Retailers in the U.S. may need to find ways to reduce inventories without throwing away money. The Washington Post reported the retail industry didn't see the success expected from the 2015 holiday shopping season and failed to grow as projected. Many major brands will have to close stores.
Having more locations than demand is called being "overstored." It's a waste of resources, payroll and supply chain actions. As retailers look to correct this problem, they'll need to find buyers for fixed assets and real estate and new solutions for inventory management.
It's not uncommon for businesses to run into inventory surplus during some point in their career. Companies should prepare plans for dealing with excess stock and identify when manufacturing or procurement outpaces demand.
What Does Too Much Inventory Mean?
How can businesses identify when they have too much stock on hand? Sometimes, it's obvious. When a store closes or the business shrinks in some other way, its common for business managers to be stuck with stock that no longer has a channel for sale. In other instances, warehouse management may be tripping over piles of unsold inventory in a distribution space.
Other times, it's harder to identify when stock levels start to exceed profitable limits. Businesses may lose track of inventory numbers when its difficult to perform physical counts or obtain visibility of warehouse procedures. To gain an accurate picture of product availability, companies may wants solutions for real-time information, like mobile data collection devices.
It could also be a matter of asking the wrong questions about stock levels. The Greenhouse Grower retail blog suggested reorganizing inventory levels to track different demographics if current demand strategies create surplus or prevent visibility. Data collection systems should also track information like supplier lead times, seasonal consumer interest and market expectations to properly forecast demand.
The Cost of Surplus
Having excess products in a warehouse is costly. Demand Media discussed how the use of business space to house dead inventory will waste resources. Unsold goods take up shelf space and create false expectations of availability. A full warehouse doesn't necessarily mean a business has the merchandise consumers want.
Warehouse workers will have to move around dead inventory to perform picks and storage tasks. This means businesses aren't just paying rent for useless stock, but they're paying employees to deal with it. Unsold products always waste time in tight schedules through general inefficiency. For example, dead inventory in easy to reach shelves may encourage employees to stack high-demand items in inconvenient locations.
If inventory isn't sold for a profit, the company doesn't get a return on its investment. Even when turnover is slow, it makes it difficult to track an accurate cash flow and make decisions based on available finances.
What To Do With Excess
To prevent these obstacles, businesses have to remove excess inventory as soon as it's detected. The reason for surplus may also inform decision-makers on the best way to deal with stock. If it's time to close stores or other sales channels, it may be possible to sell the excess inventory online or through other locations.
The Vend retail company said remarketing may help revitalize goods and respark demand. Businesses can push merchandise by bundling items or creating special offers on inventory it wants to move. It may also be possible to sell inventory wholesale to similar companies or private buyers depending on the industry.
As a last resort, companies should look into donating goods. While this won't bring a direct financial return on investments, companies can benefit from charitable donations through tax breaks and other government incentives. Recycling is another option. If a company manufactures its own goods, it could be possible to break down old products for materials and build new inventory.