Inventory Overflow: Marketing Strategies to Move Extra Product
Inventory overflow can be cripplingly expensive. Not only will you incur storage costs quickly, but excess inventory can hamper your ability to resupply with more in-demand items. Depending on your industry, it can also damage your brand reputation when consumers see products go unsold for long periods of time.
However, under-ordering inventory runs the risk of failing to meet consumer needs, leading to missed sales opportunities and dissatisfied customers. So it’s essential to have strategies to move inventory overflow when your supply exceeds your customers’ demand.
What is Inventory Overflow?
In simple terms, inventory overflow (or excess inventory) is when a business holds more inventory than it needs or can sell. Excess inventory takes up storage space, either in a company’s own warehouse or in that of a third-party seller such as Amazon.
Consequently, inventory overflow is determined by how fast the business sells particular goods, how long these take to restock, and the amount of storage space available. Inventory management artfully ensures that sufficient stock is held to meet demand, without creating inventory overflow. It is a fine balancing act, with opportunity costs incurred for misjudgment in either direction.
The type of product involved will also have a major impact on how quickly stock needs to be sold. Fresh food needs to be sold quickly to avoid spoiling. This was never more prevalent than during the early days of the pandemic when farmers lost their buyers and were forced to destroy millions of pounds of their produce. Clothes, meanwhile, have a much longer shelf-life, but will typically need to be sold within a quarter to keep up with seasonal trends.
How Does Inventory Overflow?
There are several reasons why a business might hold excess inventory.
Over-ordering can occur when a business orders more than it needs (based on sales), or when sales are slower than expected because demand has been overestimated. Essentially, a product, for one reason or another, that doesn’t sell as well as expected, will likely lead to stock overflow.
Spikes in demand or a sudden fad for a particular product can make market demand hard to forecast accurately. In both of these instances, businesses often over-order to keep up with the surge, only to be left with excess stock once the demand has declined.
More problematic can be a demand shock, when market demand for a particular product suddenly decreases. This is what caused the 2020 oil price crisis; the COVID-19 pandemic ground economic activity to a halt, which caused a sharp drop in demand for oil. Companies that purchased and stored oil with the expectation of selling it, suddenly found themselves rapidly running out of space to store it.
Sellers will often plan to have extra inventory on hand as they enter busy selling periods, for example, Q4 and the holiday season. They do this because the supply chain experiences slowdowns, so ordering extra inventory pre-Q4 can get ahead of the holiday backlog. Also, most sellers experience an increase in sales, which necessitates the need for higher volumes of inventory.
Consequences of Inventory Overflow
The costs associated with excess inventory can be enormous. Storing unpurchased goods is expensive. For large businesses in industries like heavy machinery, switching from three to four could cost $65m per year.
Besides the storage costs, if you can’t shift the excess inventory, then the money spent on acquiring it in the first place can be difficult to recoup. While you’re paying to store the excess stock, you’re also prevented from restocking with more desirable products.
When working with a reseller, such as Amazon, inventory overflow can lead to restrictions further down the line. Recently, FBA (fulfilled by Amazon) suppliers have found their storage space at Amazon warehouses restricted, as increased demand for Amazon’s warehouse space sets in ahead of the holiday season. In this instance, again, suppliers can accrue long-term storage fees, but more importantly, be unable to distribute higher-value products through their partners.
What Can be Done to Trim Excess Inventory?
Realistically, it is impossible to get inventory management exactly right 100% of the time and to ensure that you have enough stock to consistently meet consumer demand, there will inevitably be times when you over-order.
In these instances, there are several approaches that you can take to move excess inventory.
Sell Online Of Course
If you’re not already selling online, start as soon as possible. Running an online shop as opposed to brick-and-mortar expands your market beyond your local area. Focusing on eCommerce will allow you to reach shoppers who can’t physically stop by your store. While people still excitedly shop in physical stores, the rise of eCommerce will continue. In 2021, eCommerce sales eclipsed $870 billion, a 15% increase from 2020 and a 50% increase from 2019, proving the jump—although smaller—will still continue even as people return to shopping in person.
Offer Discounts for Overflow Products
Offering a discount on excess stock is a good way to drum up demand. Clearance sales and flash sales generate their own forms of buyer urgency and can encourage a rapid increase in sales.
Discounts can be tied in with built-in sales holidays such as Black Friday, Cyber Monday, and Christmas sales, which allows excess inventory to be sold at scale. Many retailers run discounts continuously through November and December, helping boost profits before the end of the year. Being eager to shop during the holiday season, consumers spend an estimated $943-$960 billion.
Discounts can also be tiered to promote larger orders. For example, buy-two-get-one-free offers encourage bulk purchases and will clear more stock. Ultimately, offering a percentage discount that increases with order sizes will incentivize shoppers to purchase more items.
Bundling overstocked products with higher-demand products can help stimulate sales of lower-demand items. Offering discounted prices on complementary product bundles is a good way to move excess inventory.
Donate Your Inventory Overflow
Stock can be donated to charities or other social causes. This has the potential to raise your brand profile while also clearing inventory space. And aside from doing good for your community, it does have the added benefit of enabling a tax write-off. You may also consider donating excess stock to influencers in your industry. This not only clears out your storage space but can be used to create branded content at the same time.
Offering Extra Stock as Rewards
Excess stock can also be offered to customers as rewards for referring new customers, or as prizes for competitions in which customers provide their contact details to enter. This allows you to grow your direct marketing reach while offloading excess stock at the same time.
Inventory Overflow Wrap Up
While balancing stock management perfectly is impossible over any extended period of time, it is important to be aware of the potential costs of holding excess stock. Inventory managers need to ensure that all customer demand is met while steering clear of excess supply.
Inevitably, your business will sometimes encounter stock overflow. This isn’t a problem as long as you have the right strategies in place to clear excess stock. Discounts and product bundles can help clear low-demand items, while anything that can’t be sold can be effectively repurposed in ways that can raise your brand profile, and ensure greater demand the next time you resupply.