Every CPG brand ultimately faces the problem of overstock or unsold inventory at one point or another. It’s a very common and inevitable problem; tracking customer demand and consumer trends is difficult and will never be 100% accurate. Because of this, it’s in your best interest to have a game plan in place for how to handle unsold inventory, especially if it’s short dated.
For the average brand, between 20-30% of all stock is unsold, and many don’t recognize the hidden cost of surplus and overstock inventory until it is too late. Managing an overstock problem is expensive and emotionally draining. Short dated inventory is particularly stressful.
Overstock challenges for brands
Following are some challenges brands face with overstocks and the costs associated with them.
Discounting
Many brands start with discounting to tackle their overstock problem. However, perpetual discounting is harmful long term. It’s cannibalizing and contributes to brand dilution. Discounting, clearance and sales need to be done with strategy in mind not just as a reaction to inventory that isn’t moving. Discounting on online platforms like Amazon is especially harmful: consumers pick up on brands who consistently discount and you may not recognize the damage to your brand’s image until it is too late.
Holding overstock
Holding overstock means that you are paying thousands of dollars a month in storage fees as well as labor costs for stock that you will likely not see a return on. In addition, significant capital is held up in that inventory, potentially even millions of dollars of investment. This is capital that can be reallocated for any other part of the business; there is a high opportunity cost in holding surplus stock. As a brand, inventory is your biggest asset and most expensive cost.
Liquidating inventory
Liquidating inventory on online or open channels is a risk. You lose visibility and control as a brand and if consumers find your products online somewhere for a cheaper price than on your forward facing site, this anchors consumers on discounted pricing and harms loyalty in purchasing directly from you. Vetted and discreet inventory offloading is crucial.
Discarding overstock
Discarding and dumping overstock inventory is a common practice in retail. However, it comes with a high price tag. States are beginning to fine for unsustainable disposition practices, especially in the food and beverage space. As an example, CPG brands are being fined for landfilling overstock per SB 1383. What this means is that relying on landfilling is not an environmentally friendly or long term option. Landfill fees are also on the rise from up to $500 to $1000 a ton. Consumers are becoming more weary of brands who destroy excess inventory. There comes a cost long term.
Putting an overstock plan in place
The brands that win at inventory planning and supply chain are the ones who have a plan in place and channels for how to move unsold inventory. Overstock directly impacts cash flow, and cash flow is everything as a brand.
Putting a plan in place means making sure that first and foremost, you know where your overstock data is located and you have an eye on the quantity and SKUs. Many brands don’t pull overstock data until it is too late and it’s taken up half the warehouse. If you don’t manage your overstock data on your WMS, make sure it is at least in an excel somewhere so you can keep track of what you have.
Liquidating is a process that can unlock cash and accelerate working capital. In evaluating where you are comfortable liquidating, think about what would be discreet for your brand. If you sell in retail stores in a few major cities in the Mid Atlantic, liquidating to regions outside of your core geography may be a good solution. Be wary of Amazon discounting or online discounting as this has a digital footprint.
Editor’s note: If you’re looking for a solution to discreetly offload and monetize overstock and short dated inventory to vetted offline buyers, check out Sotira. Sotira is a RangeMe partner for brands with overstock or unsold inventory that are looking to recover up to 50% of costs, clear storage space and reduce waste.