Ways to Handle Excess Inventory in Retail

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Saving on costs whilst improving business efficiency

Although the principles of “just-in-time” management are highly recommended for pressurized supply chains, it is increasingly difficult to fully implement them. The pandemic created unpredictability, making it virtually impossible to operate on a just-in-time basis. These challenges were worsened by a range of supply chain disruptions that soon followed. Moreover, the industry was dealing with rising prices and a global economic situation that was far from stable. 

Questions about dealing with excess inventory

Given what has happened before, it is not entirely surprising that many retailers are contending with elevated levels of excess inventory. This is a trend that is undesirable since excess inventory tends to have a detrimental effect on cash flow. Moreover, those businesses must then consider dealing with the storage costs when dealing with this inventory. Surplus inventory can best be dealt with by returning to its root causes and far-reaching effects. 

When the pandemic led to social distancing and lockdowns, the age of eCommerce received a great boost. The demand for these e-Channels was so high that some worried about efficacy in inventory and delivery management. The upside of that high demand was the fact that excessive inventory was not a problem since everything was being snapped up quickly by consumers. Then came the downturn which swept away the e-Commerce demand that had sustained many businesses during the pandemic. 

The new reality of economic challenges

Currency fluctuations and inflationary pressures mean the economic situation is as precarious as ever. Even in the e-Commerce sector, demand is not what it was a few months ago. Consumers are preparing for challenging times by buying and spending less. Indeed, many are actively hunting for the biggest discounts and offers. Yet, consumers still demand excellent consumer experiences, such as delivery on time and in excellent shape. Meanwhile, many retailers are looking for ways to offload stock accumulated during the pandemic. 

There was a time when excess inventory was a solution to the uptick in e-Commerce. However, this has become a major challenge for businesses without consumer spending. One of the possible ways out of the current conundrum is to treat excess stock as insurance when demand rises again. Of course, this is only possible with goods with a long expiry date. For example, some businesses could position themselves as the source for hard-to-find items that have not been recently stocked by most rivals. The problem with such a solution is that being in a niche market has a natural saturation point. 

Businesses are realizing that they ordered more than they needed

Another option is to cultivate customers through aggressive marketing. For example, businesses may conclude that the combination of low demand and high inventory will be so damaging to the bottom line that it is better to offer inventory at discounted prices. This may represent a loss, but it also means there is a stop to the endless storage fees and related costs of maintaining excess inventory. Besides, the standard turnover management systems must be sharpened to ensure no unforced errors are committed through poor planning. 

This is a widespread situation. Therefore, no individual business should feel panicked if they are left alone. Indeed, S&P Capital IQ and FTI Consulting indicate that retail inventory has risen by more than 30% in the previous year. Some of the biggest retailers, such as Hasbro, Target, and Nike, have committed to reducing their inventory levels. However, most industry analysts posit that retailers have over-compensated supply chain disruptions. The implication is the need to reduce new inventory accumulations while doing everything possible to eliminate the old inventory. 

Considering innovative storage solutions

One of the many negative effects of excessive inventory is the lack of adequate storage for new inventories. The need to offload these goods means that businesses must elevate their customer services to become even more competitive than before. A case in point is peripheral services for online shoppers, including discounts and subsidized delivery. Focusing on the most popular merchandise based on market intelligence is also prudent. Historical data, as well as informed projections, can be useful in this exercise. 

On the administrative side, investing in inventory management software is prudent. This can prevent avoidable administrative errors when managing one’s stock. Additionally, it is advisable to control those factors that created the excess inventory in the first place. For example, companies should move away from over-purchasing even if there are optimistic projections for demand. Moreover, these companies should ensure that their decisions are based on accurate sales projections. 

Others measures to control excessive inventory

The company should minimize the risk of orders getting canceled. That means providing customers with what they want and when they want it. Whenever these two elements are not delivered, the risk of product returns increases. Another measure that should be explored is to plan better for adverse economic conditions. Covid-19 created uncertainties that inspired or forced many to take drastic measures that could have been ill-advised. The new era of economic challenges calls for more deliberative decisions. 

Certain standard measures have typically been deployed in times of excess inventory. Companies can explore some of these. A case in point is the discounted prices attached to excess inventory so that it quickly leaves the shelves and creates room for other priorities. The resultant profit losses are compensated by eliminating certain storage costs. Others may opt to continue storing the excess inventory until the next season that is popular once more. This is a risky strategy for perishable goods as the future is not always predicted accurately. 

Wrapping up

The Covid-19 pandemic had an unseen benefit, creating more space for e-Commerce. Bearing in mind the projects by experts and market indicators, many ordered inventory to meet the demand. However, the economic situation has become more volatile in recent months. That means that those who ordered more stock are stuck with excesses. These can be managed using an inventory management system, offloading at discounted rates and focusing on the most popular items when purchasing inventory. Otherwise, businesses will have to maintain their excess inventory until better times. 

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Victor Nunez

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