This is the second 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. 

 In our first post, we headlined the staggering $1.7 trillion global inventory distortion crisis. Now, let’s examine what’s causing these losses and why understanding the root causes matters more than ever for retail planning transformation. 

The Real Cost of Empty Shelves 

When we talk about $690.9 billion in out-of-stock losses globally, we’re not describing a simple replenishment problem, like the items are just in a storeroom. According to IHL’s research, this represents a fundamental planning breakdown across multiple dimensions. 

Empty shelves tell only part of the story. The largest single contributor at $690.9 billion signals systematic failures in demand sensing, supplier coordination, and planning horizons that are simply too short. Retailers are patching a leaky bucket rather than planning ahead, constantly reacting to shortages instead of anticipating needs or staying ahead of demand. 

But out-of-stocks also impacts the retailers brand promise. Customer experience is impacted when shoppers can’t find help in stores, that’s $165.6 billion in annual losses. When associates locate customers but can’t find items the system claims are available, that’s another $145.2 billion disappearing. These aren’t inventory problems. They’re planning execution gaps where the right stock exists somewhere, but stale, brittle processes and disconnected systems prevent it from reaching customers when they are ready to buy. 

Price and promotional mismatches add $77.4 billion more, revealing poor integration between marketing initiatives and inventory availability. When promotions run but products aren’t on shelves, or when pricing doesn’t sync with actual stock levels, we see the downstream consequences of planning silos.  

The Overstock Equation 

The $572 billion overstock problem reveals equally telling patterns about planning effectiveness. 

• Supplier issues dominate at $198 billion, indicating systematic breakdowns in supply chain planning, delivery scheduling, and collaborative planning across supply chains. When suppliers can’t deliver on their plans or retailers can’t effectively adapt to changing needs, excess inventory accumulates. 

• Buying and planning failures show $148.8 billion, encompassing forecasting errors, seasonal miscalculations, and demand signal interpretation failures. Traditional approaches built around annual cycles, and static forecasts simply can’t handle today’s volatility. Fashion retailers face this acutely, where trend prediction windows have collapsed, and a single viral moment can shift demand overnight…. think Brat Summer 2024. 

• Spoilage accounts for $100.7 billion, hitting food retailers and any category with expiration dates particularly hard. This represents inventory turnover optimization challenges and first-in-first-out execution failures. These entities operate on razor-thin margins, where even small spoilage improvements deliver outsized profitability impact. 

• Personnel-related issues at $59.5 billion capture human capital inefficiencies beyond theft, including training gaps, process adherence failures, and organizational communication breakdowns. 

Where the Problems Originate 

IHL’s functional analysis reveals where distortion originates across the ecosystem: 

• Store operations represent $742.5 billion, the largest single category. This encompasses point-of-sale execution failures, customer service inadequacies, inventory visibility gaps, and theft-related losses. The concentration indicates critical need for enhanced front-line operational excellence and staff capability development. 

• Supply chain accounts for $626.5 billion, including transportation delays, warehouse management failures, supplier coordination breakdowns, and logistics optimization inadequacies. These losses indicate systematic coordination failures across multi-tier supply networks requiring enhanced visibility and collaborative planning capabilities. 

• Manufacturing contributes $359.5 billion through production scheduling misalignments, quality control failures, packaging inadequacies, and product specification errors that cascade through retail channels. These upstream inefficiencies demonstrate inventory distortion’s interconnected entire industry value chains.  

What This Means for Retail Planning – Chapter 1 of IHL’s research reveals that the $1.73 trillion inventory distortion problem stems from disconnected planning processes across the value chain. The data points to a clear pattern: retailers achieving superior performance share three characteristics: unified data platforms, continuous scenario planning and integrated AI-powered forecasting. 

Understanding these root causes transforms how we approach inventory management. The goal isn’t perfecting replenishment algorithms or implementing better forecasting tools in isolation. It’s building planning frameworks that:  

 Connect strategic objectives with operational plans and execution: 

• Unify merchandising, supply chain, and financial planning  

• Enable continuous plan adjustment as conditions change as customer trends and trading conditions 

• Incorporate both internal data and external market signals  

• Balance automation with human expertise and judgment  

The $1.73 trillion problem isn’t fundamentally a technology problem, a process problem, or a people problem. It’s a planning problem. And solving it requires approaching planning itself differently.  

Listen to the companion podcast here>