What do I do with excess inventory?

What do I do with excess inventory?

Solutions to a too-common retailer challenge—and how to avoid it from happening again!

From paying for extra storage space to waking up in a panic thinking about all that lost revenue, excess inventory can present a nightmare scenario for retailers. But despite how much of a headache it can cause, it’s a reality most business owners will have to deal with at some point.

In this article, we’ll explore the most common mistakes that lead to excess inventory, along with solutions for recouping as much of your lost cost as possible. But if you take nothing else away from this article, we hope it’s the fact that excess inventory doesn’t have to be an inevitability. With the right sales and planning tools, you can confidently plan for seasonal sales, analyze inventory data, and recap performance efficiently, so you never wake up in a cold sweat again!

Where did things go wrong?

While excess inventory can sometimes be attributed to one specific problem, it can also be a culmination of several different issues. In our experience, these are the top reasons retailers find themselves in a bind with excess inventory:

Lack of demand planning:

This is probably the issue we’ve encountered the most from clients who have to deal with excess inventory. Just adding an increased amount of inventory to all of your items, without considering the financial repercussions, is a major driver of restricted cash flow. Business owners who don’t properly review past sales data, order a blanket increase, and generally just lack strategy when planning sales, leave themselves open to expensive mistakes.

Poor pricing strategy:

If the price of your product isn’t lining up with your ideal customer, that dissonance can catch up to your business in a negative way. It can also present a problem when the price of your product doesn’t resonate in the channel it’s available—imagine going into a retail store you know to be ‘less expensive’ and seeing items that cost the same as a retail store where items are considered ‘very expensive’. This can have a negative effect on your sales velocity and brand.

Offering too many variations:

It’s easy to get excited about a product and aim to please customers by offering it in every size, color, print, pattern, flavor, fabrication, or other imaginable iteration! However, offering this many ‘multipliers’ adds to costs, and when you consider just how many of any single product your customer would actually buy, it’s likely you’ll be left with what they don’t need or want.

Unanticipated market trends:

Unfortunately, life does not always go according to plan—and retail isn’t immune from this adage. Sometimes there are just factors you can’t anticipate, like California getting an unprecedented cold spell that affects flip-flop sales or a global pandemic causing cutbacks for wedding boutiques. Despite our best efforts, sometimes things just happen!

OK, I admit I made a mistake - what do I do now?

The most common way to handle excess inventory is to mark down your product via a sale or promotion. While running an ‘Everything Must Go’ sale might seem like the easiest solution to mitigate your inventory issues, there are more creative ways to promote your on-sale product.

Strategically mitigating your excess inventory will help you avoid accidentally training your customers to wait for markdowns, which can create long-term ramifications to your brand.

Here are some of our favorite sale solutions:

Create a ‘bundle’:

By pairing your overstocked item with other products, you can showcase it to customers in a new, exciting way that may add value.

Present product in a new way:

Consider changing up how your low-seller is being marketed to customers, such as reshooting your creative to present the product with more visual interest. However, this likely isn’t a solution if you have TONS of excess inventory, as it can be cost-prohibitive.

Cross promote with brand partners:

If your product is created for a specific customer, you might be able to reach out to another retailer with a similar demographic to offer a special promotion or bundle to customers. This can be helpful not only in getting rid of excess inventory, but also introducing your brand to new eyeballs that weren’t previously aware of your products.

Liquidation:

Sometimes, especially in cases where you have of A LOT of excess product, you may need to find a liquidation solution. Liquidation means you sell your excess inventory, usually at an extremely low price (or maybe even at a loss) to an off-price retailer (ex. Big Lots). While not ideal, it’s a way to offload unproductive inventory and recoup a fractional amount of your original investment, so you no longer have to pay storage fees or bombard customers with promotional offers they just don’t want.

While in a perfect world, you’d recoup all your lost dollars—at the end of the day, these solutions can help add some dollars back into your business, and hopefully, they’ll have taught you a lesson on how to avoid making the mistake again in the future.

Catching excess inventory issues early

Sometimes excess inventory makes itself clear right away. If you’re doing a good job of recapping your sales regularly, you can begin to identify underselling issues before they get out of control, sometimes as early as just two to three weeks.

For other retailers, excess inventory might be a result of seasonality. For many brands, January and July/August are common periods when inventory counts need to be addressed. Excess inventory in January is frequently due to missteps in holiday forecasting. July and August are months where retailers focus on clearing up any unproductive inventory from spring and summer in preparation for fall and holiday or peak season inventory.

Whenever the issue is discovered, your best bet is to take action as quickly as possible. If it’s possible to cancel production, you should work on a plan to repurpose raw materials from a slow-selling item into a top-selling product, or even create a new product altogether.

If canceling isn’t an option, you might be able to ‘reflow’ or adjust the rate at which all of the inventory arrives at your warehouse or store. If your vendor is able to hold some amount of the product for longer than originally planned, that can save on storage expense. Sometimes vendors are also not paid until product is received, so adjusting inventory receipt dates can help spread out expenses so you’re not hit all at once.

However, taking action quickly without enough of the right information to go off of can be overwhelming for business owners. In that way, working with Boon is highly advantageous—we’ve seen pretty much every scenario you can imagine in the retail industry. Relying on decades of experience to help guide businesses in a positive direction, we can help you wrap your head around the current situation, as well as plan for future sales and inventory needs.

Put these steps in place to avoid excess inventory

When it comes to avoiding excess inventory, planning is your best friend! While you’ll never have a sales plan that’s 100% accurate, there are steps you can take to save yourself time, money, and stress with it comes to inventory planning.

Create a demand plan based on historical sales:

Whether you use POS data, customize a pre-built tool, or work with an expert like Boon, forecasting your sales is the number one tool in your arsenal to avoid excess inventory. While getting sales planning support might cost you money upfront, the investment in your business will be unbelievable. 

Compile a contingency plan with your vendor or supplier:

Prior to committing to inventory, create strategic checkpoints for yourself and negotiate ways to either buy more or cancel previously committed amounts to add flexibility into your sales plan. 

Run a test:

Negotiate with your vendor or supplier to get a small portion of your inventory created ahead of your anticipated selling season. You can then test sales velocity to help you determine your sales forecast accuracy. 

Still have questions about how to handle your inventory woes? We can help with that! Reach out to Boon today to connect on a customized solution for your business.