There’s an ever-present ghoul haunting the retail world right now, and that’s excess inventory – the latest in a domino-effect of challenges brands have faced in the last few years.
At first, retailers grappled with out-of-stocks and shortages during the e-commerce frenzy of the pandemic, then came business-halting supply chain issues and delays. In response, many bought masses of inventory in expectation of continued demand – only to have a steep economic downturn landing them with a stuffed warehouse, overrun with excess items trapping their cash.
Having too much inventory can devastate a brand’s bottom line, and can be tricky to rectify, especially at a time when customer spending power is significantly low. It’s a widespread problem – an Inventory Planner survey of hundreds of online retailers found that almost half had been battling an overstocked inventory at the start of this year.
The impact to bigger brands
Though the unpredictability of the retail market has created a ‘make or break’ climate for businesses of all sizes, it’s bigger brands – not SMEs – that have been most impacted by the excess stock issue. In the research, a total of 62% of larger retailers confirmed they were struggling with excess inventory compared to 42% of SMEs – and this is further evidenced by the glut of well-known brands reported to have been ‘drowning in inventory’ and making huge losses in the last year.
Here are some of the biggest retail names who have been at war with excess inventory and what they’ve done to try and turn it around…
Heavyweight apparel brand Gap owns other big fashion names like Old Navy, Banana Republic and Athleta. In 2022 its warehouses were creaking under a $30.4 billion inventory after racking up a 37% inventory increase year-over-year.
Though supply chain issues and overbuying were largely to blame, another setback was the dissolution of its partnership with Kanye West in 2022. This left the brand with piles of unwanted Yeezy stock that they attempted to offload with heavy promotional periods.
Rebalancing inventory with discounts is often the first port-of-call for retailers, but when overdone, it not only erodes profits but damages brand reputation, as shoppers become accustomed to lower price points. Gap managed to slim down their inventory by the start of 2023, but at a huge cost – its merchandise margin fell by five percentage points, ‘with more than half of the increase from higher discounting.’
Danielle Malconian, Founder of plus-size fashion brand Vikki Vi had similar issues when her inventory of thousands of size and colour variants grew to unmanageable levels. Danielle wanted to avoid the potential brand damage of over-discounting – but this left the business stuck, unable to grow. By implementing Inventory Planner, Vikki Vi was able to cut inventory and buy only to demand.
“It’s frightening as a retailer to overbuy – these days you could go out of business,” she says. “Cash flow is everything. If dollars are caught up in inventory that you’re not able to sell, you can either go out and find more money somehow – or you’re in a situation where you have to discount to survive. But the more you discount, the more customers expect discounts. They aren’t going to buy at full price when you’ve previously given them 40% off.”
US department store retail chain Kohl’s took a hit in 2022 after sales fell by 7% and, like Gap, its merchandise margins shrunk by 5 percentage points. CEO Tom Kingsbury said that its stock grew unmanageable after purchasing got ‘out of control’.
Kingsbury also highlighted the trap of deprioritizing inventory clear-out, saying the company would “adjust how we mark our goods, getting rid of excess inventory or slow-selling items on a more even flow throughout the year, instead of waiting until the end of a season.”
By using a progressive inventory planning software such as Inventory Planner, Kohl’s would receive automatic warnings of potential overstock on a regular basis, as well as useful insights such as forecasted revenue loss and how many overstocked units exist.
Funko Pop saw some bad PR when it was reported that thousands of its collectable plastic figurines would end up in the trash. The company cited an inventory bloat of a mammoth 48% and limited warehouse capacity by the end of 2022, the result of a significant drop in sales – leaving Funko with no choice but to dispose of around $30 million to $36million worth of its stock.
As Funko Pop have experienced, liquidating stock is extremely costly and can devastate business. By using data-driven forecasting technology such as Inventory Planner, the brand could have identified overstock before it got to such extremes and planned for a drop in sales.
Apparel giant ASOS suffered from major inventory overhang in 2022; sales dropped by around £160 million from the previous year leaving them with over £1 billion worth of unsold stock.
Newly appointed CEO José Antonio Ramos Calamonte said the brand’s focus on growth had led business to become ‘overstretched and complex’, and that the company would ‘right-size its stock portfolio’ by writing off more than £100 million of excess and improving inventory management.
ASOS struck a deal with Secret Sales to clear out its unmanageable piles of inventory – listing its own-branded apparel as well as its Collusion, Reclaimed Vintage, Topshop, Topman and Miss Selfridge collections – all at heavily discounted prices.
Trevor Martin, CEO of oral cosmetics brand Snow, uses Inventory Planner to maintain a streamlined, profit-driven inventory for his $100m business. He believes in this climate, retailers can’t just depend on whatever has worked in the past.
“When it comes to running a $100m e-commerce business, you really have to get planning and forecasting right to be able to balance cash flow and keep customers happy. At Snow we’ve had the classic problems of under purchasing and then running out of stock and upsetting customers. We’ve also been at the other extreme where we’ve massively over-ordered and tied up too much cash in stock. Inventory Planner has changed all that. It’s packed with features that have transformed our business.”
US essentials brand Walmart saw ample media spotlight in 2022 after inventory overruns of 32% were literally spilling out of their warehouses. CEO Doug McMillon said that the brand was tackling a surplus of inventory because of inflation, late deliveries and intentional safety stock, and that the company would work hard to reduce the excess – though some workers blamed an inventory system which made automatic repeat purchases.
Walmart started slashing prices, offering sky-high discounts in an attempt to clear shelves during an economic crisis – only to report six months later that they were still sitting on $1 billion worth of excess. Having to markdown products so aggressively caused a roughly $100 million hit on Walmart US’s gross profit in the first quarter.
Blind automatic purchase orders are part of what landed Walmart with endless boxes of excess items. Inventory Planner offers reliable buying recommendations based on data-driven sales forecasts, so purchasing is always in line with demand and the need for safety stock is almost eliminated.
After supply chain issues, unpredictable weather patterns and a cost-of-living crisis hit the brand in 2021/22, prestige UK clothing brand Joules went into administration and was acquired by Next.
Sales of Joules’ outdoor apparel such as coats, wellington boots and knitwear slumped due to a milder than average winter and reduced customer spending power, and the brand was landed with tons of stock it couldn’t shift and debts of £114 million.
Like so many other retailers, Joules attempted to move products with heavy discounts and extended promotional periods – but analysts claim that this damaged the brand over time, which historically identifies as premium but became too easily confused with cheaper competitors.
A more optimistic tale comes from US apparel brand American Eagle Outfitters, which reported a 46% inventory bloat in 2022 after their ‘overall buys and plans for the future were overly optimistic given the current climate’. To emerge from the smothering inventory levels, CEO of American Eagle, Jay Schottenstein claimed the retailer had ‘adjusted forward inventory plans to reflect a more measured demand outlook.’
In only a few months, the brand reported that reducing costs, right-sizing its inventory and improving logistics services had turned things around. To clear out its inventory overhang during the quarter, the company marked down outdated items and accurately purchased incoming inventory to be more in line with demand. As a result, American Eagle ended the quarter with an inventory bloat of 8% as opposed to the previous quarter’s 36%.
Michael Tomchin, Founder and CEO of Cycology, was able to slim down its inventory with Inventory Planner’s custom reports and data-led purchasing recommendations. Ever since, the company has made huge financial gains from reducing excess stock.
“There are three things that can go wrong with inventory – you can have too much, too little or the wrong variants,” he says. “I just don’t see how any retailer can manage those risks without a system like Inventory Planner in place. Maybe if business is plain-sailing you might get away with it, but in the current market when demand is unpredictable and costs are sky high, you just can’t. Inventory Planner is the perfect solution.”
Get ahead of excess inventory for good
As we’ve discovered, the impact of having too much inventory is huge for retailers of all sizes – but we’ve learned a lot in the process, and there are methods to avoid the madness.
In this unpredictable climate, the key to protecting cash flow and your bottom line is in full inventory visibility, in-depth inventory insights and accurate demand forecasting fueled by real data, that takes into account seasonality, trends and demand shifts.
For more on this, get our in-depth advice on cutting excess inventory with our free Checklist: 11 Ways for Retailers to Reduce Inventory Overhang. It’s packed with actionable steps to get ahead of a bloated inventory and create a slick, profitable inventory planning system that boosts revenue and gets that all-important cash flowing.