Oct 02, 2022Ed. Note: This article was previously posted at Retail TouchPoints.
Heading into the 2022 peak season, everything old is new again. Nostalgia is en vogue across TV, movies, music and fashion, reviving old trends and creating new ones. At the same time, retailers are harkening back to a time in the not-so-distant past when holding too much inventory was considered an unforgivable sin. In traditional retail, you always want to minimize your inventory holding costs to avoid paying for something you might not be able to sell. This is especially true ahead of the all-important holiday season, as peak-period sales can make or break annual goals.
Ben Eachus
But in the midst of today's current supply chain issues, inflation and fluctuating consumer demand, many retailers are finding themselves in the opposite scenario, with an excess of stock. There are really two options to address this dilemma: sharply slash prices, as some big box stores are doing, or manage excess inventory by storing it away until demand increases. Retailers and ecommerce brands often see profit margins negatively affected by a strategy aimed at deep discounts, so managing excess inventory is typically a more favorable approach. But it is still a new challenge to an old problem—not being able to correctly forecast inventory demand.
In an ideal world, no retailers would wind up with excess inventory because they would have the right insights to understand where and when their product most needs to be fulfilled. This requires both going back to retail fundamentals and updating your tech stack, such as with radio frequency identification and other Internet of Things solutions, so you can execute these best practices in preparation for the most lucrative shopping season of the year.
Excess Inventory Eats into Profits
Excess inventory can quickly balloon into bigger problems for retailers as well as the brands they stock. First, it can cost a lot to store this extra supply, particularly as warehouse space tightens. Second, as inventories are reappraised, retailers' profit margins dip. As a result, the value of goods goes down, as explained by Joseph Malfitano, founder of turnaround and restructuring firm Malfitano Partners, in a recent CNBC article.
This has the secondary impact of potentially causing a company's borrowing base to drop. If the trend continues into 2023, we could see more retailers filing for bankruptcy, putting brands in a bad spot. While many are struggling with excess inventory, the trend has publicly impacted business at some of the biggest chains. For many of these retailers, turning a profit in 2022 means they will have to outperform expectations in the Q4 holiday shopping season, with many turning to ecommerce to drive consumer spending.
Take Back Control with Tech-Enabled, End-to-End Supply Chain Management
Those that make changes to how they manage stock to prevent the situation in the future will endure, regardless of macroeconomic factors or shifts in consumer preference and demand. Modern ecommerce and retail brands are reinventing their playbooks, moving away from nostalgic yet outdated strategies and instead turning to tech-enabled fulfillment solutions, including RFID, that can unlock the visibility and insights needed to accurately anticipate demand and properly allocate inventory.
Not only do these solutions offer capacity to manage excess inventory, but they also provide the integration and connectivity needed for a holistic view of orders, inventory and fulfillment activity across channels and warehouses, centralizing all supply chain schematics in one place. With real-time visibility and predictive analytics based on current and historic insights, brand operators can make better inventory forecasting, purchasing and allocation decisions to optimize sales for the near-term peak season and into the future.
Better Inventory Forecasting = Happier Customers
Turning to tech-enabled fulfillment, via RFID and other innovations, not only reduces the chances of excess inventory and lowers costs, but also boosts customer satisfaction and drives repurchase. Armed with up-to-the-minute information on stock levels and how and when orders are being fulfilled, brands can better communicate with their customers and proactively notify them of delays or changes before they inquire—important, as the majority of shoppers indicate that they prefer a delivery delay to a bad customer experience, and that they will not shop with a retailer again following an inferior delivery.
Retailers struggling with excess inventory will continue to make headlines as the bullwhip effect set in motion during the last holiday season extends to this year. With the right technology to manage inventory and fulfillment, both retailers and the brands within them will modernize their operations and soon reminisce on misalignments as a thing of the past.
Ben Eachus is the co-founder and CEO of Flowspace, the software powering ecommerce fulfillment for brands. Eachus was an early employee at The Honest Co., where he led supply chain operations and scaled the company's distribution and fulfillment network during a period of rapid growth before its IPO. He previously managed fulfillment operations at McMaster Carr, a leading industrial supply distributor specializing in same-day delivery.
