The best thing to do for people who love wandering and exploring their favorite stores are actually doing it. This is a wonderful chance for these people to select from a wide-ranging choice of colors, sizes, and types of items that they want.
If you belong to this group of people, did it ever cross your mind what happens to inventory that does not sell in stores or online anymore? Have you ever wondered what happens when a business has too much stock? This all boils down to what we call the overstock inventory.
It is always a challenge for retail store owners and those who run consignment shops—stocking products with the correct amount of inventory.
There are consequences that may possibly happen when you do it right and otherwise: if you overstock items, you are left with costly excess; if you understock, you miss out greatly in terms of sales.
Looking closely at the business landscape, over half of small businesses use offline inventory tools or no inventory instrument at all. What happens when you do this with your business? This leaves you with a very high risk of stocking products more than the desired quantity.
These are the reasons why it is important for you to have a proficient grasp of overstocking, overstock inventory, overstocked items, stocking inventory, and everything in between! This is not something that you disregard or show no care about at all because such a concept surely affects your business capital and budget.
When you have the right amount of knowledge about these concepts and terms, it will prompt you on ways on how you can prevent overstocking.
What is Overstock?
In a nutshell, overstock inventory is the inventory that was not able to sell within an efficient amount of time at the retail locations or stores. It is also known as surplus stock.
When items or products have not been purchased by consumers, they belong to the overstock inventory. Overstocked items, while not purchased, must not be defective or returned by the customers.
This whole thing is the cause of stress and confusion across retailing and related services. Simply put, if the supply exceeds demand, what is likely to happen? They face great loss. While overstock inventory may be a result of over-delivery or poor stock management, this is common for businesses these days.
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Items or products under the categories apparel, home and garden, furniture, appliances and electronics, furniture, health and beauty, infants, toys, and more can all be considered overstock when they are not able to be sold.
As a result, retailers offload these excess stocks through liquidations. If not, these items will be stored in a warehouse space or even end up in landfills, which can hurt profitability.
This is the primary reason why retail store or business owners like you should know how to make informed decisions when it comes to stocking products and dealing with stock inventory.
In order for you to address such a concerning issue about too much stock, it is great that you have already had a background about overstock inventory in particular.
Causes of overstock
Overstocking has a variety of causes. But these same causes can be minimized or fully mitigated through careful calculation, organized planning, and thorough analysis of your inventory.
But before dealing with that, it is necessary to cite different causes of having too much stock.
1. Misjudged Customer Demand
During this time that the pandemic limits in-store purchases, most businesses have shifted to ecommerce industry, and most retailers are facing an information deficit in terms of the customers’ behaviors.
When meeting customers’ demands, you must ask, “Who are your target consumers?” and “Are they repeat customer?” You should not turn a blind eye when it comes to maintaining your inventory.
If you misjudge your customers’ demands for your products, this will inevitably lead to costly overstock items that will eventually be stuck on your warehouse space or shelves of your store. This is also disadvantageous for your part because space that is supposedly allotted for your new products and for other sales opportunities will be taken away by your overstock inventory.
2. Fear of Stockouts
Stockouts or out-of-stocks are being feared by retailers and business owners. This is something justifiable because stockouts cost retailers $1 trillion every year.
What happens when stores and retailers have out-of-stocks? The impact is compounding, especially when they are low on inventory due to the shortages. Aside from the lost opportunity for revenue, out-of-stocks also inflict long-term costs, including frustration among your customers, impact on your brand name and reputation, and the high price of rushing replacement items.
Because of these long-term impacts to your business, you need to be careful in treading the right direction in dealing with your fear of out-of-stocks. Sometimes, because of retailers’ tendencies to overcorrect from their stockouts, surplus goods balloon in number. You see, this is how overstocking takes place.
To avoid this from happening, store owners are necessitated to maintain a baseline of inventory best practices.
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3. Ineffective or Poor Promotion
In any business endeavor, marketing is necessary as it is a powerful means to engage your potential consumers and to promote your products. However, when such a promotional campaign fails to connect to your audience, everything can go astray.
Just because you have a compelling marketing campaign does not mean your customers will want to buy from the large number of goods you have bought or produced. It is not advisable to assume things just based on how you perceive your marketing campaign because when the reality of business hits you, you may find yourself in an unfortunate overstock inventory.
Upon the execution of your promotional campaign, customer behavior, previous feedback, and sales data should be your primary considerations for your purchase decisions. This is to successfully mitigate your business’ overstocking tendencies.
4. Inefficient Inventory Management
It is always fundamental for retailers and business owners to craft an inventory of their in-stock items. To mitigate overstocking or to deal with too much stock, you need to consider inventory costs.
There are three main types of inventory costs: purchasing costs, shortage costs, and carrying costs. If you do not have a grasp of what these costs are, then you will be dealing with a problem with your inventory management as well as your overstock inventory later on.
5. Challenges in the Industry
Overstock inventory may also vary depending on the industry you belong to. For example, if you are in the clothing or fashion industry, you may face an overstock clothing challenge especially because of seasonal trends.
Meanwhile, if you are selling perishable goods, you are likely to encounter challenges in avoiding overstocking tendencies because products like prepackaged food, candles, shampoos, and pet products among others have a limited shelf life. If these products are not sold immediately, they are likely to fall under your overstock inventory.
Now that you are made aware of some of the possible causes of overstocking, it is only right to also look at the effects of stocking products and overstocked items on your business.
How Overstocking Affects Your Business?
A surface discussion on business tips and how overstocked items impact your stocking inventory and your business in general.
Nonetheless, you need to fully delve into how overstocking really affect your business so that you can see where the problem comes from, how it arises, and what you can do to prevent it. Let us talk about the problems caused by overstock inventory.
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• Cost Intended for Storage and Space
The most visible and huge impact of overstocking is the cost that you need to allow for storage and space. Instead of welcoming new items or even bigger business opportunities, now you need to provide something for the excess stocking products.
This is a lost opportunity for your part because it does not only take away even bigger opportunities, but also your time, effort, energy, and expenditures.
• Tied-Up Cash
Another great concern in overstocking is tied-up cash in your products. There is additional cash in purchasing goods that become a part of your overstock inventory eventually. You will not be able to recover investment until the products have been sold.
• Expiration of Products with a Limited Shelf Life
As discussed earlier, the challenges in respective industries, these perishable and time-sensitive items can impact your overstock inventory because they tend to be at risk of expiration and product obsolescence, even if you’re running an ecommerce business.
This is a great challenge for retailers and business owners because their opponent is the limited time to sell these overstocked items. This particular challenge adds up to your pressure to sell the overstocked products as much as possible to free up your resources.
But did you know that these are just the immediate effects of overstocking to your business?
This means that there are still probable impacts that could hurt your business, such as additional spending on labor and personnel compensation, time spent in repositioning the products, cost of transshipment or transportation of your items, and the loss of your profit margin.
Having a comprehensible grasp on how much you stock boils down to having a honed approach in inventory management and sales data. Inventory management is a strategic issue that affects profitability and customer service.
Without having an informed decision-making process, your attempts to address the effects of overstock inventory on your productivity and profitability will turn in a bad direction, a direction that is costly and disadvantageous on your part.
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Let us talk about these tips that you can follow to reduce risks of excess stocking products and to implement better practices to address overstocking.
1. Sell your products online. If you sense an insufficient demand in your local market, what you can do is to resort to taking retail product displays and selling your products online. You can investigate the use of eBay, Etsy, and Amazon and their applicability.
2. Make your first price cut the deepest. Customers love it when they are getting the real deal. You can consider implementing this, especially since many products have a short life cycle; you do not want to be left with too much stock only waiting to be sold at full price.
3. Try putting inserts and flyers. This is something that you can apply to intensify your marketing strategy: you can include inserts and flyers to your every package so that your customers feel the most satisfied and informed about an additional sale.
4. Give in-kind donations. You can address your overstocked products by giving them away to charities, foundations, schools, organizations, and churches.
5. Offer bulk discounts. You may also want to try offering discounts to customers who are up for buying multiple items from your overstock inventory. An example could be, 20% off for 2 or more items or 40% off for 5 or more items. Through this, you can earn a good profit margin despite the discounts you’ve applied.
6. Offer product bundles. Pairing a slow-moving product with another product that is a top pick on the shelves is also a good consideration. This will encourage interested customers to purchase the bundle provided.
7. Evaluate market trends. This is an important part to do for your business. You need to know the pulse of the current economic and market trends to anticipate supply chain fluctuations in order to reduce your risk of overstocking products.
8. Regularly audit your inventory. This is one of the most vital parts of preventing overstock. A successful inventory audit includes knowing how you measure up to your key performance indicators.
While these are relevant steps that you can do to prevent overstock, the key to successful inventory management is maximizing tools that are available for you. Strikingly is a website builder that has tools and features to create an online shop. These tools should help you to make informed decisions when it comes to your purchasing or production tendencies so that you do not end up dealing with overstock inventory at all. Create your Strikingly account today so you can avoid overstock for your store.