Inventory distortion is the combined cost of out-of-stocks and overstocks, measured from the customer’s perspective. According to IHL Group’s 2025 research, it costs retailers $1.73 trillion a year, or 6.5% of global retail sales.
Inventory is the lifeblood of retail and the clearest measure of how well you run it. Yet after years of record technology spend, the problem persists.
Sound familiar?
- Are your sourcing cycles too slow to catch the next trend, leaving you with stock-outs and lost sales?
- Is your range and assortment out of step with local demand, creating gaps in some stores and overstocks in others?
- Is your buying process too rigid for tariff swings and shifting customers, so excess one season becomes shortages the next?
This IHL Group study breaks down what is really driving overstocks and out-of-stocks, and which strategies are restoring accuracy, availability, and profitability.
Key learnings
- Empty shelves are the single biggest loss driver at $690.9 billion globally, more than three times any other cause, pointing to fundamental replenishment failures.
- Supply chain disruption costs $301 billion a year. Chokepoints like the Suez Canal and tariff uncertainty are pushing retailers to buy further ahead, with 49% extending purchasing timelines by three months.
- The AI gap is widening. Fewer than one in four retailers have rolled out AI/ML where distortion hits hardest, and those using it in analytics and merchandising see 2.5x the profit growth of competitors.
- Buying and planning misalignment drives $148.8 billion in overstocks. Leading retailers use continuous planning to connect strategic goals with in-season decisions, cutting distortion while protecting margin.
- Integrated platforms beat point solutions. Successful retailers reach 95%+ inventory accuracy through unified technology, not scattered tools.
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About IHL Group
IHL Group is a global research and advisory firm focused on technology for retail and hospitality. Its research and data services give companies the technology insight they need to compete in a global market, and it has tracked inventory distortion for nearly 20 years.
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Inventory distortion is the combined cost of out-of-stocks and overstocks. IHL Group measures both from the customer’s perspective: an out-of-stock is any time a customer is ready to buy but leaves without purchasing for a reason other than price, and an overstock is any time a customer encounters a discount above 25%.
Out-of-stocks account for roughly two-thirds of the total, led by empty shelves at $690.9 billion. The biggest overstock drivers are supplier issues ($198.0 billion) and buying and planning issues ($148.8 billion). Theft, personnel gaps, and supply chain disruption add to both.
Asia-Pacific has the largest absolute losses at $642 billion, or 37% of the global total. Latin America has the highest losses relative to sales at 7.9%, while EMEA has improved the most since 2020, cutting distortion by 31.1%.
IHL Group finds that the retailers pulling ahead combine clean, real-time inventory data with unified planning platforms across merchandising, supply chain, and finance. AI/ML in demand planning and forecasting delivers positive results for 76% of retailers using it, and integrated implementations reach 95%+ inventory accuracy.
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Plus, make sure to watch the latest webinar from IHL Group and Board, discussing Fixing Inventory Distortion – Who’s Winning, Who’s Failing, What’s Working
Watch nowDownload now
Inventory distortion is the combined cost of out-of-stocks and overstocks. IHL Group measures both from the customer’s perspective: an out-of-stock is any time a customer is ready to buy but leaves without purchasing for a reason other than price, and an overstock is any time a customer encounters a discount above 25%.
Out-of-stocks account for roughly two-thirds of the total, led by empty shelves at $690.9 billion. The biggest overstock drivers are supplier issues ($198.0 billion) and buying and planning issues ($148.8 billion). Theft, personnel gaps, and supply chain disruption add to both.
Asia-Pacific has the largest absolute losses at $642 billion, or 37% of the global total. Latin America has the highest losses relative to sales at 7.9%, while EMEA has improved the most since 2020, cutting distortion by 31.1%.
IHL Group finds that the retailers pulling ahead combine clean, real-time inventory data with unified planning platforms across merchandising, supply chain, and finance. AI/ML in demand planning and forecasting delivers positive results for 76% of retailers using it, and integrated implementations reach 95%+ inventory accuracy.
_
Plus, make sure to watch the latest webinar from IHL Group and Board, discussing Fixing Inventory Distortion – Who’s Winning, Who’s Failing, What’s Working
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