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Navigating the excess inventory dilemma

Illustration of a person counting inventory in a warehouse.

This is an excerpt from Ryder E-commerce by Whiplash’s latest ebook “How to turn surplus into success: Navigating the excess inventory dilemma.”

After the intense supply chain shortages caused by the COVID-19 pandemic, having too much inventory can seem like a good problem for brands to have. But an unchecked glut of merchandise spells bad news not only for your bottom line, but also for customer loyalty.

As the 2022 holiday season got underway, retailers grappled with how to keep inventory moving as consumer spending grew tighter. Deep discounting by major brands became the norm while imports fell to their lowest point in two years, with a 6.1% YOY decline in December alone.

It’s easy to view excess inventory as the dream scenario for price-conscious consumers. However, the reality is more complex. A mismatch between consumer demand and inventory levels doesn’t just mean less space on the shelves; it undermines the quality of the shopping experience.

Bloated inventory brings with it a host of challenges – overcrowded storefronts, cluttered online catalogs, and delays to order fulfillment – that add friction to the shopping journey and affect retention.

Moreover, aggressively slashing prices is only a partial solution to the excess inventory dilemma. When 74% of consumers are ‘trading down’ their purchases by switching to cheaper retailers or placing smaller orders, discounting fuelled by surplus stock creates a race to the bottom that takes the shine off your brand.

Saying goodbye to bloated inventory for good requires a multi-layered strategy that spans every stage of the retail journey. Whether it’s planning for next season’s offerings, creating compelling offers, or refining post-purchase communications, the impact on your inventory levels should always be a major consideration.

Why does inventory planning go astray?

Nike, Gap, Target, and Kohl’s are some of the major retailers who have faced high-profile challenges with surplus stock over the past year. But how did such massive, well-resourced brands get their inventory forecasting so wrong?

The pandemic-induced supply chain crisis put an end to ‘just in time’ inventory management strategies, which demand reliable global shipping schedules to keep carrying costs low. Retailers pivoted to a more conservative approach, stockpiling inventory in case of missed shipments. With consumers staying home and enjoying robust savings accounts, brands had no problem keeping their inventory moving during 2020 and 2021.

But as the economy reopened in tandem with rising interest rates, retailers found themselves in a bind. Orders placed 6-12 months prior were based on robust consumer spending and the ongoing popularity of categories like loungewear and homewares. As shoppers tightened their budgets and shifted interest to the ‘swimsuits and suitcases’ category, brands couldn’t change gears fast enough to prevent unwanted inventory from piling up.

Managing inventory starts in the warehouse – not the storefront

Storewide clearance sales may provide brands with short-term relief, but this doesn’t change the underlying problem of retailers struggling to get an accurate picture of how much inventory they need – or what the ‘right’ inventory is. Tackling excess inventory at the source requires visibility over every stage of inventory and fulfillment.

How retailers are managing the excess inventory dilemma 

Retailers are taking increasingly desperate measures to take control of their inventory. According to a KPMG survey of retail executives released in September 2022:

  • 52% planned to use promotions to clear stock
  • 48% expected to cut receipts to manage inventory down
  • 41% planned to return items to vendors
  • 24% planned to sell inventory to liquidators and or discount storefronts

Keeping inventory moving during the shopping journey

Even the best inventory planning strategy can struggle in the face of seismic changes to the retail landscape. When yesterday’s inventory decisions become today’s problem to solve, maximizing key touchpoints during the shopping experience is key to getting excess inventory under control.

So, when inventory levels are tracking in the wrong direction, how should your business react? It all starts with bridging the gap between what’s in your warehouse and what shoppers are buying.

Understanding what customers want

At a time when inflation is making consumers more price-sensitive, it can feel as though you have limited control over what shoppers choose to buy. But when customers are more open to suggestions from brands than ever before, there’s a unique opportunity to engage target customers and spotlight products at risk of accumulating in the warehouse.

A recent Adobe Commerce study that surveyed 1,115 consumers from across the U.S. found that 67% would like to receive personalized promotions from brands, while 53% are open to receiving personalized content during the shopping experience itself. So, far from dynamic recommendations or cross-channel marketing campaigns irritating your customer, these activities serve to streamline the shopping experience.

Aligning inventory and sales goals requires access to the right technology and omnichannel planning capabilities to make in-shopping promotions relevant to the customer. No matter whether they’re at the checkout or browsing product pages, these touchpoints are valuable moments to engage your audience and secure bigger conversions.

Adding value beyond the transaction

As consumers seek more ways to connect with their favorite brands, touchpoints proliferate across the retail journey. Primary sales channels are where the conversion happens, but there’s a robust secondary market for both excess inventory and memorable experiences that encourage retention.

Clearing out inventory overflows while protecting brand equity is a tricky balancing act. Constant discounting compromises not only profit margins but also brand value. If a retailer is willing to slash prices to be rid of a product, it’s challenging to maintain the perception of a premium offering.

This is where the recommerce and resale markets allow brands to change the value proposition of excess inventory, repositioning excess items as ‘pre-loved’ or ‘we made too much’ rather than unpopular. Brands should pay close attention to this emerging avenue, especially as consumers continue to embrace the secondhand market.

Instead of only targeting consumers during the shopping journey, brands shouldn’t forget those with an established track record of purchases. The more customer data you have, the easier it is to tailor your post-purchase communications to funnel shoppers toward your excess inventory.

The power of the post-purchase experience 

It’s what takes place after a purchase that determines whether customers will make future visits to a storefront. 83% of customers say they expect regular communication about their latest purchases, while 33% of consumers wouldn’t return to a brand that didn’t send relevant follow-up information.

Transforming inventory overflows into opportunity

The current inventory glut is a reflection of the rapid changes to the retail landscape since the COVID-19 pandemic. Ongoing inflation, changing consumer tastes, and outdated inventory management tactics have resulted in some of the biggest stock challenges in recent decades – and it’s going to take more than the occasional clearance sale for brands to get their warehouses straightened out.

The longer that inventory piles up, the more capital gets tied up in stock – and the more difficult it becomes to keep pace with what consumers are looking for. Left unchecked, this is the beginning of a long, slow spiral to becoming irrelevant in the eyes of your target audience. Once this happens, it’s very difficult (and expensive) to build back consumer trust.

But with the right planning and tools at your disposal, you can turn your surplus stock from a dead weight into an additional revenue stream, complete with its own sales and CX management strategies that drive customer loyalty and repeat purchases. 

By viewing inventory management through the lens of the customer journey rather than a simple numbers game, businesses no longer have to choose between maintaining brand integrity or getting their inventory in check. Aligning these strategies conserves valuable resources while enabling brands to tackle the root causes of excess inventory.

As retail and e-commerce continue to evolve, the brands that make these investments in their inventory management strategy will be better positioned to weather future disruptions to supply chains and consumer demand.

Want to learn more? Check out the rest of our ebook on how brands can effectively tackle excess inventory and create more opportunities to engage customers:

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