3 Effective Steps to Manage Excess Inventory
Excess inventory is one of the most common concerns of any business. As it is directly tied to the cash flow, mishandling your inventory can leave a significant impact on your profits. Besides the cost of storing excess stocks in the warehouse, it also prevents you from being able to re-invest capital into a new assortment for the coming season.
Fashion businesses usually incur excess inventory at the end of every season, when seasonal new-ins command a higher focus than existing stocks. However, with the right inventory management strategy, you’ll be able to avoid ending the season with high excess inventory while maintaining a good stock position.
So, what to do with excess inventory?
Here are the three steps to managing excess inventory to improve the stock position.
- Constant monitoring
- Create effective promotions
- Re-marketing your products
A chart analysing Zara’s overall online assortment dating back 180 days from June 1, 2019
Regardless of how accurate your demand planning is, excess inventory happens to every business of any size. The key here is to consistently monitor and analyse your inventory to detect problematic areas early. For fast-fashion retailers, up to 60% of inventory should be sold within 60-90 days.
For stocks that have not traded beyond 90 days? Take action immediately.
A healthy assortment would see a large number of products concentrated in the 1-30 days (to account for new-in) and 31-60 days, with the stocks from the 90 days onwards gradually reduced.
A chart analysing Zara’s online assortment by category
The chart above analyses Zara’s online assortment dating back to 180 days from June 1 of 2019. Using the Omnilytics’ Ageing Analysis module, we can analyse how each category performed against their total sellout number. According to the data, 57% of Zara’s assortment was more than 60 days old, with a majority of those products concentrated in the 61-120 day range.
The categories with the most substantial amount of inventory were in Tops and Outerwear. As indicated in the second column, the Top category had a total sellout of 13.35%, which was significantly lower than the other categories, signifying a possible over-stock.
A chart analysing the ageing of Zara tops
A more in-depth analysis in the tops category showed us which styles of tops were ageing beyond 60 days. As seen in the chart above, the bulk of the slow-moving tops were in shirts and T-shirts with a sellout of 12.47% and 13.72% respectively.
Based on the ageing from the first launch date, you can identify which groups of products to markdown first.
From here, create a markdown strategy to reduce the volume of these items. Do remember to document these slow-movers or worse-sellers to form critical lessons learnt for the next season planning.
Create effective promotions
Image credit: Zalora
Discounting is the most common tactic for liquidating excess inventory. To determine how deep a discount to offer, we would have to evaluate a few factors. Generally, we would give higher discounts on…
- Slow-moving items: Products with slow sell-through rates
- Down-trending items: Items that are no longer in season
- Off-season items: Selling off winter goods during the summer season
However, discounting must be done strategically with an apparent objective as lowering prices too often can be detrimental to your brand image. Regularly offering high discounts could lead to customers perceiving you as their go-to brand for ‘sale items’. Therefore, switch up your markdown strategy by deploying short-term markdown tactics.
A popular tactic in e-commerce is creating flash sales or limited-time offers. Typically done within 24 to 36 hours, the flash sale provides a sense of urgency among customers to shop.
The main benefit to a flash sale is that these sales can be made periodically during the season to help clear stock before the seasonal trade period ends.
Other common tactics include a themed sale which reduces prices for products related to a specific theme or event. Usually coupled together with a limited time offer, the themes can range from particular calendar dates such as “back-to-school” period or significant events such as the Coachella music festival.
Image credit: Levi’s
Bundling is another excellent method to move large volumes of products quickly. A bundle can be a combination of products with similar items or items that complement each other. Common bundles used by retailers are “Buy 1 Get 1”, “Buy 2 for 50% off” or “Get 3 for the price of 2”. The key to a good bundling strategy is to coordinate items that can be sold off together and placing a price point that satisfies both you and your customers.
Re-marketing your products
If a product is not selling, the issue may not lie with the product itself but the way it is marketed. In the case where you are unable to markdown the price of a product any further, consider refreshing your marketing strategy.
The first method is to optimise the item’s product page. Images and text can significantly influence a customer’s purchasing decision. Therefore, do ensure the products are photographed as best as possible, accompanied by a persuasive copy and tagged accurately. This will not only improve how the product is perceived but also increase your website’s Search Engine Optimisation (SEO).
Image credit: Boohoo
The second method is utilising social media. From hosting giveaways to holding competitions, there is a multitude of ways to moving excess inventory while increasing brand awareness through social media.
Although hosting a giveaway may seem like your margins are taking a hit, do remember that the cost can be accredited to your marketing budget. The great thing about a giveaway is that you have full control of the mechanics.
When determining the mechanics of a giveaway, consider the perceived value of the items. The higher the value, the more terms and conditions you can apply. If your giveaway item does not seem valuable enough, consumers may opt not to join at all.
For example, this Instagram post shows Forever 21 giving away various items, followed by a list of rules to enter the giveaway.
Image credit: Forever21 Instagram account
The rules here are simple – follow, comment and tag two friends. Although there is more than one step, the perceived value of the items is high enough that consumers are willing to participate.
Excess inventory is inevitable in every business, but how you navigate it will determine your cash flow. Always remember to consistently monitor assortment balance and inventory levels to identify slow-movers early. This will allow you to strategise markdown activities accordingly.
Having access to real-time data not only eases monitoring and tracking of product movement but also allows you to visualise your assortment quickly. This enables you to plan your next steps effectively, preventing any significant losses.
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