Best Practices from Renewal Logistics:
How Retailers Manage Excess Inventory
holding on to more goods than necessary can leave retailers and brands with a barrage of problems
While supply chain issues continue to plague retailers in some cases, causing them to be unable to meet demand, many businesses are faced with the opposite problem of excess inventory. Whether the oversupply is from a missed selling season, or forecasting that didn’t take into account how impactful inflation would be on the consumer, holding on to more goods than necessary can leave retailers and brands with a barrage of problems. These can range from a decrease in expected capital, a lack of physical space for storage, an increase in overhead due to paying for more space, or even the need to recalculate your sales metrics altogether.
If you took a bet on a product that isn’t moving off the shelves as expected, don’t panic. There are a wide variety of solutions you can explore to manage these logistics challenges and bring your stock back in sync!
What You Need to Know:
What is Excess Inventory?
Excess inventory occurs when the number of units carried by a retailer is greater than customer demand for a given product. Keep in mind that this isn’t always a bad situation for a retailer to be in. For example, we’ve worked with partners who have successfully decided to strategically increase stock on-hand to account for seasonal and promotional fluctuations. However, problems occur when a greater than expected inventory is due to negative business factors, such as overbuying, canceled orders or unforeseen shipping challenges.
The Disadvantages of Excess Inventory
As inventory begins to pile up, it can result in a number of issues for a retailer or solopreneur. These can include:
- Lack of Cash Flow – Holding cash in the form of unsold goods might prevent you from putting that profit to use elsewhere within the business.
- High Storage/Holding Costs
- Increased Risk of Damaged or Lost Units
- Tracking Issues
- Increased Waste and Negative Environmental Impact
- Revenue Loss – This can come in the form of an unpopular product taking up “shelf space” from SKUs with a higher profit margin and unexpected costs associated with warehousing.
Renewal Logistics Advice
Causes of Excess Inventory
Ultimately, almost all issues of this nature arise from poor inventory management. Here are some of the specific circumstances to watch out for to avoid excess inventory:
1. Shipment Delays
As your products move around the country, or even the world, a number of factors are out of your hands, like unexpected lengthy processing times, international regulations and supply chain bottlenecks. While the process is steadily improving, only 11 percent of shipments from Asia arrived on time in North America in May 2022, according to the Wall Street Journal, so consider air freight if product is coming from abroad.
Some product categories see much higher-than-average turnover, including fashion, cosmetics and seasonal items. If these items don’t make their way into the hands of customers within a relatively narrow window, they risk becoming obsolete and unsellable. You can likely see how this can rapidly lead to a pile up in stock! Inventory that hasn’t been sold by the end of its lifecycle and has no resale value becomes “dead stock,” leading to a total writeoff for retailers.
3. Technical Challenges
We’ve written before about the absolute necessity of an airtight inventory management system. Any lack of visibility into your business can lead to issues with system integration, EDI processing, or even lost or “disappearing” items. This is especially the case if you are taking on overflow space and don’t have a WMS at that location, or if you are selecting a 3PL to support you but their WMS doesn’t provide a portal for visibility.. If you’re looking to learn more about improving your process, Renewal Logistics can help. Give us a call or shoot us an email for more information.
4. Incorrect Demand Forecasting
Knowing how many items of a product to stock is a bit of an art and a bit of a science. Retailers most commonly used historical sales data and industry trends to decide on their inventory. Unfortunately when unexpected variables affect consumer demand, these estimates can sometimes prove faulty.
5. SKU Proliferation
This is the process of adding more products to your inventory based on changes in the market. Increasing your stock keeping units (SKU) is a great way to meet demand and keep an edge over competitors, but can also cause excess if not backed by strategic analytics. You don’t necessarily want to split demand between multiple products if you have a range of offerings that is already selling well.
Take Action:
How To Identify Excess Inventory
In order to effectively manage and identify excess inventory, you need to have a holistic understanding of the movement and tracking of all your products. Retailers use several key metrics like Inventory Turnover (Sales/Inventory), Days on Hand (Inventory/Cost of Sales X 365) and Inventory to Sales Ratio (Inventory Value/Sales Value) to understand how effectively (or ineffectively) their stock is moving.
Luckily, software products can take the bulk of this work off your shoulders when it comes to managing high-volume warehouse operations. Your options for inventory management platforms include Orderhive, inFlow, SAP, Manhattan and more.
Renewal has helped a number of clients address excess inventory with overflow storage,, and more importantly, implemented an efficient and accurate inventory management system to prevent these issues from occurring in the future. Our WMS is set up to allow clients to see as products are scanned into or out of inventory, with stock levels updated in real time.
If you want to learn more about strategies for scaling up your business, shoot us a message today! We love hearing about your business goals and helping small businesses grow.
Take Action
How to Get Rid of Excess Inventory
Are you facing the issue of surplus stock right now? Don’t panic: there are a number of ways you can strategically manage your product volume that aligns with your individual brand! Here are some options to consider.
1. Reset Your Prices
While your first instinct might be to markdown the product you’re holding in excess, take this opportunity to review your entire portfolio’s pricing. Given inflation and shifting consumer interest, you might find opportunities to increase your margins on bestsellers, while taking sacrifices elsewhere to make your business more competitive as a whole.
Bundling items together is one of the most popular pricing methods used by retailers, according to research firm Software Advice. Grouping products together at a slightly lower price can allow you to move merchandise without taking a significant hit to your ROI. Depending on what you sell and what you’re looking to move, this could take the form of bundling multiple units of the same item (i.e. the price of a single box of coffee going down if multiple are purchased together) or bundling complementary products (i.e. a free additional charger or accessory included with the purchase of a phone or tablet).
3. Remerchandise
Positioning plays a significant role in a product’s success, including in the ecommerce space. Experiment with your website design and run testing to see if repositioning or highlighting inventory can effectively catch your consumer’s eye.
4. Remarket
Sometimes lack of sales is not due to the product itself, but the marketing efforts you put behind it. If you have the capacity, it’s worthwhile to explore new methods for capturing consumer’s attention. On a product or business level, there might be new channels or regions you can enter to find a customer base you haven’t previously considered.
5. Invest in Loyalty
For lower-priced items, or even inventory that’s at risk of becoming “dead stock,” you can offer it to loyal customers as an incentive. Despite the markdown in product cost, when implemented effectively, you should still see results from this method. For example, the item can be offered in exchange for signing up for an email or text list or can encourage customers to increase their basket value (“spend $100, get a free gift!”). Building loyalty is an excellent way to ensure repeat customers and long-term success.
6. Discount Strategically
Sale events can be a double-edged sword for retailers. On one hand, you don’t want to lower the perceived value of your products or train customers to wait for deep discounts. You also don’t want to offload too much product onto the second tier market (think TJMaxx), because it can dilute brand value. However, when done correctly, single item discounts or flash sale events can move that dreaded excess product and allow you to gain new customers. Consider if discounting merchandise is the best strategy for your individual business and keep in mind factors that could affect your decision including your customer profile, seasonality and type of merchandise offered. Additionally, depending on your product, you might consider looking into flash sale sites, such as Slickdeals, Beyond the Rack and Gilt. These popular sites offer in-the-know shoppers some of the best deals on designer apparel, home goods, children’s clothing and much more.
7. Donate
Consumers are increasingly showing their awareness and interest in shopping with socially responsible brands. Donating your excess inventory can help build trust and good will for your business. Plus, many states will allow you to take a federal income tax deduction for providing merchandise to nonprofits, schools and churches. Truly a win-win situation.
8. Upcycle
Stuck with a product that didn’t sell? Get creative and find a way to make it cool! For example, in the apparel category you might add embellishments or screen printed graphics to a t-shirt and end up with a whole new offering to promote and sell. Textile-based materials can also often be turned into something entirely new.
Next Steps:
Improving Your Inventory Management and Preventing Excess Inventory
Dealing with excess inventory can often be overwhelming or seem unmanageable. The warehousing process requires a complex set of systems to work together flawlessly, with an infinite number of factors that could cause operations to go wrong. And every warehouse has a capacity level to operate at peak efficiency. When that capacity level is overburdened, efficiencies and protocols can quickly go out the window.
If your business is facing issues with excess inventory and inventory management, we can help. At Renewal, we’re the experts when it comes to ecommerce and retail fulfillment. You might want to consider fractional warehousing services that allow small businesses to follow a “pay what you need model.” This service is essential for scaling efficiently and can prevent you from paying money for empty space or overstocking in order to fill unnecessary square footage. But be mindful that if you’re storing your inventory with us or any other warehouse, don’t sink money into storage of products that aren’t going anywhere. Evaluate if you’re putting good money after bad. And if you are, you may want to consider selling your overstock to a salvage company. With Renewal Logistics, you have the ability to choose exactly how much square footage you need in a warehouse and we’ll work with you to devise a custom solution for your business.
Whether you need a full inventory solution or just want to talk through your business challenges, give us a call today!
