Behind the Numbers: Signal-Based Merchandising and The Impact of the Empty Shelf
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Are you struggling with out of stocks, phantom inventory or lack of shelf data? Well, if you are, Traxx's signal based merchandising is designed to give real time visibility into what's happening in stores and on shelves so you can take action when and where it matters most. For more information on this, head to Traxx, T-R-A-X, retail, Traxxretail.com and click the get started button in the top right hand corner today.

Hey gang, it's Friday, March 28th. Sky, Blake, David and listeners, welcome to the Behind the Numbers show, an eMarketer video podcast made possible by Trax. I'm Marcus. Today we'll be discussing the impact of the empty shelf. For that conversation, I'm joined by three people. Let's meet them. We start with our principal analyst living down in Austin, Texas. It's Sky Canavis. Hey Marcus. Hey everyone. Hello there. We're also joined by our New York-based senior retail analyst, Blake Droesch.

Hey, everyone. Good to be here. And we have with us the Chief Revenue Officer at Trax who resides in Colorado. It's David Gottlieb. Thanks for having me, Marcus. Yes, sir. Of course. Thank you for being here. We start with a speed intro.

This is when we get to know our external guests a little better. First three questions are just for David. The fourth is for everybody. Let's do it. David, you are based in Colorado, but where are you from? That's right. I grew up in Connecticut, born and raised there, and now live in Denver. I've been here for about 20 or so years with my wife and twin 17-year-old daughters. Oh, so when people ask you where home is, you say... Denver. Denver.

Okay, very nice. Without a doubt, yeah. Very nice. What do you do in a sentence? I'm responsible for the overall go-to-market function within Trax. Okay, and what's your morning drink? Coffee, 100%, splash of skim milk. Just a splash.

what was one of your favorite toys to go to the store to buy off the shelf when you were a kid? So I'm thinking that kind of Toys R Us experience, if you will.

Yeah, I think for me, and I don't know if this was something probably you could find it at Toys R Us, but you could also find it at like a CVS or a convenience store. It's those little balsa wood airplane kits. And I think it was it was always the possibility that it was really going to fly really, really well. It never did. But that hope was always there when you thought it was. Yeah. You're always like, I can do it. I'm the one person on the planet that can make this work. Yeah.

Oh, such a good choice. All right. A lot to stack up against here. Skye, what do you have? Mine were Barbies for sure. I was always in the Barbie section and they were the original brand that had all the like limited editions and collaborations and exclusives to keep you buying more. So I am asked quite a collection. Good choice. All right, Blake, bring the heat.

Oh, Legos. Definitely Legos. Classic. Well played. Yeah. Very nice. Very nice indeed. There are three guests for you for today's episode. Let's move now to the facts of the day. The Grand Canyon National Park is bigger than the entire state of Rhode Island. I don't know whether this is like shocking how big...

Grand Canyon is or how tiny a state Rhode Island is. Sorry, Danielle. Danielle works on our team. She's from Rhode Island. Can't believe it's that small. So according to National Park Service. Well, first of all, let me say this. So you can drive around the whole Grand Canyon. Take about 15 hours. It's a 900 mile drive.

That's far. That's like driving from Portland, Oregon to LA or from driving from New York to Jacksonville, Florida. So it's very far. It's a big place. There are a ton of caves there. 2,500 estimated according to the National Park Service. There's only a few hundred that have been documented. So they're kind of guessing that these others are there. But

But there's only one that you can go in. Of all the caves that exist there, just one is open to the public. The Cave of the Domes, located near Horseshoe Mesa at the end of the Grandview Trail. So if you're planning a visit, that's where you should head if you want to get inside of a cave. Have you guys been? Not to the cave, but to the Grand Canyon? I have, yeah. I was just there last October. And while driving around takes forever, running across the Grand Canyon is only about 20-some miles. Yeah.

You ran it? Yes. It took longer to get back to the other side than to cross on foot because of the driving you have to loop around. Was this an organized race or you just took off? No, just an adventure for my birthday. Wow. Cool. That is very cool. Yeah.

Go on, David. No, I've never been there. I'm embarrassed to say I live probably the closest of all three of us. Oh, wow. Yeah. Yeah. I'm impressed by Skye's run across the canyon. I have to wonder who was chasing her or was it just this is like voluntary run across the canyon. Yes. That's the only reason to run, David, is if you're being chased.

Or you need to get to someone who's taken something from you. But no, Skye did a double marathon once. She ran the marathon and then ran it backwards and then ran it when everyone else ran it. So this comes as no shock to people who know her, but yeah, shocking to everybody else.

Absolutely remarkable. Final thing on this, the Havasupai tribe, Native American tribe, they live in the Grand Canyon. Still, I don't think there's many of this, a few hundred people, so it's not a huge community, but they've lived there for the last 800 years residing in the Havasupai Indian Reservation in the canyon. What an amazing place to live.

or run away from something. We'll talk about that later, Skye. Anyway, today's real topic, signal-based merchandising and the impact of the empty shelf.

All right, we've all experienced an empty shelf or two in our lives, but what actually happens when the shelf is empty and how can retailers avoid this happening in the first place? David's here to talk about this with us, as well as Blake and Sky. But David, let's start with this concept of signal-based merchandising and how it relates to the empty shelf. What is it?

Yeah, absolutely. Maybe before I talk specifically about signal-based merchandising, I'll just give a quick overview for our listeners about what is Trax, because many people may not have heard of us. So we really have three core things that we bring to market to help CPG companies, whether

win more at the shelf. The first is our image recognition solution. And so if you can imagine sort of taking a photo of something that happens inside of a grocery store, like a shelf or a display or a cooler, we're essentially helping manufacturers who don't have eyes inside of every store

understand the nature of the execution at the shelf. So where are my products accurately and correctly represented? Where are they priced correctly? All kinds of questions like that. We also have a dynamic merchandising business where we deploy reps essentially to go execute inside of stores. So boots on the ground.

fixing problems, building displays, packing shelves out, building inventory, et cetera. And then finally, we have a shopper marketing business that we call Shopkick, which really sort of brings it all together in the sense that once we've helped manufacturers understand the shelf, execute better, we actually can drive shoppers to go into store to experience the brand, experience the product, buy the product, et cetera. So we're sort of providing that end-to-end set of capabilities.

Where that sort of puts us is we see very clearly that what you mentioned at the outset, product availability at the shelf is a real challenge, right? Shoppers, they have a lot of choices. They can buy online. When they make the choice to pack the kids in the car and show up at the store, it's really, really frustrating when they can't find the things that are on their list that they need.

And manufacturers, CPG companies know pretty well these problems exist, but despite all their efforts, they're historically really challenged to kind of address this challenge, right? To address this issue. Quickly, on that point, I was looking at some research, 84% of retail decision makers said maintaining real-time visibility of stock levels is a challenge. Absolutely. According to Zebra's Global Shop Estate. So this is everyone basically is struggling with this.

Everyone is struggling. A lot of money has been spent on it. A lot of tools are out there. But at the end of the day, the real challenge, it's very, very difficult for manufacturers to know with a reliable sort of scalable view what's actually happening in the store, right? In any given store on any given day, is my product available for shoppers to purchase? And that's really the sort of the notion of signal-based merchandising is to help address that challenge.

And what it does for our clients is it combines a near real-time understanding of what is happening at the store. So a very objective empirical view of, you know, is my product on the shelf today, you know, tomorrow, et cetera, with our ability to then essentially deploy reps only to the stores where we know we can have material impact on shopper experience and sales. So it's those two things together. So, yeah.

Talk to us a bit more about this. How does signals, signal-based merchandising, how does signals, as you call them, translate into actionable store-level decisions?

Yeah. So when we talk about signal, really what we mean is what's happening in the store. And the way we're getting that signal, I mentioned a minute ago, we have a very robust shopper engagement business. And because of that, we have millions of shoppers, roughly a 35 million strong kind of network of shoppers who are, as a normal part of earning rewards for shopping, are in store and they're engaging with products and brands.

And as they're doing that, they're actually generating highly valuable sort of quote unquote exhaust data for us. And that data helps us understand what's available and what's not available at the store level, right? On a sort of near real-time basis. And that's, when we talk about signal, that's really what we mean. And sort of think about how you react to those signals. There's two things you have to understand. There's

how disrupted is a location, meaning how many items are missing from the shelf, how many are not available for purchase, and also how valuable is the remedy?

So not every store is created equal, right? Each store has sort of its unique sales, you know, selling pattern and volume. And so part of our solution and our job essentially is to help each manufacturer each week look at that data. And this is done automatically. It's not people, but essentially deciding which stores are most valuable to go visit and

spend money on merchandising knowing what kind of impact we can have and what the resulting sales increase will be for the manufacturer. And those are the actions that we're taking at a store level. So let's think about the consumer from their perspective. What happens when the shelf is empty?

Oh, it's really frustrating. We've done some interesting shopper research. I think there's probably a lot of literature on this. In our specific primary research, we find that 40% of shoppers will brand switch when they can't find the item they're looking for. Probably not for Barbies, like this isn't for Sky. But if you're buying a consumer good like a soup or a mac and cheese or a home cleaning product,

People are brand loyal to a point, but if they need something for a recipe or to complete their shopping mission, they're probably not going to go home empty handed. And that's a real challenge for brands because brand loyalty is built slowly over time and it can erode very quickly. Right. If somebody is sort of forced to try a competitive product, you're giving them an opportunity that you don't want them to have essentially as a loyal brand shopper. Yeah. Yeah.

Yeah, I guess the brand wants you to, because I found some research from the same source, from Zebra, they were saying out of stock items, the number one reason customers leave a store without buying what they came for. The hope there, I guess, is that they leave the store and go buy it somewhere else for the brand, not for the retailer. Either way, it's a problem. But to your point, worst case scenario for a brand is they pick up another brand, which

off the shelf. This was also an issue for store associates. Over 40% of associates complaining about out of stock items. So it sounds like it's a big headache, not just for the customer, but also for the people that work in the store. No doubt. Right. And that seems like it would become more important as more consumers shop online and they're looking for products online and

doing buy online, pick up in store, and then you need to have store associates or third parties that go into stores and are able to pick the orders and find the products. I know for me, it's very frustrating when I place online orders and then I get out of stocks and all these substitutions and it's like 50-50, do I actually want that substitution or not? Sometimes it's really not what I want and I end up going without it.

And now a lot of shoppers, because they do a lot of research online before they buy, they want to know what's in stock. They really want that inventory transparency and visibility. In research that we've done before, this was one of the big features of online shopping that consumers want. They want to know not only what's on the store shelves, but how many of them are there so they know whether they need to buy it now or if they can wait to go in the store and pick it up there.

Absolutely. I mean, this problem is going to persist and it's amplified by the fact that just like Sky talked about, there's not multiple fulfillment paths for shoppers, right? So whether you're buying online, whether you're buying through one of the big delivery companies, Instacart, DoorDash,

at the end of the day, somebody is picking that product off that same grocery store shelf. And so you have all these different sources of demand that are creating a lot of havoc for store associates to try and keep those shelves full. And interestingly, if you look at sort of the Instacart and DoorDash's of the world,

one of their biggest challenges is to avoid that substitution problem that Sky just talked about, because no shopper wants that and nobody really wants to trust somebody else to make that choice or have to have those interactions while they're waiting for their groceries at home. So really understanding what's actually in the store available for purchase clearly isn't working well yet as a result of sort of the, I mean, as evidenced by those challenges that we see both from shoppers as well as from the third parties and

and kind of retail click and collect execution. Blake, when you think about the impact of the empty shelf, what comes to mind the most for you? Yeah, I mean, I think...

You know, we've already touched on basically, you know, you don't want to give as a brand, you don't want to give your customer another opportunity to try a competing product. Right. I mean, we've seen a lot of research that consumers who switch from brands to private labels or other companies.

competing products because they're trying to save a few bucks at the grocery store because of inflation, their likelihood to basically go back to the brand once they've had a positive experience with a competitor is very unlikely. And that's already happening just because of the ways that consumer preferences

and the way that macroeconomic conditions are impacting the way that people shop. It happens way more often now than it used to. So I think just having the out-of-stock issue, compounding that only makes things worse for the brand.

And then on the retailer side, looking for a product at another location obviously doesn't hurt the brand, but could really hurt the retailer if, as David mentioned, you put the kids in the car, you go to the store, sometimes you're driving 10, 15 miles. If this is a problem that you encounter frequently, brand loyalty for retailers is also on the table here in a lot of these instances. And then, of course, as Sky alluded to,

the online shopping competition as well. I think as someone who lives in a city dealing with

you know, pharmacies and retailers locking up shelves and things like that. It's not necessarily, you know, there's a lot of friction with the physical stores that, you know, these online retailers are really jumping out to replace it as delivery gets faster. The competition is just, it's getting even more stringent by the day and having, you

And basically what it comes down to for retailers or physical retailers is mastering the basics is really the best thing that you can do to weather sort of this competition that's coming from all different fronts, from retailers, from online, and also just matching how consumer habits are, how consumer expectations are rising and habits are changing very quickly. David, yeah, to that point, yeah.

in your opinion, how do retailers stay ahead of the empty shelf? I think the conventional approach to this is not working terribly well. If you look at industry metrics,

It depends on the category and the product, but in general, out of stocks sort of persist at the low double digit, you know, 11, 12%, depending on who you look at and how they measure it. And what the general sort of the approach has been, well, I have perpetual inventory, right? So I have a system that tells me I took X product into the back when it was delivered to the store, I packed it on the shelf, and then I measure it as it scans through the till. And the difference is what I should have on the shelf.

And the problem is that data just isn't accurate. There's too many ways that it gets out of sync. You know,

A shopper buys six yogurts of different flavors and the person in the front doesn't think much about it and scans six of the same flavor. So those kinds of things happen all the time. Blake mentioned the stop loss procedures because shrink is a real problem. Retailers lose product to theft all the time. And so part of what we find when we actually execute these types of signal-based merchandising programs

We're not only measuring availability of the product using our shopper and data collection, kind of continuous data collection capability. When we go in and we execute at the locations that are problematic, we find things like phantom inventory, right? We find that the store thinks they have product that they don't have. And that's problematic, not only because it causes a near term shortage for the shopper, but because it's not going to get fixed automatically, right?

The ordering system is never going to be triggered because it thinks it has inventory. And so these things can be really harmful for the long-term health of the shelf. And so long-winded way of answering your question, retailers have to get more aggressive about getting a pragmatic and real-time view of what's actually happening in the store and use that to kind of fine-tune how they think about inventory management and make sure their ordering systems are informed, not just by sort of a

sort of older view of perpetual inventory, but actually a real-time view of what's in the store at any given point in time. Could you, I mean, we talked a bit about signal-based merchandising and people might be familiar, more familiar with the traditional merchandising approaches. Could you outline how those differ, like some of the main ways or the main way that those two methods differ? Yeah.

Yeah, absolutely. It's pretty fundamental. I would say traditional merchandising is you say, hey, I really care about this retailer, Target or Walmart or whomever. And then you invest some money in a program with a merchandising company and they say, great, thank you very much. Here's our schedule. Right. And we're going to cover this store on Monday and then we're going to go to this store on Tuesday. So it's quite fixed.

right? And it's based on geography and it's based on every week I'm going to hit, you know, X percent of the chain. So it's sort of static. And

The reason that we think that that approach has a lot of room for improvement is we were doing some work similar to that as well. And what we found was a lot of the stores that we go to visit to try and drive value for a specific manufacturer, what our reps found and supported by photo evidence is, you know what, this store is actually pretty good, right? So you have up to 50% of the locations that you're spending money to go try and impact

And all you're learning is, hey, it was a good visit. The store is okay. So it's incredibly unproductive from kind of an investment and ROI perspective. So the major difference with signal based merchandising is we are using a data driven approach to prioritize which stores we visit and when we visit them such that we're only going to locations where we have a very, very high probability of being able to move the needle on sales. And that is the fundamental difference.

- Okay. So what's next for signal-based merchandising? Where's it go from here? - So we have two sort of vectors that we're excited about. First, the current solution's really focused, like we've talked about on this episode,

squarely on addressing the kind of persistent out-of-stock problem like product availability. We have a variant coming pretty soon that will use these same principles and techniques to address the promotional execution problem, right? So this is not the everyday home location, but

Brands invest a lot of money in trade marketing to put secondary displays in store, points of interruption that could show up as a pallet, a shipper, an end cap. These are incredibly big investments that manufacturers make. And just like measuring the home location, there isn't really an effective scaled way today to measure whether or not those promotions are being executed in the way they've been planned.

and to help sort of provide better transparency between the brand and the retailer in that conversation. So that's one focus. We're also gonna be really expanding the breadth of the kind of data that we collect as part of our continuous shelf monitoring or signal creation. So today it's really quite binary. It's the product there or not there on the shelf.

In the relatively near future, it will also include things like share of shelf, placement, price. Think about your category management type principles. And so very quickly, we're going to start adding that to our packaging, either as kind of an add-on to a signal-based merchandising program or as a standalone data product that manufacturers can use for planning, retailer engagement, joint business planning, et cetera. Mm-hmm.

It seems like these would be even more important now for brands, these kinds of tools, given the competition with private label and figuring out how to stand out from that because retailers are increasingly becoming sophisticated with their private label strategies, offering broader assortments, better products, better quality at premium price points. Yes. Brands need to find every tool and technique that they can leverage to stand out and get ahead of that.

100%. Yeah, private label is a huge factor. And innovation is a huge factor. I think, you know, it continues to be the trend in the industry, at least from our viewpoint. There's just a lot of new market entrants in key categories where we see just intense competition. I'm thinking about, you know, sparkling water, better for you soda.

So it's absolutely you're right, Sky. It's more important than ever to really understand what's happening, where the rubber meets the road at the point of decision for shoppers. Blake, final thought from you on what Dave was saying about where single-based merchandising goes next and just how people continue to think about the empty shelf going into the future.

Yeah, I think, you know, competition for brands is only going to get more intense. I think we've seen, you know, a lot of the

major CPGs, latest rounds of earnings. They're continuing to struggle. There's a lot of shifting consumer habits, supply chains becoming more difficult. There are issues, a lot of uncertainty around tariffs, costs of production. And that's really going to impact sort of the bottom line. And I think that the only way that...

brands can really stay ahead of the game and sort of meet this uphill challenge head on is by continuing to invest in technology, particularly around in-store technology. Right. I mean, we've seen e-commerce sales, particularly in a lot of CPG categories,

the sort of the boom years of the pandemic, they're starting to taper off. And I think the writing on the wall is really becoming clear that upwards of 80% of total U.S. retail sales, perhaps much higher in a lot of household categories, the store is going to still be king. And the way that these brands can continue to

keep their keep their sales healthy is by this type of you know smart strategy so only going to get more important as in the years to come that's for sure yeah a great point to end on thank you so much to my guests for hanging out with me today thank you first to David

Thank you very much. Pleasure to be here. Yes, sir. Thank you to Sky. Thanks, Marcus. Yes, indeed. And of course, to Blake. Always a pleasure. Thank you, fella. And thank you to the whole editing crew, Victoria, John, Lance and Danny Stewart, who runs the team. And Sophie does our social media. Thanks to everyone for listening into the Behind the Numbers show, a new marketing video podcast made possible by Trax. We'll be back again Monday talking about how AI is starting to affect the job market and some tips for using it at work.

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