Products gathering dust in your storage room or ingredients reaching their expiration date aren’t just taking up precious storage space, they’re hurtful to your bottom line.
Properly managing inventory levels is an essential part to every business. But what happens when you have too much inventory? Excess, or surplus, inventory refers to products or ingredients that are nearing the end of their product life cycle. That could mean a shirt from last season’s collection or a case of carrots with a shorter shelf life.
While throwing away carrots or leaving last season’s styles sitting on the show floor might not seem like a big deal at the moment, it can add up to a damaging loss in profits.
However, by successfully managing excess stock before the end of its lifespan, you can retain some of your intended profit margins and free up those resources for more popular products.
Why You Should Move Out Surplus Inventory
Potential profit is the biggest motivator business owners have for selling excess inventory. You pay good money for your products and if they’re in the corner of your warehouse, you’re not getting a return on investment.
What’s worse is losing the money you spent on surplus stock all together. The restaurant industry loses an estimated $162 billion on expired or wasted ingredients each year. For many restaurants and businesses, money drowned in obsolete inventory could make the difference in paying another month’s rent or the ability to provide staff with greater benefits.
Additionally, you’re wasting resources, such as storage space or refrigeration electricity, rather than re-investing in more successful products for your business.
5 Causes for Excess Inventory
There’s nothing worse than turning a potential customer away because you’re out of stock of a particular product. To avoid that, many business owners prefer to have too much inventory on hand rather than focusing on the expected demand for individual products.
2. Inadequate Inventory Management
Oftentimes, what stock is actually available to customers is a giant blackhole for business owners. Not knowing exactly what’s on the shelves or in storage can lead to excess inventory.
3. Supply Chain Challenges
When the economy isn’t stable, the supply chain tends to waver. As a result, business owners can have difficulties managing unpredictable lead times and receive orders late. Therefore, missing the peak of the product’s buying season results in slow moving stock piling up.
4. Changes in the Market
While trends can lead to a sudden increase in sales and traffic, they tend to be over quickly. Business owners who are late shifting their buying model can find themselves with excess inventory that no longer meets the demand.
5. Unpredictable External Factors
A rainy week deters people from eating out as much. Same as, market instability results in drastic changes in purchasing behavior.
How to Identify Excess Inventory
A successful inventory management system, whether a well-noted excel doc or an automated online program, tracks the movement for all your products. Dead inventory reporting helps business owners see exactly how much of their revenue is tied up in aging stock and the number of days since the product last sold.
Expiration date tracking helps foodservice and cosmetic business owners manage the expiring lots and potential profit for surplus ingredients.
Ways to Make Money from Slow-Moving Inventory
Display or Listing Refresh
Before you consider inventory liquidators or clearance sales, do a quick evaluation of your overstock inventory. Is a product hidden on the top shelf where no one can reach it? Is the product image for your online store well lit?
If not, re-display your product in a fresh way. Consider sensory marketing tactics to draw more attention in your brick and mortar store or use A/B testing to see what resonates with shoppers more, like your e-commerce product title.
Promotions and Discount Pricing
Next, it’s time to look at in-store sales, promotions, and other pricing strategies. This is the second best solution for excess inventory because you still have control over the profit margin.
Depending on your product, quantity, and how much room you have to play with margins, there are several ways to create a promotion your customers can’t resist.
If you have a large quantity of excess inventory for one product, implement a buy one, get one free sale. Not only will it attract shoppers to your overstock inventory, it quickens the pace by moving out multiple units in one purchase.
Bulk Discount Sale
Similar to BOGO sales, bulk selling incentivizes customers to increase their order size. Consider taking 25% off when a shopper buys 3 or more products. You can even increase the percent discount for each additional product they buy from your excess inventory.
If you have overstock inventory from the previous season, such as a number of winter clothing styles, host a seasonal sale. Online and retail stores can use this strategy to generate profit from excess stock before they start promoting next season’s products.
Clearance sales are a great way to move an assortment of surplus stock. You can either host a clearance sale event or have a dedicated clearance section in-store or online where customers know they can look for great deals. Many physical retailers display clearance merchandise at the back of the store to draw shoppers through all the regularly priced products.
If you’re looking to sell excess inventory for specific products fast, flash sales are an effective solution. Take advantage of “24 Hours Only” promotions or “30% off site-wide” sales to inspire a sense of urgency.
Transform Surplus Inventory into Something Special
If a product isn’t flying off the shelves or moving quickly enough, it likely isn’t resonating with your customers. Instead of promoting it by itself, bundle it with another product or transform it into something new.
One of the best ways restaurant managers can reduce losing money to food waste is creating a special for surplus ingredients. For instance, if you bought too much fresh mozzarella, get creative and whip up an eggplant parmesan weekly special and train your staff to recommend it at every table service.
Retailers can also use this strategy to curate unique gift baskets or product kits. A camping store might put together a beginner camping kit with sleeping bags, mats, and overstock tents from last season. On the other hand, a boutique might create a birthday gift basket with slow-moving inventory alongside one of their most popular products.
Return for a Refund or Credit
Some manufacturers or distributors may purchase your excess inventory back in the form of a payment or credit, especially in the midst of navigating supply shortages. Proper vendor management is essential in these scenarios for tracking purchase orders, any issues that arose on the supplier’s behalf, and product sales.
While you won’t be making money by selling surplus stock back, you will be able to use that money on more popular products.
Selling excess inventory on online marketplaces such as Amazon, eBay, or Etsy is another option. While you likely can retain your intended profit margins, know that selling through online marketplaces means a lot of set up time, as well as, managing the logistics.
Food waste companies, like Too Good To Go, allow restaurants and grocers to sell extra meals or ingredients at the end of the day through an app. This is a great way to make money off of meals that otherwise would go to waste, and reach new customers.
Additionally, there are companies that liquidate inventory. However, you may not be able to pass all your excess stock off to them and you tend to get much slimmer profits than some of the other solutions.
Alternatives to Handling Excess Inventory
If your product is recyclable, seek out programs to extend its end-of-life. Restaurant owners can consider composting solutions to achieve this.
Is your product useful in people’s everyday lives? Donations are a great way to make a difference in your community, build corporate responsibility, and ensure your products don’t go to waste. You may even be able to earn a federal income tax deduction in your state or county.
3 Ways to Prevent Excess Stock
1. Know What’s in Stock
You’re more likely to order excess inventory if you’re not sure how much product you actually have on display or in storage. Consider investing in an inventory management software that syncs inventory levels across all your locations and/or sales channels in real-time.
Also, conducting regular cycle counts is a proven way to ensure what’s available to customers matches your records. Not only will you catch any inventory errors close to when they occurred, but it will give visibility to products that are about to expire or hiding in the back office.
2. Adjust Restock Levels
Whether you manage product counts with an excel document or have inventory management software, take a look at your stock levels. If you have too many cases of an ingredient in your pantry or can’t fit most of a product on display, lower your reorder quantities.
Using an inventory management system, like Shopventory, means always knowing exactly how much product to order and when to order it. Set maximum reorder levels to automatically create purchase orders and reduce ordering too much inventory.
3. Practice Stock Forecasting
Take the guesswork out of optimizing shelf space and avoid surplus inventory with demand forecasts. This is a tool some inventory management softwares are capable of through tracking inventory levels and sell through rates to predict when you will run out of stock.
Knowing how your products are performing allows you to buy only what you need and when you need it.
Best Practices to Reduce Excess Inventory
Train your staff on the product so they feel comfortable selling and promoting it.
Implement first in, first out strategies to ensure you sell through your oldest inventory before displaying or using new inventory.
Give your products a marketing refresh so your surplus inventory highlighted in-store is also showcased on social and email.
Review your product assortment strategy to make sure the products you buy are what your customers or target demographic are looking for.