Updated November 24, 2020
Overstock inventory can be a serious issue for both small and large businesses alike. However, the problem has been particularly potent for small businesses, which struggle to record and harness customer data to optimize inventory management. In fact, a study completed by IHL Group showed that from spring 2014 to spring 2015, overstock inventory cost retailers about $471.9 billion.
Carrying some overstock is a necessary component for running a retail business. Yet, even for those who carefully plan their purchases and stock items based on past experience and quantifiable data, overstock happens to the best of small business owners. In this post, we’ll cover a number of different strategies for dealing with excess inventory so that you can still either make money on your overstock or cut your losses, ultimately improving your bottom line.
1. Sell Your Overstock Inventory Online
The world of e-commerce presents all sorts of new opportunities for small business owners to make a profit. If you already operate an online store, first aim for inventory liquidation by offering competitive sales.
If the product is still slow-moving and you are in a situation where you just need to clear some shelf space for a new truckload of inventory, try offering a sale of 60% off or more. Not only will the items most likely move quickly, but this can be a great way to acquire new customers, since buyers will be less hesitant to make a purchase if they don’t have to spend as much. If the buyer likes the product they receive, thinks it is high quality and worth their money, odds are you will have a new customer! Plus, they might even tell their friends and family!
If your business is local and you don’t sell products online, then try eBay or Amazon. These platforms are a great way to move obsolete inventory, particularly eBay, since you can offer items up at bids starting as low as $0.01. While you should definitely try to get more money for your inventory, starting an auction at $0.01 is a sure-fire way of guaranteeing you still get some money for your most persistent overstock merchandise. EBay offers an intuitive interface, and the requirements for selling are minimal.
Amazon doesn’t offer the option for you to let buyers bid on your items, and their sales process is a little more involved than eBay.
When you sell online, you’ll still receive some money for your excess inventory, thereby cutting your losses on unpopular items and improving your business’ cash flow, even if only slightly.
The only downside to this method is that it can only be used by businesses selling non-perishable goods, such as clothing. Businesses that sell food, like chocolate, typically cannot use this method.
2. Leverage Product Bundling
Product bundling is a great way to sell slow-moving inventory. By offering a special featuring a popular item with one of your excess stock items at a discount, you can move both items! This method works for all kinds of retailers, regardless of the product they are selling.
For example, let’s say you own a sports attire store in which a particular basketball bag at the price of $40 isn’t moving very well. You could bundle the bag with a basketball, let’s say the basketball is $35, and offer both items at $65. That’s a savings of $10 for the customer. Thus, not only will it incentivize purchases but it will also help you move your surplus inventory of basketball bags.
3. Run Promotions
Promotions are a great way to move items and incentivize customers who visit your store to buy more. A promotion could be a “free gift” when a customer spends $50. Publicizing promotions via email blast or social media can be a great way to drive traffic to your store, whether it’s an online e-commerce store or a brick-and-mortar business. Almost any business can benefit from running promotions, regardless of the items sold, making this one of the more versatile methods of offloading overstock.
As an example, let’s say you own a home décor and housewares store. Your business is doing well but there’s a particular designer pillow that just isn’t selling. You’re looking to liquidate that stock, but you just can’t seem to get anyone to buy the pillows, even on sale. You could try offering it as a free promotional item for customers who spend $60 or more in your store. Oftentimes, customers will buy something extra to meet that mark, such as when a customer checks out and realizes that if they spend just $11 more they will get the free pillow. Not only will you be moving your excess inventory, but you’ll also be selling more inventory overall.
4. Offer Bulk Discounts
Is your business a wholesaler, or do you offer wholesale options? A great way to close out inventory is to offer large quantities at wholesale price.
If your business does not offer wholesale options and you would prefer not to, you can still offer bulk discounts to your customers. For example, let’s say you sell clothing and there are a number of t-shirts you have that aren’t moving. You can offer 25% when customers buy 2 or more, or 40% if customers buy 5 or more. Bulk discounts like these can help drive sales and move excess inventory in a timely manner.
Even businesses that sell food or other perishables can offer bulk discounts. An example would be offering customers who buy 5 or more chocolate bars 15% off their total purchase.
5. Sell Your Inventory to An Inventory Liquidator
If you don’t want to go through the hassle of liquidating inventory yourself, another option is to sell your excess inventory to an inventory liquidator. They’ll buy the product from you in bulk at a substantially discounted price and then sell it on their own. This can help you get rid of a large quantity of inventory quickly (instant empty shelf space!) and also give your cash flow a fast boost, assuming that you receive payment in a lump sum.
If you decide to pursue this route for your business, make sure you know the value of your product and decide on a price you are comfortable taking. Then, when you negotiate, start at a higher price with the goal of receiving more money. But make sure you are ok with dropping to your lowest price.
Businesses that have particularly brand sensitive items may want to avoid this route, since once you sell your items to inventory buyers you will have no control over what price they sell them for. For example, if you run a designer clothing store in which you design and sell your own clothing, you are not just selling inventory, you are also building a brand. Since for many brands pricing is derived from the brand name itself instead of solely from the product, steeply discounting items can hurt your pricing power. If you are selling t-shirts at $50 apiece and someone finds a t-shirt from your brand at $15 online, this could really hurt the perceived value of the products you sell and damage your sales power.
Keep in mind, this method only works for certain businesses with certain products, such as clothing retailers.
6. Donate Your Excess Inventory
There are a number of reasons why you may want to donate excess inventory. If you have exhausted all the alternative options and nothing works, donating is always better than throwing items out. Your business may also just want to do something nice for the community.
Whatever your reasoning, donating can come with a number of benefits. You can write blog posts on your website, hang pictures in your store, or notify customers of the work you are doing through social media and email. All of this will help build a good reputation for your business and keep your customers engaged. By posting events your business has participated in on social media, you’ll be able to make sure you are interacting with your customers and followers while keeping the business relevant and fresh in their minds. This is particularly important for businesses that are trying to build a brand. That way, the next time customers are looking to buy a particular product they’ll already be thinking about your business.
This can be particularly effective if you own a brick-and-mortar business. Donating excess inventory or performing charity work can help your business build a strong rapport with the community. Since your business’s livelihood will depend on shoppers in your local community, this is an important component of any small brick-and-mortar retail business.
Another donation method that can help move overstock inventory is to notify customers through in-store signs and/or on your website, along with through email and other outreach methods, that for every purchase of a particular item, you’ll donate 15% of the profit to a particular charity. This will help draw attention to items that aren’t being noticed by shoppers. Plus, it will add to the reputation your business is building with its customers. An example of this could be if you have an item with a dog design on it that isn’t moving. In order to incentivize customers to buy it, you could notify them that 15% of the profits will be going to a local animal shelter.
How to Avoid Purchasing Excess Inventory
The best way to avoid having to deal with overstock is to avoid having excess inventory in the first place. While, as mentioned above, it is almost impossible to avoid having surplus inventory altogether, there are methods for minimizing it.
This can be helpful not just for avoiding excess inventory but also avoiding issues that arise from not having enough stock. The same IHL Group study mentioned above also found that out-of-stocks, meaning when a customer wants to purchase an item but can’t because it’s sold out, cost retailers $634.1 billion in one year. As such, it is beneficial for businesses to try to avoid both of these scenarios.
One of the best ways for businesses to avoid purchasing too little or too much inventory is to use an inventory turnover calculator.
Inventory turnover calculators allow business owners to find their ideal inventory turnover ratio. Moving inventory too fast can be detrimental to a business (see above re: out-of-stocks). Your goal should be to keep inventory levels steady throughout the month, making sure your products are available for customers looking to buy them, while also making sure you don’t end up with loads of excess inventory. Remember, selling out fast is not always a good thing. Oftentimes, it can point to underlying issues in your business’s inventory management.
Moving excess inventory can be challenging. The key is to be creative and understand your customer base. As a small business owner, nobody will know your products and your clients better than you, so use that to your advantage. What do you think will drive purchases? Based on what you know about your customers, what kind of promotions and deals would they be most interested in?
If done right, overstock product liquidation can be extremely beneficial for your business, since you can reward customers with special deals and promotions while at the same time driving business and acquiring new clientele. The only thing to be cautious about is if your business is highly brand-oriented. As mentioned above, you should always be cautious about overly ambitious sales and extreme discounts in such scenarios, since in order to build a brand you must build its value.
Remember, if you are having trouble with overstock, try out the Biz2Credit inventory turnover calculator. The best solution to overstock is always minimization.