As inflation maintains its vice-like grip on budgets everywhere, consumer demand is more unpredictable than ever and cash flow is more precarious.
Meanwhile, after three years of supply chain logistics and shipping delays, many retailers have wound up with too much inventory sitting on their warehouse shelves. In fact, according to Shopify, for every dollar US retailers make, they have $1.35 of inventory in stock.
This overstock is taking up valuable space and tying up much-needed cash, as well as adding strain to the already-slim high-growth and low-profit models many merchants operate under.
The situation has now reached a crisis point. Even big name retailers have gone public about their supply chain issues and the impact of excess inventory.
In the US, Target has admitted cutting prices and canceling orders to regain their inventory equilibrium and free up warehouse revenue. In the UK, furniture brand MADE.com went out of business and established countrywear brand Joules recently entered administration, both attributing their failure to getting caught with massive inventory at just the wrong time.
Without large cash buffers to fall back on, smaller brands and start-ups are especially at risk, and urgent action is needed.
Here are 6 ways merchants can overcome the overstock crisis:
1. Strategic discounting of deadstock
Strategic promotions and flash sales are tried-and-tested ways to shift excess stock fast without reducing your margins.
This approach prevents the inventory from taking up valuable space and allows you to make room for new, more profitable products.
It’s also a chance to give your cash flow a rapid boost. The influx of cash can be used to invest in new inventory, support business growth – or simply to pay rent or wages.
The first step is to identify all excess stock (this is flagged up for you if you use Inventory Planner). Then decide on your discounting strategy – it can work well to take a staggered approach over a number of weeks (for instance, offering 25% in week one, 50% in week two, 75% in week three).
2. Offer bundles, free gifts or upsells
Overstock can be successfully used to boost value for customers if you combine fast-moving items with slow-moving ones into bundles at a lower total price than if the items were purchased individually. This creates a perception of added value and encourages customers to make a purchase, leading to increased average order value and overall sales volume for the retailer.
Adding an upsell pop-up so customers can add an excess item for a nominal amount is often successful, and can protect your profit margins while also clearing overstock.
You should also consider using the excess items as free gifts for your VIP customers or when new customers spend a certain amount. This can boost customer loyalty in the longer term.
The best inventory planning software will highlight the slow-moving or overstocked products for you, as well as showing you who your best customers are (so you can easily handpick them for free gifts).
3. Accurately forecast demand
Inventory planning technology can use data analysis and predictive algorithms to help e-commerce brands forecast demand for their products more accurately.
By analyzing historical sales data, seasonal trends, and other factors, the technology can help businesses determine how much inventory they need to keep on hand to meet customer demand without overstocking.
As the #1 Inventory Planning Software for e-commerce businesses, Inventory Planner by Sage, offers dedicated demand forecasting models for ultimate accuracy. Seasonal, non-seasonal, retail and wholesale products are catered for, while trends, spikes and supply issues are factored in.
The app also provides simple, easy-to-understand purchasing recommendations which show you exactly which items to buy and when to buy them (alongside handy extra information, like the cost of delaying your order).
Plus, advanced reporting based on 200+ metrics so you can make smarter, more informed decisions about how to overcome the overstock crisis.
4. Real-time inventory tracking
With inventory planning technology, e-commerce businesses can track their inventory in real-time.
This means you can monitor inventory levels and adjust your purchasing and stocking strategies as needed.
For example, if you notice that a particular product is not selling as quickly as expected, you can adjust their inventory levels accordingly to avoid overstocking, get intelligent warehouse transfer recommendations and take action to liquidate items before they become too stale to sell.
5. Use real lead times
Understanding and factoring in your lead times is essential if you want your inventory ordering to run like clockwork and avoid ordering too much stock.
Unfortunately, different suppliers in different countries and different industries can have wildly different lead times and the lead time quoted by some suppliers can be different to the actual average lead time.
It’s important to examine your data and look at how long it actually takes for items to arrive from your suppliers. Check the time in between when your purchase order is created, and when you’re actually receiving those items into inventory.
If you use Inventory Planner, you can get this information automatically and then add it to your forecasting, to ensure you always have the right items in stock at the right time and you eliminate the risk of overstock.
6. Build goodwill by donating overstock
If you’re still left with stock after trying some of the options suggested in this blog, why not donate it to a non-profit organization or charity of your choice? It might not boost your bottom line but it’s a way to get rid of the inventory once and for all and do some good at the same time.
Younger consumers — like Gen Z — are driven by values, and they want to put their dollar where it matters. Donating inventory can help build brand empathy and make it more likely that key demographics come back.
Remember to keep records of what you donate as it should all be tax deductible (but seek advice from your accountant for specifics) and don’t be afraid to share about your donation on your social media channels – it’s worth shouting about!
Book your free demo to find out more about how Inventory Planner can help you overcome overstock.