Merchants are embracing the balance of physical and digital retail with stores-in-stores, pop-ups, and even brick-and-mortar locations opened by e-commerce brands. But managing inventory in two channels under a cloud of supply chain disruptions can be challenging.

In a recent survey, 47% of consumers reported going to another store or purchasing a different product than planned due to product inventory issues. After an accelerated shift to the hybrid model, retailers scramble to get ahead of consumer demand.

Although the supply chain can be unpredictable, there are ways merchants can address inventory needs while fueling the next phase of their business. 

Optimize warehouses. Blending the physical and digital has a bearing on supply chains and shipping times. For a company to cover the whole country, it is imperative to have strategic warehouse distribution. Most companies need four to five warehouses to offer the quick shipping that customers expect.

One solution is to optimize warehouses by creating synergy between physical and digital stores. Companies can use their retail outlets as warehouses. For those with retail stores across the country, an outlet is a great way to balance the cost of an additional warehouse and bolster inventory warehouse distribution. 

Enable inventory-focused search. As this new hybrid retail ecosystem rises, merchants need to integrate their stock inventory systems to create harmony between both channels and the customer experience. Retailers without a unified approach can miss out on sales if an item doesn’t appear online to be in stock yet sits in the store, unknown to shoppers. Location-based filtering allows the consumer to check local and online inventory instantly. No customer wants to call an online store asking if they have an item that is out of stock online only to hear the reply: “we don’t have visibility, please call the store directly.”

Shipping is the highest expense for online retailers. Location-based filtering or geotagging allows merchants to understand where their inventory is. When the consumer can walk into the store and pick up the item, it generates instant satisfaction and is the cheapest shipping option. Simply by letting customers know when this option is available, merchants can save time and money with existing channels. 

Implement product discovery features. While physical retailers have no choice but to display empty shelves when products are sold out, e-commerce merchants should have a strategy for out-of-stock items.

For example, online merchants can decide whether to display out-of-stock items, push them to the bottom, or add notifications or badges to out-of-stock products. For e-commerce merchants that also have brick-and-mortar locations, another option is to encourage the consumer to search the inventory of a nearby physical store. Vague warnings like “may not arrive on time” will only deter shoppers. Customers should know instantly if something is on back order rather than purchase, get frustrated when it doesn't arrive promptly, and initiate a refund. This more transparent approach allows the merchant to create a valuable dialogue with customers, letting them know what’s available and when an out-of-stock item might return.

Suppose someone is searching for a white dress that is out of stock. In that case, the site could make related suggestions and encourage the searcher to browse and possibly eventually purchase an alternative product. Not only does personalization enhance the user experience, but it can also boost conversion. 

One study found that customers using both physical and digital channels spent on average 4% more in-store and 10% online over 14 months than customers who used only a single channel.

Merchants must support search and discovery to adapt their experience to the shopper's journey. By supplementing search with a discovery strategy, merchants can capitalize on customers’ purchase intent to boost brand loyalty and grow average order value.

The road rules for developing effective strategies are as important as ever in retail. Merchants must navigate new business models and constant industry pressures, focusing on what they can control and being transparent with customers. This represents a challenge and a chance to rethink and overhaul warehousing, shipping options, customer communications, and inventory planning. However, it is even more critical for merchants to establish a solid and consistent line of communication between their physical and digital channels to maximize the benefits of this approach and improve the shopper experience.

Zohar Gilad is co-founder and CEO of Fast Simon.