Excess Inventory: What is it, why you don't want any of it, and how to eliminate it

Excess Inventory: What is it, why you don't want any of it, and how to eliminate it

Often caused by inaccurate planning, excess inventory happens when the quantity of items ordered exceeds the expected demand. If not sold over an extended period of time, excess inventory depreciates in value, forcing you to sell at cost/loss.

Discounting outdated and excess merchandise is an obvious technique that brands use to clear away inventory. However, if possible, you should avoid being in that position at all cost for the following reason: Frequently discounting your products could negatively impact your brand's image by sending the wrong message to your customers. You could be seen as the company that often cuts prices leading customers to wait until the next series of discounts to make a purchse — this is a vicious cycle you don't want to get into!

The new generation of brands have increasingly become discount-averse to protect their image and margins. We don't think discounts are bad, but unwanted/unexpected ones are.

Just remember that inaccurate planning leads to excess inventory → excess inventory leads to un-wanted discounts → unwanted discounts leads to an cheaper brand image associated to frequent discounting events.

So, how to deal with excess inventory you ask? We've complied a list of 3 tips to help you get rid of it efficiently.

Price optimisation

Experiment discounting your products at different prices and start with a small sale. Discounting your product blindly to liquidate your inventory is not advised as this could lead you to sell at cost or even at loss — urgh! You should aim to discount your products "crescendo style" to optimise margins and generate more revenues out of each sale.

Customer segmentation

In your existing customer base, calculate who is most likely to buy your excess inventory based on their historical purchasing behaviour. For instance, if customer 1 has bought product A, B, and C, and customer 2 has bought product A and B, it's probable they'll be interested in purchasing product C. Find out who those customers are and sell them product C at the right price!

Supply chain planning

Investing in a Supply Chain planning platform will help you monitor, plan, and order inventory optimally and eliminate excess inventory. Keep in mind though that inventory planning isn't an exact science. Get yourself a product built for the next generation of commerce, one that enables you to add upcoming events that will have an impact on your sales eg. product launch, increase in paid ads, and newsletter promotions.