Everyone enjoys browsing the aisles of their favorite stores. Or maybe it's the convenience and comfort of online shopping. There are so many different sizes, colors, and products to choose from! But have you ever wondered what happens to unsold inventory in stores or online? Overstock inventory is what it's called, and it's a huge opportunity for resellers.
Overstock inventory is an inventory that cannot be sold in a timely manner at retail locations. These overstocked items have never been purchased by a customer and thus are not returned or defective. However, this can cause problems for retailers. Consider what happens when supply exceeds demand. Companies are losing money. It's usually unavoidable, whether due to over-delivery or poor stock management. The good news is that products are resold to a secondary market. This is the place where opportunity blooms! We will discuss where this inventory ends up, who can use it, and how B-Stock assists buyers in gaining access to overstock inventory.
What is Overstocking?
When a store buys more products than it sells, this is referred to as overstocking. Over-ordering inventory leaves retailers with too much stock, which sits on store shelves or in the warehouse, reducing profitability.
Recognizing Potential Overstock Inventory
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Stocking products can be an emotional issue for merchants, so determining the overstock level objectively is the first step. Here's an illustration. When analyzing every item sold at the SKU level compared to the on-hand inventory in an operational assessment of warehouse space used for a book publishing client. A straightforward formula: item on-hand quantity divided by total sales over a given time period. If you divide sales for a typical month by on-hand, you get the number of months of stock. While extreme, 60,000 SF of the total 360,000 SF warehouse was holding slow-selling products for a merchant. Overstock could literally be measured in years of sales by item. Large booksellers have negotiated return privileges in this case. With thousands of new titles released each year, liquidating this type of overstock is made even more difficult by the product's high unit cost. Have you done any research into your potential overstock?
Common Reasons for Overstock Inventory
Retailers overstock for a variety of reasons. These are some examples:
1. Avoid Out-of-stock Items
When an item is out of stock, retailers jeopardize their reputation and may lose a sale to a competitor. Excess inventory on popular items provides them with a safety net.
2. Sizes that were Leftover
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Most vendors in the fashion industry send out packages in evenly distributed sizes. Even when the vendor allows some leeway, determining the correct size distribution when ordering is extremely difficult, resulting in overstock inventory on unpopular sizes. Each product in each store, and even each style, will have a different size demand.
3. Difficulties with Logistics and Fulfillment
It is critical to have the right product at the right store at the right time, but if you have any logistical issues or experience inconsistent vendor lead times, the order may end up at the wrong store. When a customer cannot get what they want when they want it, they are more likely to shop online or elsewhere. Finally, you're stuck with the inventory you bought but can't sell.
4. The Warehouse's Safety Buffer
Many retailers will stock a buffer above and beyond what they think they will need to avoid out-of-stock situations. Because there are so many factors that can influence demand over time, accurate forecasting is difficult. What is the ideal amount of safety stock? Overstocks, carrying costs, and potential markdowns will result if you buy too much.
5. Retail Promotions that did not Work
Every year, retailers typically run thousands of promotions. The issue is that they are typically launched without any advanced analytics that link back to inventory levels in the stores, such as projected demand, how the promotion will affect the sale of other products, and a variety of other critical issues.
6. Purchasing and Assortment Planning
Buyers are generally optimistic about the products they bring in, but assembling the optimal product mix is difficult. The 80/20 rule, also known as the Pareto Principle, states that 20% of your goods generate 80% of your profit, while 80% of your goods generate only 20% of your profit. Understanding your customers and what sells well in each category is critical, but failing to use advanced analytics may result in a loss of competitive advantage.
The Issues with Overstock Inventory
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Overstock is also a significant issue. This is defined as having an excessive amount of an unwanted product on warehouse shelves. Though this has no direct impact on your customers, it may have an indirect impact on them at some point – particularly if your overstock prevents you from keeping up with the latest trends and stocking the hottest items. Other issues include
- Saved money: Consider investing in a product that doesn’t not sell: You can't profit from it if you can't sell it, and you can't profit from it if you can't buy newer, better, more in-demand products to sell.
- Limited warehouse space: Warehouse space isn't always cheap, so make sure you're filling it with products that will move.
- "Could" turn customers away from your store: In some cases, and depending on the industry, customers may be turned off if they notice that the majority of your stock is obsolete technology. Consumers buy from cutting-edge sellers, and too much stocking inventory can make you appear to be the polar opposite
- Financial loss as a result of liquidation: Finally, if you've had a product for far too long and just want to get rid of it, consider holding clearance sales. Though it is possible to break even, there is a good chance that you will end up losing money – especially in industries such as technology.
Avoiding Overstock
Understanding how much you stock comes down to having a refined approach to inventory management and sales data. Inventory management is a strategic issue that has an impact on both profitability and customer service. Without an informed decision-making process, your efforts to address the effects of overstock inventory on productivity and profitability will go in the wrong direction, one that will be costly and disadvantageous to you.
A) Sell on the Internet
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When there appears to be insufficient demand in your local market, selling a product online can increase your chances of making a sale significantly. Many retailers use Amazon or eBay to reach a large number of customers. Others, on the other hand, choose to use location-based platforms such as Craigslist or OfferUp to help drive more traffic to their store from local audiences.
B) Advertising
If your current customers aren't interested in a product, repurpose it in a creative way to attract new customers to your store. Position the product as a "free gift" for new customers or a special "thank you" gift for customers who bring a friend to the store.
C) Volume Discounts
Customers who purchase multiple units from your overstock inventory will receive a discount. When you buy wholesale, you get a volume discount, so if you're stuck with a bad product, offer the same to your customers. As an example, you could get 20% off two or more items or 40% off five or more items. Bulk discounts will persuade interested customers to buy more, even if they did not intend to.
D) Product Combination
If you're stuck with a slow-moving item, try pairing it with something that's flying off the shelves. It is best to select items that complement one another. For example, if swimsuits are selling well but flip flops are not, offer 40% off a pair of flip flops when a customer buys a new swimsuit.
E) Service for Resale
BoxFox provides a B2-B marketplace where retailers can sell their underperforming inventory to other businesses in a different market that may have a better audience for the product. Selling overstock merchandise in a single transaction is an excellent way to reduce the time and effort required to sell a slow-moving product in your store.
Last Thoughts
When it comes to inventory levels, as a retailer, it's all about striking the right balance between too much stock and too little. Having too little stock can cause you to run out quickly and lose potential business, whereas having too much stock can drain your financial resources and leave you saddled with products that cannot be sold. However, by avoiding the main causes of retail overstock and following the simple tips in this article, you will be able to optimize your stocking inventory levels and grow your business quickly and cost-effectively.
While these are important steps to take to avoid overstocking, the key to successful inventory management is maximizing the tools at your disposal. Strikingly is a website builder with tools and features for setting up an online store. These tools should assist you in making informed purchasing and production decisions so that you do not end up dealing with overstock inventory at all. Create a Strikingly account today to avoid overstocking in your store.
