The last year was one of confusion as economists predicted a stall in spending after a pandemic filled 2020, yet consumer demand only rose in 2021. Supply chains were less than equipped to handle the level of purchases, with products either being sold out or coming with elongated shipping times. This clamor for goods had retailers scrambling to meet customer needs, resulting in massive inventory orders that had to be placed much further in advance than the typical timeline.
“Where typically it’s six months in advance or so when retailers were placing orders, we moved that to nine or even 12 months to try and get ahead of some of these other challenges,” says Jonathan Gold of the National Retail Federation.
After a year in which the Suez Canal was blocked, and there was a shortage of truck operators available to transport goods across the country, bottlenecks opened in 2022 to allow for more items to be secured. However, the logistics were solved well after customer demand had peaked. Now there’s too much inventory — whether that be on the shelves, in the warehouses, or in storage.
“I think a lot of companies said, ‘Oh there’s a buying spree,’ and forgot the spree part,” said Erika Marsillac, professor of supply chain management at Old Dominion University. “A spree ends, this is not something that continues forever.”
Where consumer sights were once set on home goods, comfortable clothes, and other items they could use locally, their spending habits are now geared toward what they missed during the pandemic: travel and entertainment. Concurrently, slow economic growth, rising inflation, and growing interest rates further add to the concerns of retailers that customer orders are set to slow down.
This shift in customer behavior has inventory levels at their highest relative to sales since 2020. Nike announced that its North American inventory grew by 65% in the first fiscal quarter of the year. The shoe giant isn’t alone — leading brands like Macy’s, Target, Walmart, and more said that their inventory levels during the first quarter were up anywhere from 17% to 45% when compared to the same period last year.
Returns only add to the problem of overstocked inventory, with limited to no space available to accommodate restocking. Instead of adding to the latent inventory pile, brands are leaning towards refunding customers without requiring returns.
“It would be a smart strategic initiative,” said Burt Flickinger, retail expert and managing director of retail consultancy at the Strategic Resource Group. “Retailers are stuck with excess inventory of unprecedented levels. They can’t afford to take back even more of it.”
With an overstocked inventory from past seasons, retailers are testing a number of strategies to make room for the holidays, such as increasingly steep discounts, updates to order cancellation policies, and pack and hold maneuvers (withholding seasonal merchandise until it’s back in demand).
John Furner, the CEO and president of Walmart U.S. says, “There’s probably 20% of inventory if you could just wish away and make it disappear, you would.” This desire to offload products drove Walmart to have over 10,000 rollbacks (discounted items) in their stores.
While markdowns and strategic order cancellation policies can be effective at getting consumer traction, they can also be damaging to the retailer’s bottom line. Nordstrom is planning to implement these methods, yet the brand forecasts a $200 million drop in gross profits during the second half of the fiscal year due to higher markdowns and greater clearance efforts. With even high-end retailers going heavy on promotions, brand value images are being challenged by bargain shoppers capitalizing on the low prices for products they wouldn’t have otherwise purchased.
With every company deploying the same strategies to offload their excess inventory, the competition for consumer dollars is sure to get fierce. According to a recent survey by the University of Michigan, consumer sentiment is at a record low. Further, a study by the NPD Group, states that 83% of shoppers plan to spend less on products during the next six months.
How can you stand out when all the other retailers are trying to solve the same problem? Here are four innovative ways to get rid of your excess inventory without devaluing your product or brand image.
Incentives that don’t reduce margin
Brands are used to running sales during the holiday season, be that Black Friday, Cyber Monday, or any other promotion. This is done to make room for the new inventory — whether in-store or online. Using discounts at the end of a product’s lifecycle allows retailers to move these items before they become dead stock. However, doing so at a total loss is bad for business. Instead of taking the sale too far, look for other incentives (free shipping, two-for-one promotions, bonus rewards points, etc).
Boost average order value with bundles
Bundling products involves taking a popular item and pairing it with another that isn’t selling as well. The two are then offered at a discounted price to incentivize the shopper with what appears to be a better deal than buying the popular item alone. Grouping excess items with new products is an effective way to eliminate too much inventory because it keeps the brand value of the item intact — while also increasing the AOV (average order value). A prime example is Apple making their older pencil compatible with newer iPads.
Turn excess products into freebies
Few incentives can match the power of free. Giving away overstocked products as gifts after purchasing X amount can prove highly effective at not only eliminating inventory but also allowing shoppers to try new items with zero obligation. Further, gifts can enhance the impression your consumers have of the brand — increasing the likelihood of a return visit. Gifting strengthens bonds, making it an invaluable tool in an age of declining brand loyalty.
Build goodwill by donating overstocked inventory
According to Mintel, 73% of Americans consider a company’s charitable work when making a purchase. Moreover, that same report uncovered that 84% of consumers say that it’s important to them that a company supports charitable causes. Donating overstocked inventory builds goodwill that the brand can later leverage as messaging to capture consumer attention. A great example is if you’re a clothing company that donates products to an organization like a women’s refuge — showing that you’re aware of their mission and are willing to help. Younger shoppers are driven by values, so align with their ideologies by taking the revenue hit now with the goal of getting their business later.
Every brand is dealing with the same struggle of having too much inventory after a period of unexpectedly high consumer spending. Now that the purchasing power of customers has been limited due to rising inflation and uncertain economic conditions, it’s time to strategize how to offload your products without taking a total margin loss.
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