Mar 18

What Happens to Excess Inventory? 3 Ways to Get Rid of It

Having too much inventory can be harmful to your business. Find out why, plus three tips for how to get rid of excess inventory.

In light of COVID-19, various industries have seen temporary and permanent store closures, shipping delays, manufacturer shutdowns — resulting in an uncontrollable balloon in inventory. Products and goods are bought to be resold for a profit, and they lose value as the demand declines and deterioration occurs, eventually leading to a loss in revenue for your business.

Apart from its potentially harmful impact on the environment once destroyed or thrown away, excess inventory can negatively impact the cash flow of your business and affect your company’s overall financial health.

What is Excess Inventory?

Excess inventory happens when a certain item or a product fails to meet the projected consumer demand and remains unsold and stagnant on the shelves or in the warehouse as a result. To put it simply, it refers to having too much stock but not enough purchases.

From inaccurate demand projections, overbuying, late deliveries, unreliable suppliers, and canceled orders to poor inventory management and replenishment tactics, there are many factors that leave businesses with excess inventory.

Two men walking between shelves in a warehouse

Why is Excess Inventory Bad for Your Business?

Excess inventory exists across many industries. While some might argue that holding onto too much inventory can be beneficial — for example, you’ll be better prepared and well-stocked when there is an unexpected increase in demand — in general, the practice is looked down upon by many businesses as keeping too many items on hand can be cumbersome and expensive, among other issues.

1. It Increases Storage Costs and Issues

A company’s excess stock has to be stored somewhere. The excess inventory in your business will take up extra stockroom space that could’ve been allotted to other goods that are higher in demand. Additionally, with a huge inventory, you’ll be paying more for warehouse storage, staffing costs, as well as other additional maintenance fees like security and electricity.

2. Excess Inventory Ties Up Capital

Having too many items stagnant on your shelves can quickly create a cash-flow shortfall. You acquire goods and items for your business in the first place because you want them to sell so that you can pay for the day-to-day expenses of your company. With too much inventory, the working capital of your business is halted, and the money you used to invest is not returned or reallocated in upgrading other company assets.

Furthermore, such a shortfall in your company’s cash flow can force you to take out a loan and pay interest on that loan, placing an additional financial burden on your company.

3. It Reduces Product Quality and Creates Obsolescence

If you’ve got excess stock, your goods are at risk of quality problems such as deterioration and degradation as the time of storing them stretches. Companies that overstock or spend a great deal of effort in managing excess inventory often run into the issue of neglecting to fill their warehouse with items that are newer and more in demand.

If you’re overstocking because you’re preparing for an increase in demand for a product, keep in mind the chance that customers may change their preferences regarding product specifications or materials. In this scenario, you’re going to have to disregard your old stocks and re-order new materials that fit the customers’ preferences, resulting in a lot of your products becoming obsolete.

A man tracking inventory with a scanner

How Do I Sell Excess Inventory? 

Due to several factors that can affect the supply chain, having excess inventory is almost inevitable in all businesses, no matter how hard you work to optimize your inventory. If you want to prevent excess inventory from creating financial burdens on your company, it’s crucial that you learn how to get rid of it efficiently.

Here are the three common ways to free up space in your inventory and convert slow-moving products into sales.

1. Remarket 

When some items in your inventory don’t sell well, sometimes the problem isn’t in the product itself, but how you sell it to your target audience. Take the time to research current trends and your target audience, so you’ll know how to tailor your marketing efforts to get your products to sell.

One thing you can try is to give your products a fresh look by taking new product photos. Product photos are essential in providing potential customers with imagery of what they will be receiving. Make sure to set product photos in high resolution, as high-definition images imply that the product is high quality — it’ll likely leave a good impression of your brand and business on your audience.

Bonus: If you need help pivoting your target market, check out our tips on how to market to millennials and Gen Z.

2. Have a Sale

If remarketing doesn’t work, the fastest and most efficient way of clearing excess stock from your inventory is to put it on sale. If you want to increase or create demand, consider lowering prices for some of your products. You can start with something small, say 30%, then continue to discount if there is no change in the demand.

While this strategy may seem like a lot, selling something for less than its original market price is much better than not being able to sell it at all. In addition, just because you’re having a sale doesn’t automatically mean your business will be losing money. You can be strategic about it by having different types of sales each year. For example, have a flash sale for products that have been sitting on your warehouse shelves for over six months. Make sure to build anticipation by sending out emails with reminders to your audience days before the event.

A clothes rack with a “50% Off” Sale sign

3. Bundle Items

Next to discounting, bundling items is another way for businesses to quickly move products out of the inventory. If done sparingly, this method can become a win-win situation. Your customers get a good deal by being able to purchase a group of products for a much lower price than if they were to buy the products separately. In turn, your business improves customer satisfaction while getting rid of excess stock.

Depending on what type of business you have, there are various ways to bundle products. One common strategy is to bundle slow-moving stock with goods that are in demand. Customers interested in buying a top-selling product will see this deal as a bargain and will likely seize the opportunity to spend less in purchasing two or more products. Another method is to bundle products that complement each other. You’ll be adding more value to both products by putting them together in an attractive bundle deal.

Efficiently track your stocks and avoid excess inventory with a reliable POS system. True POS is your one-stop hub for all your point-of-sale system needs. Contact us for a free quote today!

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