Ways to Manage Excess Inventory in this New Age of Retail
The end of the year is a time for clearing out junk from the attic, reorganizing stockpiles and, for retailers, completing assessments of leftover inventory. And while Q4 always shines light on what’s left on the racks, COVID-19 has created a series of complex challenges and roadblocks of excess inventory for apparel brands, both manufacturers and retailers. The pandemic has made it increasingly difficult to adequately predict the right inventory levels because consumer demand and purchasing are so volatile. When the pandemic hit home in March, mandatory store closings as a result of lockdowns left brands with exceedingly high amounts of excess inventory. In turn, this impacted their supply chains, sales potential and, more important, bottom lines.
According to a recent study by McKinsey & Company, the expected value of excess inventory from spring 2020 apparel collections is estimated at $160 billion to $185 billion worldwide, more than double average levels. Excess inventory can be the result of several disruptions in the product cycle, including shipment delays, technical challenges (SKU processing and system integration), returns and quality check points. Of course, market trends also play a part in creating excess inventory; for example, changing seasons impact inventory when it comes to the home goods sector. That, of course, is more predictable in nature and can largely be taken into account during planning phases.
But for less predictable causes (like pandemics), what are some of the ways retailers and manufacturers can tackle the problem of excess inventory? First, there is the option for a retailer to return to their supplier for a refund or credit; second, they can convert the inventory into new products (e.g., reinventing an apparel line); third, they can liquidate the excess inventory (unfortunately, losing the entire value as a result); or finally, they can tap an independent, full-service corporate trade company that provides financial and marketing solutions for companies with underperforming assets (such as excess inventory).
Anchor Trading is one of those organizations that can help provide an outlet for companies with excess inventory during this time. For instance, they were able to help a customer that had excess inventory of more than 3 million bottles of a discontinued product. As a solution, Anchor Trading provided the client with a trade credit for the full wholesale cost; the customer was then able to alleviate the inventory problem immediately as the entire overstock was shipped directly to Anchor warehouses within 10 days.
In the end, the program helped the customer avoid a financial loss of more than $4 million.
Without the program, the customer would have had to liquidate the inventory through secondary/ tertiary channels, accepting approximately 25% of their original wholesale price.
With the future still significantly unpredictable as we continue to weather the pandemic’s waves, it is crucial for retailers and manufacturers to have a plan in place and brace for the unexpected. A deep dive into what is and isn’t selling will help retailers and manufacturers plan for the challenging period ahead. But for the excess inventory that is sure to reveal itself come 2021, utilizing resources such as corporate trade could be the ticket to thriving or not surviving.