates the strongest progress, achieving a 31.1% reduction in distortion since 2020 through rapid technology adoption, coordinated supplier practices and process optimization.   

• North America faces unique headwinds, like theft, interest rate pressures, and tariff uncertainties that complicate even the most sophisticated planning models. 

• LATAM shows the highest distortion relative to sales (7.9%) but an impressive 30.9% improvement in inventory distortion, driven by targeted optimization strategies tailored to local conditions. 

These regional contrasts underline why retailers need planning frameworks flexible enough to adapt to local conditions, but unified enough to keep finance, merchandising, and supply aligned globally. 

 

The Segment Story: Why Context Matters 

Retail segments face distinctly different inventory challenges:

• General merchandise and softgoods experience the highest distortion rates (9.3% of sales) due to fashion’s inherent unpredictability, extended lead times, and the complexity of managing multiple SKU variants across colors and sizes. For these retailers who are facing the highest rates of both out-of-stocks and overstocks, traditional forecasting approaches simply can’t handle the volatility.  

• FDMC (Food, drug, convenience, and mass merchants) face different pressures. With the lowest industry margins, every $100 loss requires $7,500 in additional sales to recover. The rise in theft creates disproportionate impact, while perishable products demand sophisticated balancing of freshness, availability, and waste reduction. 

• Hospitality and restaurants are perpetually struggling with manual inventory processes, seasonal fluctuations, and the challenge of predicting demand across diverse revenue streams, from room occupancy to food service to events. 

The Technology Paradox: More Tool, Same Silos? 

Perhaps the most striking finding is the disconnect between technology investment and results. Retailers are spending more on digital transformation than ever, yet many continue struggling with fundamental inventory challenges. Are businesses simply patching leaking buckets? Or are they adopting a fully integrated transformation for continuous planning? Point solutions add data, but only integrated planning frameworks close the loop between strategy, finance, and execution. 

The research reveals why: less than 25% of retailers have successfully rolled out AI/ML in areas most impacted by inventory distortion. Among those who have, the results are dramatic. 76% report positive results in demand planning and forecasting, while retailers using AI/ML expect 50% higher profit growth than competitors. 

 

A Path Forward: From Distortion to Differentiation 

Technology is part of the solution. But the retailers seeing lasting impact are those embedding these tools inside integrated business planning processes — where finance, merchandising, and supply share one version of the truth.

The study identifies clear characteristics of inventory excellence: 

• RFID – Retailers expect a 291% growth in deployment over the next two years, indicating substantial market confidence in RFID capabilities for inventory accuracy enhancement and real-time visibility optimization. 

• Computer Vision/Image Recognition – Retailers claim an increase in adoption of 8,143% over the next two years. This unprecedented growth demonstrates market recognition of visual analytics capabilities for inventory monitoring, shelf plan compliance, theft prevention, and operational optimization applications. 

• Performance Achievement Benchmarks – Companies that focus on systematically improving their workflows see a reduction in inventory errors of over 25% through operational excellence initiatives, showing that disciplined process management can make a significant difference in performance. 

 

Why This Matters Now 

Three forces make addressing inventory distortion more urgent than ever: 

1. Accelerating volatility: From supply chain disruptions to rapid consumer preference shifts, the pace of change continues to increase 
2. Margin pressure: Rising costs, interest rates, and competitive dynamics leave less room for inventory inefficiency 
3. Technology enablement: The tools for transformation like AI powered insights, real-time data and integrated platforms, are now proven and accessible 

 

The Opportunity Ahead! 

The retailers who solve inventory distortion do it by breaking silos. Integrated planning delivers not just fewer losses, but margin protection, working capital release, and confident decisions across the business.

In the coming weeks, we’ll dive deeper into specific findings from this research. The $1.7 trillion inventory distortion problem represents both retail’s biggest operational challenge and its greatest opportunity. For retailers ready to rethink planning, the path to differentiation has never been more clear. 

Get the full report: Fixing Inventory Distortion >