What Is Surplus Inventory Anyway?
Surplus Inventory is a term used to describe a situation where fewer supplies are used than what is stocked, and that affects the profit margin and the unsaleable, yet expensive items lock up cash that could have been better used to sell other saleable products.
If youre a merchant looking towards investment, excess inventory, retained stock or deadstock on your balance sheet can turn out to be a big problem for investors.
Supply more than demand could reflect that a retailer is overstocking, and hence, indicate a significant downfall of profit while a high rate suggests keeping more inventory in stock.
In this article, we’ll discuss how to liquidate surplus inventory smartly. We’ll explain 4 strategies to get rid of the excess stock and avoid losses.
Let’s get started.
Why Should You Liquidate Surplus Inventory Fast?
The primary reason for purchasing too many products is often an optimistic approach and forward thinking, but unforeseen circumstances or changes in technology may also be a reason to overstock.
Disposing of the excess inventory is a critical act of maximizing profits versus any further investment of resources that would ultimately result in a loss.
To prevent the issue from affecting your year-end balance sheet, monitor and dispose of excess inventory quarterly all year-round, as stacking up on the stock would only decrease its appreciation value and further add to the troubles by occupying space and attracting losses.
Once a year has passed, your physical inventory declines in value and keeps on declining. Rather than clinging on to these items expecting that someday you will sell them, and adding on to the loss percentage, it is always best to find ways to clear your stock.
Inventory is the most significant single balance sheet asset from which around 80% of sales are typically generated. However, 20% of the products or more than 50% of the products often either do not meet, or exceed, or are retained over a period, concerning the contribution to profit of a financial year.
Slow-selling products occupy significant space; one cant afford to sit on such expensive inventories whose expense includes product costs, customs, and marketing, inventory carrying costs, fulfilment, maintenance, staff, and loss of margin through liquidation. Often, merchants are hesitant to act quickly on overstocks that drain profits.
Inventory liquidation is one of the best ways to consider as it would help to minimize the loss due to excess inventory.
Any stock that hasnt been transported for a period such as 200+ days or products with low turn rate as compared to the quantity at hand are best liquified to help the company minimize the loss and thus, also get rid of non-saleable stocks.
This is an essential part of all retail businesses. In every retail business owners life, there is always that one product that is supposed to be gone but does not leave.
The products that are not highly in demand are the right choices to implement inventory liquidation strategies on. Inventory liquidation tactics will generate returns on investment to a point where loss incurred is minimum.
This way, the business does not lose profits.
How to Get Rid Of Excess Stock?
After knowing all the downfalls of an excess inventory and the disadvantages of keeping redundant products, it is important to know ways to get rid of all the excess stock.
Here are some solutions to get rid of extra products in your stock:
- Develop a contribution to profit analysis for all the inventory products as a part of your periodic merchandising study or in monthly or, if possible, weekly reports. Analyze your product sales, keep track of it and develop candidates for liquidation (the slow sellers).
- A liquidation strategy should first be executable with your website or other selling media. You may as well use your brand’s online platform to clear the stocks at a lower price as compared to stores.
Remarketing Of Products
Remarketing the items that are using space unnecessarily from a long period is a great way to get rid of redundant products.
A product can be remarketed without much hassle.
This can be done by incorporating some minor changes, or by using great marketing practices like using images to promote products on your social media platform.
Sometimes, just placing the products in a more viewable place does the trick.
You can also rearrange product layouts in your store to place stocked up products in more lit areas that are more reachable for the footfalls and hence, shall generate demand.
You can even display it along with other trending items and materials surrounding the product with the saleable items to create a hike in customer demand.
Remarketing is amongst the most popular techniques to liquidate the inventory of stocked products.
This makes consumers accept the product in a different way which otherwise was of no fun to them. This would contribute in a similar way to the bestsellers in expanding the profits by minimizing the losses.
This can be implemented during inventory backlogs or stock management problems.
Opting For Clearance Sales
Clearance sales are amongst the best inventory liquidation techniques for stocked products.
Out of fashion items can be displayed at maximum discounts starting at 40% and gradually moving to 50% – 80 % discount to intrigue buyers.
Since consumers are expecting the shop clearance, they will be much more willing to buy products on clearance from your shop at the discounted price.
When you list your inventory products at clearance prices, you can clear the stock as well as earn a decent profit. This is a great way to remove redundant products from the shelves without affecting the business and making a good cut to the profits which shall reflect on the positive side of balance sheets.
Following is the list of channels to monetize your liquidation strategy:
- Internet/Website Of Brand
- Social Media Platforms Like Facebook And Instagram
- E-Commerce Websites Such As Amazon, Myntra Or Flipkart
- Relist/Repeat
- Clearance Sale
- Warehouse Sales
- Sales For Employees
- Sale Page
- Package Inserts
- Charitable Donations
Creating Product Packages and Bundles
Packaging products along with bundling them with a high selling product to liquidate inventory can boost up sales to a decent amount.
Trending inventory items will help to increase the sales of the stocked-up items.
You may also add it as a giveaway with certain high-profit products. Thats where your visual merchandiser can put his/her talent to use and save the day as well as bring along some profits to business.
Ensure the new package is a part of a trend and not standing out odd or just as an add-on.
The more the discount, interest or value a consumer finds in the product, the more willing they will be to shell out their hard-earned money on it.
These new packaged products attract more shoppers due to more cost-effectiveness, and therefore, they are tempted to invest their money in it.
That is the most crucial and effective liquidation technique for inventory.
Selling the Stock to a Liquidator or Distributor/Vendor
When none of the strategies works, you can return the products to the vendor at a loss of margin if he/she is willing to or is legally bound to do so.
Inventory liquidator is a person or a company which buys non-saleable products at a deeply discounted price or would buy your redundant products and then resells them using his/her branding.
Mostly, inventory liquidators purchase the products at a discount and sell it off at lower prices to the consumers, or they may choose to tie up with a designer to restyle the product to match the trending wavelength. This is one amongst many of the inventory liquidation strategies to be implemented to get rid of excessive products. This will not earn you the expected profit, but it is a great way to move inventory.
Inventory liquidation techniques will help you get on the brighter side of your balance sheet while the business earns profits from products that earlier, you were not able to sell.
Closing Thoughts
It is advised to keep your inventories lean and to minimize loss to earn more profits.
It shall also help you to free up physical space in the distribution centre and free up cash invested in the redundant inventory which can be further spent in more fruitful purchases.
Proactive purchasing of faster selling products to prevent back order or stock out would help avoid the trouble of liquidation.
Inventory management will play a critical role in the business growth and contribute to its success in the coming time. These inventory liquidation techniques will surely help you clear some space on the display shelves and restock the inventory with actually sellable products.
Keeping a record of all the items in your inventory and having an account of their quantities will help you make better inventory decisions in future.
Inventory management requires continuous and unbiased attention and is essential to attain success in any business. Tracking your inventory will provide the data you need to make decisions in the long run about how much stock to keep handy.
A good inventory management software like ProfitBooks can help you track the inventory movement efficiently. You can make informed decisions using in-depth reports like inventory valuation. There is nothing to install, just signup online and test drive the application.
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Also Read
How to calculate reorder level
12 Inventory management techniques to cut losses
