Ghost stock phenomenon hits UK retailers’ profits & efficiency
Ghost stock is emerging as a critical concern in the UK retail sector, resulting in inventory inaccuracies, supply chain inefficiencies and financial challenges according to recent research from Manhattan Associates.
Ghost stock refers to products that are recorded in inventory management systems as available but are not physically present for sale. This phenomenon can occur when items are stolen, remain in customer possession after a return, are lost in transit or buried in a backlog of returns processing. As a result, these phantom items distort stock forecasts, contribute to operational inefficiencies, and reduce profitability.
Operational strain
Recent trends such as the growth of social commerce and the proliferation of flexible returns policies have contributed to this issue. Rising levels of returns-both legitimate and fraudulent-have placed added pressure on retailers' logistics operations. According to Manhattan Associates' research, nearly two-thirds (64%) of UK brands believe that increasing fraudulent returns have had the most significant impact on their businesses.
Retailers are often required to process returns through centralised distribution centres, a process which is manual, labour-intensive and slows down the availability of returned stock for resale. This backlog leads to a reduction in the value that can be recouped from returned merchandise, further exacerbating the problem.
During key retail periods, such as Amazon Prime Day, the scale of the issue becomes particularly evident. Manhattan Associates found that 23% of retailers experience return rates of between 10% and 20% of their total peak sales, while 18% said only 10-20% of returned items can be resold at full value. Additionally, the average return costs over half (51%) of businesses between GBP £20 and £49.99, impacting profit margins.
"Ghost stock is causing tangible nightmares for retailers, impacting not just their bottom-line profitability, but also customer satisfaction and loyalty too. Retailers are caught between meeting customer expectations for easy returns and the operational reality of processing them. And since a negative experience will stop 45% of shoppers from buying again, the choice isn't easy. Without a clear view of this phantom inventory, retailers don't have all the cards to make planning decisions," comments Keith Dipple, Sales Director, at Manhattan Associates.
Technology response
Industry experts suggest that the most effective solution does not lie in enacting stricter returns policies, which could risk alienating customers. Instead, retailers are encouraged to build systems that provide comprehensive visibility over their stock. Unified commerce models, which integrate real-time data from inventory, orders, and customers, are seen as effective in making ghost stock visible and manageable.
Studies by ECR Retail Loss Group cited by Manhattan Associates indicate that improving inventory accuracy through these integrated models could lead to an 11% increase in sales, further underlining the business case for technological investment.
"The horror of ghost stock can be highly mitigated through a unified, real-time view of inventory, orders, and customer data. This enables retailers to make intelligent quick decisions, cutting the time for stock to become sellable again, dramatically improving forecasting accuracy and increasing cash flow," Dipple continues.
Returns management
Improving the efficiency of returns management is also highlighted as a critical factor in addressing ghost stock and building stronger customer relationships. Technology-driven processes can accelerate the journey of returned goods back to the shelf, reduce bottlenecks, and improve product availability. This adaptability is especially important during periods of high demand or increased returns.
Loyalty in the retail sector is increasingly tied to reliable and convenient customer experiences. Brands that eliminate inefficiencies in their returns cycles can better respond to changing market conditions and build resilience in the face of fluctuating demand.
"Returns are about far more than just processing items; it's about strengthening customer relationships. By shifting to unified commerce, brands can exorcise the ghost stock clogging up their processes, maximise product availability, accelerate resell rates, and ultimately ensure they deliver a more satisfying experience," concludes Dipple.
