One effective solution that is helping retailers navigate these challenges is scan-based trading (SBT), a strategy embraced by industry giants like Walmart, Target and Walgreens. By leveraging SBT, retailers can free up operating capital, streamline inventory control, and strengthen relationships with suppliers, all of which contribute to enhanced operational efficiency and profitability.
In an SBT model, suppliers retain ownership of their products until they are scanned and sold at the retailer’s point of sale. This system is mutually beneficial: it reduces retailers' inventory risks and provides suppliers with real-time insights into product performance, enabling faster, more accurate restocking.
There are several benefits to implementing an SBT program:
1. Elevating Cash Flow: Fueling Growth with Freed Capital
SBT directly addresses cash flow challenges by eliminating the need for retailers to pay for stock upfront. Instead, retailers pay suppliers only for items that have been scanned and sold, which frees up cash previously tied to unsold inventory. This reduces inventory holding costs and allows operating capital to be reinvested in growth areas like customer service, marketing, and technology upgrades.
These investments don’t just impact the bottom line—they can enhance customer experiences. Research shows that companies prioritizing customer experience enjoy revenue growth of 4-8% above their market average and higher customer loyalty, which significantly increases customer lifetime value.
2. Improving Inventory Control: A Data-Driven Approach
Inventory management is a perpetual challenge in retail, with common issues around stock levels, product placement, and shrinkage. An effective SBT program provides UPC-level data on inventory – by day and by store – empowering retailers to optimize product placement and stock levels while reducing overstock and stockouts.
Real-time data enables informed restocking decisions based on actual sales performance, helping retailers meet demand more precisely. For example, if a product performs well in one location but lags in another, SBT data makes it easy to identify performance discrepancies and adjust stock levels across stores to ensure each location is optimally stocked. This leads to more efficient inventory turnover and happier customers.
3. Reducing Shrinkage: Sharing Responsibility with Suppliers
Shrinkage remains a significant cost to retailers, with the National Retail Federation reporting U.S. retail shrink at $112 billion in 2023, a 20% increase over the previous year. SBT helps address this by sharing the burden of shrinkage between the retailer and supplier. Since SBT tracks products down to the UPC level from delivery to POS, discrepancies between received stock and POS data are easier to identify and resolve.
In one example, a retailer reduced shrinkage from 25% to 10% by implementing an SBT program with quality control measures. By instituting regular checks and validation processes with their suppliers, they minimized shrinkage while fostering a stronger supplier relationship.
4. Strengthening Supplier Relationships: Real-Time Insights and Collaboration
A robust SBT program also fosters stronger, more collaborative relationships between retailers and suppliers. In traditional retail-supplier relationships, suppliers may only receive sales data on a monthly basis, if at all, limiting their ability to respond to demand changes promptly. With SBT, suppliers gain access to real-time POS data, allowing them to make agile, data-driven decisions in production, stocking, and logistics.
This real-time visibility not only optimizes inventory management but also enables collaborative efforts on pricing, promotions, and product selection, helping drive store traffic and improve customer satisfaction. As retailers and suppliers work together more effectively, they can respond more proactively to shifts in customer demand, ultimately enhancing store performance and building customer loyalty.
As the retail industry continues to evolve, adopting innovative solutions like scan-based trading becomes more essential for growth. By freeing up cash flow, optimizing inventory, reducing shrinkage, and strengthening supplier relationships, SBT allows retailers to remain agile and responsive in an increasingly demanding marketplace. For both established and emerging retailers, SBT is more than a strategy—it’s a pathway to enhanced financial health, better customer experiences, and a more collaborative supplier ecosystem.
In an era where retail success hinges on the ability to adapt quickly, SBT provides a powerful framework for efficiency and growth. As more retailers harness its advantages, SBT is poised to become a cornerstone of modern retail management.
Mark Landgren is SVP at Fintech, which powers 67% of the third-party scan-based trading market.
