Excess Inventory: What E-Commerce Companies Can Do About It

One of the most pressing concerns for online retailers is excess inventory. Excess inventory can impact a company’s profitability, cash flow, and storage space. In fact, recently Funko Pop! toys will be throwing $30 million of surplus inventory in the trash. The point is, It’s crucial to manage excess inventory effectively, or it can lead to significant financial losses. In this blog post, we’ll explore the impact of excess inventory, how it comes about, and different approaches e-commerce companies can take to handle it.

Impact of Excess Inventory

Excess inventory is a common problem for many e-commerce companies. It can lead to several adverse impacts on business operations. For example, holding excess inventory ties up valuable cash and resources that could have been invested in other business activities. When inventory sits idle in a warehouse, it incurs storage and maintenance costs, which can eat into a company’s profitability.

Additionally, surplus inventory can become obsolete, leading to significant write-offs or markdowns. This can result in a loss of revenue and reduced margins, which can be detrimental to the company’s bottom line. Ultimately, excess inventory affects cash flow, profitability, and operational efficiency, leading to a less sustainable business.

What Drives Excess Inventory

Excess inventory comes about due to several reasons. In some cases, it’s a result of inaccurate sales forecasting. For instance, companies may anticipate higher demand for a product and order more inventory than needed. When sales don’t meet expectations due to suboptimal imbalances in product mix, inventory levels rise, leading to excess inventory.

Another reason for overstocking inventory is changes in consumer demand. Consumer behavior and preferences are continually evolving, and it’s crucial for e-commerce companies to stay up-to-date on trends to avoid overstocking unpopular items. For example, a company that sells winter clothes might order excess inventory of winter coats, only to find out that the winter is milder than expected, and the coats don’t sell as well.

Lastly, unexpected events such as natural disasters or global pandemics can disrupt supply chains, leading to higher than required inventory. For example, the COVID-19 pandemic led to an increase in demand for personal protective equipment (PPE), resulting in a shortage of supply. Companies that over-ordered PPE ended up finding themselves with excess inventory that they couldn’t sell.

Different Approaches to Manage Excess Inventory

E-commerce companies have several approaches they can take to manage excess inventory. Here are a few examples:

1. Discounting

One of the most common approaches is to discount surplus inventory to move it quickly. While this approach may result in reduced margins, it frees up storage space and generates cash flow. For example, an e-commerce company that has excess inventory of a particular product can offer a discount to incentivize customers to purchase it quickly.

2. Product Bundling

Another approach is to bundle excess inventory with other products to create a new product offering. This approach can be effective in moving excess inventory while also generating interest in other products. For example, an e-commerce company that has excess inventory of t-shirts can bundle them with other products like hats or shorts to create a summer fashion bundle.

3. Pre-Order Campaigns

Pre-order campaigns can be an effective approach to managing excess inventory. Companies can offer customers the opportunity to pre-order products at a discount. This approach generates cash flow and helps to forecast demand for future inventory orders. For example, an e-commerce company that has excess inventory of a product can offer a pre-order campaign for the next product release, helping to reduce excess inventory while also generating demand for the next product.

4. Donations

Another approach is to donate excess inventory to a charity or non-profit organization. This approach allows the company to do some social good while also freeing up storage space. For example, a company that has excess inventory of children’s toys can donate them to a children’s charity, helping to put a smile on kids’ faces.

5. Liquidation

Liquidation is a more drastic approach to excess inventory. It involves selling excess inventory to third-party liquidators who will purchase it for a fraction of the cost. While this approach may not result in the best financial return, it frees up storage space and generates cash flow. For example, an e-commerce company that has excess inventory of electronics can sell it to a liquidator who will sell it to a retailer at a discounted price.

6. Repackaging

Repackaging is an approach that involves changing the packaging of products to create a new product offering. This approach can be effective in moving excess inventory while also generating interest in the new product offering. For example, an e-commerce company that has excess inventory of a particular product can repackage it into a gift set and market it as a unique gift option.

Inventory Planning Software: The Right Tool for the Job

Inventory planning software can be a valuable tool for e-commerce companies in managing excess inventory. These software solutions can help companies optimize inventory levels and make more informed decisions based on sales forecasting and inventory data.

Inventory planning software can help e-commerce companies in several ways. Firstly, it can help companies to forecast demand more accurately, reducing the likelihood of overstocking and excess inventory. Secondly, it can help companies to identify slow-moving inventory, allowing them to take corrective action before inventory levels rise too high. Finally, it can help companies to manage inventory across multiple channels, ensuring that inventory levels are balanced across different sales channels.

For example, an e-commerce company that uses inventory planning software can identify a product that is not selling as well as anticipated. The software can then provide recommendations for adjusting inventory levels, such as reducing future orders or running a promotion to increase sales. By taking action early, the company can reduce excess inventory levels and prevent write-offs or markdowns.

TL;DR – Excess inventory can have a significant impact on e-commerce companies, affecting cash flow, profitability, and operational efficiency. Companies that manage excess inventory effectively can free up storage space, generate cash flow, and maintain sustainable business operations. E-commerce companies have several approaches to managing excess inventory, including discounting, donations, liquidation, product bundling, pre-order campaigns, and repackaging. Additionally, inventory planning software can be a valuable tool in managing excess inventory, helping companies to optimize inventory levels and make more informed decisions based on sales forecasting and inventory data.