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A Retailer’s Guide to Managing Overstock: 7 Ways to Reduce Excess Inventory

Tags: demand forecasting demand planning inventory management merchandising

by Camille Chin | March 13, 2023

Overstock is bad for business. A brand’s capital is tied up in overstock, it reduces revenue and profit margins, it takes up valuable shelf and warehouse space, and it requires staff to count it, and shuffle it around from shelf to shelf or bin to bin.

Exactly when inventory becomes “excess” or “surplus” varies. Car products have a longer lifecycle than, say, fast fashion. Generally speaking, inventory that doesn’t turn over after 12 months is typically considered overstock, also often referred to as dead stock or stale inventory.

The right demand forecasting software enables accurate purchasing to avoid  surplus stock, but unexpected events, such as economic inflation, can cause shifts in consumer appetites that wreak havoc on a brand’s calculated buys. But fret not. The good news is that there are some ways that brands can recoup a return on overstock and we’ll explore some of them here.

1. Refresh Your Product Marketing

Is your surplus inventory easy for your in-store customers to discover? Is it easy to find on your e-commerce site? Optimize the placement of overstock so it’s more visible in your brick-and-mortar stores and online.

To help reset your in-store customers’ experience of the item, refresh your visual displays with colorful, eye-popping signage, and replace worn product tags with new ones. New photographs of the merchandise may help online — after all, your e-commerce store is heavily reliant on product images to make sales. New pics may better capture the fickle attention of consumers.

2. Try Bulk Promotions Rather than Product Markdowns

A product markdown is a straightforward tactic to try to sell excessive stock, but instead of a precedent-setting price cut, which can devalue the item in the eyes of the consumer, consider a multi-buy promotion. “Buy more, save more” promotions, such as “2 for the price of 1,” and BOGO promotions are temporary, and can optimize other costs such as packaging and logistics.

3. Bundle Products to Create Appealing Sets

Bundling complementary items is another way to offload overstock without visibly reducing your product prices. This retail strategy is also known as “kitting.” One approach is to bundle an overstocked item with a highly popular one, and then take a discount off the combined price.

Don’t mismatch products. A gym bag bundled with a water bottle makes sense. A gym bag bundled with cutting board does not. Customers will see less value in mismatched bundles.

4. Offer Free Gifts as Loyalty Rewards

If your best efforts aren’t driving sales of your overstock, consider leveraging the inventory to strengthen customer loyalty. Give an overstock item away as a gift with purchase or a freebie for spending over a certain threshold — over $100, for example, to minimize your loss and encourage larger purchases. Giveaways won’t return your financial investment, but they will earn you a positive customer experience, which is invaluable. Consider it a marketing expense!

5. Make a Charitable Donation

In a previous blog on corporate social responsibility and customer loyalty, we shared that in a survey of 395,000 people, 64% said that they prefer to buy from companies with a reputation for purpose and 53% said that they’re willing to pay more for a brand that takes a stand.

Donating your overstock inventory to a good cause demonstrates that you care about your community and the gesture will make a good impression on your customers. Bonus: some charitable donations qualify for tax deductions.

In 2020, Burberry launched the ReBurberry Fabric initiative, which has inspired similar movements. Burberry’s program, in partnership with the British Fashion Council, donates leftover fabric to fashion students, upcycling surplus material and saving it from going to waste. Similarly, in 2021, 24 brands, including Victoria Beckham and Paul Smith, donated dead stock, unwanted fabric, trim, embellishments and fastenings to 30+ colleges around the UK. An Internet search will prove how much positive PR the initiatives generated for the brands.

6. Return the Overstock to Your Global Vendor

If you have a longstanding partnership with the global vendor who sold you the merchandise, you may be able to leverage the relationship and sell the deadstock back to the vendor at a percentage of the original purchase price or return it in exchange for credit. Make sure to keep your inventory clean and undamaged. Note: you may have to pay shipping and restocking fees.

7. Leverage a Secondary Market

Marketplaces and close-out stores or liquidators feature a mix of new, used, open-box, and refurbished merchandise. However, some industry experts have been speculating that the ratio of new items to used, open-box and refurbished items may be greater these days because retailers are offloading large volumes of surplus inventory into these secondary sales channels.

According to Supply Chain Brain, electronics and furniture tend to do well in these markets, helping retailers recover an average of 66% and 72% of their retail value, respectively.

The Pack-and-Hold Strategy

Now, contrary to all the inventory management options that we’ve been exploring, some retailers are opting instead to pack-and-hold less bulky items, including apparel. The goal is to sell these items at close to full price in the near future.

In 2022, Gap and Kohl’s shared that they’ll be using the pack-and-hold strategy. Of course, the pack-and-hold strategy is best reserved for items that don’t go out of style. Think basics like polar fleece and pajamas. It also requires storage space.

How to Avoid Dead Stock Altogether

In an ideal retail world, brands would have the right products in the right amount at the right place and time, and you’d have high inventory turnover. To minimize your risk of overstocking, leverage your brand’s historical sales data to better forecast demand. Software that leverages machine learning to identify patterns in data can help inventory performance even further.

Monitor your enterprise-wide inventory using a unified commerce suite to ensure you have one version of the truth in real time, and keep on the lookout for slow-moving stock. The sooner you can spot slow-moving inventory, the sooner you can adapt your strategies when it comes to replenishment, pricing, promotions, marketing and more.

Listen to your customers. If you’re familiar with their preferences and expectations, you can better align your products with their desires. CRM software provides a complete picture of your customer interactions. When executing your merchandise planning and building your assortments, consider customer preferences for product specs, quality and packaging before making purchases.

Finally, streamlined, automated and unified business workflows will result in an efficient supply chain that can help you quickly adjust and pivot in case demand falls.

There isn’t one solution to preventing and reducing overstock, but by intelligently executing your demand forecasting, ensuring your supply chain is agile, and having a combination of strategies in play to proactively spot and manage slow moving stock, you can maximize the return on your inventory investment.

Want more content on inventory management? Check out “Inventory Reconciliation: Why Taking Stock is a Determiner of Store Health” for tips on how businesses can perform a successful inventory audit. Read it here

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