Online-only giftware merchant Demdaco posts one of its best years last year, with online sales growing 52.8% year over year. But inventory shortages in 2021 are throttling that growth, and the merchant knows it’s leaving money on the table.

When the pandemic hit in mid-March 2020, online-only giftware merchant Demdaco was forced to close its Kansas City distribution center for six weeks, impacting dozens of jobs.

However, its ecommerce site was still taking orders. The merchant alerted online shoppers via a notification on its website that it did not know when it could ship orders. But to its surprise, shoppers still purchased—despite not knowing when their orders would arrive.

During March and April 2020, consumers across the country waited days or weeks for their ecommerce purchases to ship from merchants—even from behemoth Amazon.com—so they understood the issues and were willing to wait for their Demdaco.com orders, says Marisa Lytle vice president of consumer engagement and ecommerce for the merchant.

The brand manufacturer reopened its distribution center (with heightened COVID-19 protocols like social distancing and enhanced cleaning) in the third week of April and began shipping its backlog of orders. Despite the weeks lost, the merchant increased its sales 52% year over year for the Mother’s Day holiday—a key day for the brand, Lytle says.

With more consumers shopping online throughout 2020, Demdaco posted one of its best years last year, with online sales growing 52.8% year over year, far faster than its five-year web sales compound annual growth rate of 27.0%, according to Digital Commerce 360 estimates.

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Inventory shortages and lost sales

But product shortages are throttling that growth yet again now, and the merchant knows it’s leaving money on the table. Lytle noticed delays in getting its products starting at the end of Q4 2020 and the situation has only worsened in 2021.

She estimates ports are backed up an additional 30 days for unloading, plus more weeks for getting those goods onto the trailers and then delivered to the warehouse.  

Because of this, 600 SKUs are currently out-of-stock at the retailer, roughly 28% of the brand’s SKU count. In 2020, Lytle estimates the brand missed out on an additional $1.2 million in sales because of supply chain and product availability issues, and she expects 2021 will be even worse because the issues will likely last for the entire year, instead of just one quarter.

In 2020, Demdaco had ample merchandise in stock and could sell through its inventory to keep up with demand for most of the season, even when the disruptions first began, Lytle says. But when the holidays hit, and its replenishment orders had not arrived, it couldn’t capitalize on shopper demand.  

To estimate lost sales due to inventory shortages and supply chain issues and to plan for the future, Demdaco looks at the average monthly conversion rate for a SKU during the month it goes out of stock. It estimates that it could have maintained that conversion rate going forward. Demdaco is tracking the amount each product could have sold based on the web traffic still going to that SKU and this conversion rate to help it forecast inventory demand for next year, Lytle says.  

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Demdaco also tweaked its website to better accommodate for out-of-stock issues. For example, it updated its search functionality in June 2021 so that out-of-stock items show up last on the search results page. Also as of June 2021, consumers see if a product is out of stock on the product detail page. Previously, shoppers weren’t notified until the checkout page. It also now enables consumers to sign up to receive an email alert when a product they want is back in stock.

Consumer brand manufacturer Demdaco’s challenges and successes in 2020 and 2021 are similar to those of hundreds of other small- and medium-sized online retail businesses. Although shoppers from across the U.S. purchase its goods, the 172 jobs at Demdaco’s Kansas City office and warehouse matter to the community and local economy.

Digital Commerce 360’s 2021 Next 1000 highlights small- and medium-sized businesses like Deamdaco that are the innovators, disruptors and possibly next year’s household brandsDemdaco ranks No. 1660 in the Next 1000.  

This article is an excerpt from the 2021 Digital Commerce 360 Next 1000, which can be downloaded now as a PDF for $399. View the table of contents for full details on what’s included in the report. Digital Commerce 360 Gold and Platinum Members receive a complimentary copy of this report as a part of their membership.

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