Excess inventory is a challenge almost all companies have dealt with at some point. Maybe excess inventory is taking up valuable space in your warehouse, or maybe you’re looking to bring in some revenue for it—either way, excess inventory eventually becomes a burden you’ll need to address. Here are four options for getting rid of excess inventory, and the pros and cons of each.
1. Heavily discounted pricing
This approach says, “It’s better to get something than nothing.” Depending on the reason sales have not met expectations, this can be a great way to lower your losses on this product, mainly when pricing or market interest is a key factor.
The pro is that you will reduce your losses and you’ll have the ability to charge for shipping to further reduce losses. The con is that this approach isn’t ideal for all products. For example, products that are outdated or have high shipping costs may not move the product off your shelves in the timeframe you need.
When retailers choose to give away merchandise to free up inventory space, they typically either use promotions or give to employees. A great example for low-cost items: You can run a promotion in which customers who spend a certain amount of money receive a free product.
The pro is that this tactic can be used to reward increased spending by customers, and this often improves both customer sentiment and experience. The clear con here is that when you give away products, you aren’t taking in any revenue for them.
3. Charitable donations
Giving your excess inventory to a charity that can use it is a win-win: Your company increases public awareness and corporate social responsibility, and there is usually some sort of tax break associated with the donation. If you’re interested in pursuing this option, speak with your tax representative to ensure that you understand the potential tax benefits.
Positive press and support of charities are clearly pros to this option. The con? You may be giving away products without taking in any revenue.
4. Liquidation resellers
Many companies sell their excess inventory at a steep discount to other retailers that specialize in reselling these goods at a low price. Finding such an arrangement and negotiating an acceptable price can be an attractive way to reduce your inventory levels. There are several well-known budget-focused retailers and independent organizations that specialize in this type of purchasing.
The pro is that you can quickly reduce your excess inventory, which reduces your losses.
The con is that if your merchandise is branded and sold through retailers that are viewed as selling “cheap” merchandise, it can hurt your brand image.
Take this opportunity to improve your operations going forward. Why did you have excess inventory? Here are some common reasons:
- Unexpected market changes: After the inventory was purchased, a recession or some other economic trend may occur.
- Projection errors: If your purchasing was in line with your projects but the products didn’t move, find out why. Did you misunderstand your market position or your customer needs?
- Sales strategies: Was the product marketed effectively and priced appropriately? Was it easy to find in your online store?
- Purchasing errors: Were additional purchases made when there was a sufficient or excessive level of inventory in stock?
For more on retail strategies in today’s digital economy, see Mastering The Third Generation Of E-Commerce: 6 Core Capabilities For Retailers.