Six Ways Retailers Can Make Excess Inventory Work for Them

As part of Solutions Review’s Contributed Content Series—a collection of articles written by industry thought leaders in maturing software categories—Nicola Kinsella, the SVP of Global Marketing at Fluent Commerce, outlines six ways retail businesses can make excess inventory work in their favor.

In recent months, retailers began reporting a softening in excess inventory levels. This reprieve comes after last year’s nightmarish surplus that hit a 10-year high. We’re not out of the woods yet as we continue to experience excess inventory in some markets combined with a decline in consumer confidence and stubbornly high inflation levels. However, retailers are seeing improvements as they change how they store, sell, and distribute products. Here are six methods that are making the most difference. 

1) Creating Pop-Up Distribution Centers 

Retailers are getting more value from their stores and ramping up fulfillment capacity by adapting locations to serve as mini-distribution centers instead of paying for more warehouse space. 

They’re choosing specific stores that are best equipped to handle and fulfill online orders from their entire inventory pool. The approach reduces the chance of losing sales when a product is stuck in a location where online customers can’t access it. Creating these pop-up distribution centers allows them to sell more products at higher margins and deliver goods faster while mitigating risks. 

2) Getting Customers Back in Stores 

Once satisfied by online purchases and delivery, customers return to stores to pick up what they buy. “Click and Collect” speeds the buying process by allowing customers to buy what’s in stock and pick it up at the closest store at their convenience. 

Retailers that use this approach find that customer basket sizes increase significantly via strategic upselling in their stores. Customers will come to pick up their order and buy something else while they’re at the store. Store staff can be trained on pick-and-pack processes and upselling techniques to increase sales and decrease costs. Also, this approach takes the pressure off warehouses and reduces delivery costs. 

3) Optimizing Fulfillment Centers 

By fulfilling online orders from strategic locations, retailers can help keep margins higher and extract maximum value from each order. They can adjust their sourcing strategies to balance stock and ship items from the location holding the most or oldest inventory. Also, they can ship from the store with the lowest sell-through rate or highest in-store markdowns. These two scenarios are much better than discounting products and sacrificing margins. If an item isn’t selling in one store, they can send it to a store where they know it’s selling well. Or, they can use that store to fulfill online orders for this item. 

4) Reducing Underselling and Overselling with Real-time Inventory 

No customer wants to buy a product online only to have it immediately canceled because it was oversold and unavailable. Not selling as much as they could because of a lack of reliable inventory data across all locations impacts businesses just as negatively. 

Real-time inventory enables retailers to track all their stock across all their locations. It gives them an accurate and reliable view of what’s in stock, what’s being processed, or what’s ready for pickup or shipment. They can even set safety stock levels for popular items to prevent overbuying.   

5) Using Virtual Inventory to Control Sales 

As more stock began arriving at the beginning of the year, retailers were pressed to sell inventory instead of buying more warehouse space. Now, they’re creating virtual pools of inventory, segmented by channel, market, region, and product, and even include inventory rules such as safety stock levels or exclusions. With this approach, they can isolate a part of their inventory for online orders and reserve the rest for in-store traffic. Or they can aggregate all stock, including store stock, and make it available to sell online to reduce stockouts. 

6) Saving Money with Dropshipping 

Many retailers are incorporating dropshipping as a fulfillment strategy that saves money and space without losing sales. Dropshipping enables them to fulfill orders without keeping products in stock. Instead, they make the sale and pass it to a third-party supplier to ship the product to the customer. If something happens to a warehouse, they can ship items from elsewhere. Dropshipping also safeguards them from any unexpected changes in demand or pricing. 

Dropshipping with improved visibility through distributed order management is helping retailers respond faster, avoid massive discounting, and offer an option to unload excess inventory on third parties. These steps are helping retailers avoid overstocking caused by supply issues, poor inventory visibility, poor forecasting, and a general desire to avoid being out of stock. However, they must also improve forecasting to avoid future inventory gluts. Forecasting demand shouldn’t just rely on sales data from previous years. Retailers must consider intent data, such as browsing behavior, which is crucial to ordering the right amount of stock to fulfill demand. 

It is also important to note where orders are being made instead of where they are fulfilled to understand the true demand. This consideration enables them to distribute stock more accurately and optimize replenishment orders. Whether or not the country enters a recession is still up for debate, although more and more analysts are beginning to believe it is inevitable. The lessons retailers learned from the pandemic and the supply chain breakdown will undoubtedly help them through difficult periods.