Author: Olivia Frere & Andreas Blomst Mar 02, 2023 4 Min READ

Overstocking Explained: How to Capitalize On Overstocked Inventory

4 Min READ
Overstocking Explained: How to Capitalize On Overstocked Inventory

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As an ecommerce retailer, one of the challenges you’ve surely had to manage is inventory. Sometimes, despite your best efforts, you end up with unsold products that are taking up much needed (and expensive!) space in your warehouse. This can be frustrating, but there are ways to turn this problem into an opportunity. From discount strategies to creative marketing campaigns, we'll explore different techniques that can help you clear out old stock and make room for new products. So, if you're looking to optimize your inventory management systems and boost your sales, keep reading!

What is Overstocking

Overstocking refers to the situation in which a business or retailer holds too much stock of products beyond the stock levels necessary to meet customer demand. It occurs when a company purchases or produces more goods than it can sell within a reasonable timeframe.

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Some of the causes of overstocking include lost sales, poor inventory management, inaccurate sales data, bulk purchasing to take advantage of discounts or lower prices, seasonal fluctuations, or changes in consumer preferences. It can occur in both physical retail stores and e-commerce businesses.

What is Overstocked Inventory?

Overstocked inventory is excess stock taking up storage space and increasing carrying and inventory costs. Surplus inventory and dead stock can be avoided with the right inventory management software and more accurate demand forecasting

Luckily businesses can also profit from surplus stock, improving their bottom line while freeing up warehouse space for new inventory. Here are some tips to increase your inventory turnover rate and benefit from overstocked inventory.

Optimize Your Online Presence

Before you start using the common strategy of discounting products, review your sales channel performance and your overall online presence. Are you currently selling on the major online channels (Amazon, Walmart, and eBay)? If not, consider adding these channels to tap into a new customer base. Not active on social media? Yikes. It’s time to get social! Social commerce sales are growing exponentially year after year. By taking the time to optimize your social media presence, you can turn your social networks into powerful sales channels.  

If you're already set up on social media and are still looking for new ways to shed excess inventory, it's time to think about discounting.  

Get Strategic

Discounting product is a commonly used strategy to get rid of excess inventory. Getting strategic about how you discount is important. Think about your customer satisfaction first and then decide what discounting strategy would be most appealing to them. Would they prefer tiered discounts that offer them steeper discounts as their purchases get bigger, or do you think they would react better to something like a BOGO or flash sale? Don’t underestimate what your customer is looking for as planning for their purchasing behavior will go a long way.

One proven strategy to breathe new life into your offerings is to repackage or bundle them in new and exciting ways. This tactic is a favorite among savvy ecommerce retailers who want to make it appear like they're constantly introducing new products even if they're just presenting existing products in a new way. Think about using this strategy in times of year associated with gift-giving. This is when people are often on the lookout for unique and exciting gifts to give family and friends.  

How about a warehouse sale? If you're already working with a third-party logistics (3PL) provider, it's worth asking if any of their other customers are interested in collaborating on an end-of-season sale. At these sales, customers can snag great deals on your products while discovering new brands they might not have otherwise known about. And the benefits don't stop there—we've found that these sales can create a loyal customer base that returns year after year to take advantage of the deeply discounted prices.

Time to Liquidate

Still not having any luck? Think about liquidating inventory. Large liquidation partners like B-Stock and even Amazon will buy your excess inventory, but be prepared to sell them for far less than you are usually comfortable with, sometimes pennies on the dollar even. While this may seem like a disappointing outcome, it's better to recoup some of your investment than to have unsold inventory taking up valuable space in your warehouse.

Consider donating your inventory to a local charity. This can be a great way to do some good while also benefiting your business if you donate to a qualified charitable business. Share your donation in a marketing campaign to let your customers know how you are helping others in need. While the donation should be your main focus, using this as a marketing strategy is often a great way to share how your business gives back to the community.  

Understanding your inventory levels and how they relate to your sales order volume will help you identify items in the warehouse that need attention. While this is not an exact science, here are some tips on how to decide what approach to take with the three most common SKU liquidation scenarios:

  • Overstock: these are SKUs where you have more inventory on hand than you planned for. If the item that is overstocked is discontinued, then a simple discount strategy is in order. However, if the item that is overstocked is not discontinued, you may be cannibalizing future sales by discounting today. If this is the case, repackaging or bundling along with a marketing push can be all you need to solve for the overstock situation.
  • Discontinued Items: In general, discontinued items are great candidates for a discount or liquidation strategy. However, you must consider the rate of sell-through at the suggested retail price. If you will be sold out in 90 days (about 3 months) or less, it's better to let the product run its course. Also important to consider is if the item is recently discontinued, you will want to keep a percentage of orders on hand for warranty replacement through the end of the warranty period.  
  • Seasonal: These SKUs can be tricky; even with substantial discounts, you may not be able to move a plastic Christmas tree in February.  If discounts will move off-season products, that is always a desirable outcome, but the real strategy here is to donate sizable items and store the small items that cannot be sold at a 50% discount for the long-term.  

Looking Forward

Especially with the economic uncertainty ahead—even as supply chain inflation slows—it is important to keep these inventory strategies at top of mind while retail inventories remain elevated. According to WarehouseQuote, “we still have a ways to go before reaching ‘normal’ inventory levels,” but by employing these tactics, you can start to alleviate your warehouse capacity issues.

And for brands/merchants looking to improve their inventory strategies by expanding their geographical footprint to better meet customer's needs as they grow, check out Extensiv's Fulfillment Marketplace to be matched with a 3PL partner uniquely suited to meet your needs. 

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Overstock Inventory FAQs

What are the consequences of overstocked inventory?

Overstocked inventory takes up valuable storage space and can negatively impact your cash flow by generating carrying costs without turning a profit. These storage costs includes expenses like rent for additional warehousing and storage space, utilities, security, insurance, and potential inventory damage or obsolescence.

What causes overstocking?

Overstocking is caused by businesses ordering too much inventory as a result of irregular inventiry audits, inaccurate demand forecasting or to prevent an understock situation. The pandemic in particular has made it more difficult to predict shortages and customer demand and caused many retailers to order too much safety stock.

What are the advantages of overstocking?

Overstocking offers the advantage of being prepared for a sudden increase in demand. It can also help when launching new items, to prevent running out-of-stock in case a new product sells better than expected. Overstocking can also act as a buffer against potential supply chain disruptions.

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