Tackling Q4 Overstock: What to Do With Excess Inventory in Q1

Excess holiday inventory is a financial burden that sellers can’t afford to ignore.

Today’s retailers are sitting on an estimated $50 billion in dead stock. This is due to several factors, including rising warehouse fees, unpredictable market trends, inflation, and fluctuating consumer patterns. Demand forecasting is a complex challenge for eCommerce brands, now even more so in light of unanticipated price surges, supply chain disruptions, and the unpredictability of recent years.

The post-holiday period can be daunting for retailers, but there are strategies you can implement today to manage and mitigate the effects of excess inventory. By taking the right approach, you can transform this challenge into an opportunity for growth and stability. Keep reading to learn more about the impact of overstock and what you can do to manage excess inventory in the new Q1.

The impact of overstock

Overstock can significantly affect your business’s finances and operations. Holding onto excess inventory ties up capital, consumes storage space, and may lead to additional expenses for maintenance and management. It often occurs due to various unpredictable factors, like the supply chain issues exacerbated by the COVID-19 pandemic.

For example, the globally recognized brand Nike, which houses other renowned names such as Converse and Jordan, reported a significant 44% surge in quarterly inventory in the first fiscal quarter of 2023, amounting to a staggering $9.7 billion. That level is unprecedented in the company’s history, and the ensuing ripple effect led to a warning from Nike about a squeeze on profit margins and a 14% plummet in their share price.

The company attributed these challenges to COVID-related supply chain complications that resulted in late deliveries and an unanticipated surplus of seasonal stock. That situation left Nike with excess inventory from several years past, including many out-of-season items.

This scenario highlights how important it is to understand the effects of excess inventory as well as adopt a proactive and informed approach to manage it.

Strategies for managing surplus inventory post-holidays

Storing non-perishable products until the next holiday season is an option, but the steep storage costs can make that approach unrealistic for emerging brands. In light of this, sellers might need to think outside the box regarding liquidating or storing their surplus inventory.

The specific methods will vary based on each brand’s distinctive aspects and business models, but here are some broader suggestions to consider.

1. Assess your inventory

An inventory assessment is the first step in tackling excess inventory and optimizing its management and sales tactics. This process entails categorizing items based on sales data, seasonality, and demand predictions.

To assess your inventory effectively:

  • Collect accurate data: This includes information on inventory levels, sales data, and customer demand. You can use various tools to collect this data, such as your inventory management system, point-of-sale system, and customer relationship management (CRM) system.
  • Analyze the data: Identify trends and patterns in the data to help you understand what products are selling well, which aren’t, and which items are seasonal.
  • Categorize your products: Based on your analysis, categorize your products into different groups, such as sales velocity, seasonality, or profitability.
  • Develop targeted strategies: Once you’ve grouped your products, you can develop targeted strategies for each category. For instance, you might offer discounts on slow-moving products or increase inventory levels for high-demand items.

2. Host a post-holiday sale

Once the holiday season passes, many consumers look to save money on their new-year purchases. In 2022, 70% of holiday buyers intended to shop the week after Christmas to take advantage of post-holiday sales and promos.

If you serve a younger demographic, you enjoy an additional advantage, as consumers in the age range of 18–24 are the most likely to shop the week after the holidays.

Holding a post-holiday sale is a great way to offload excess inventory and, at the very least, break even. By marking down prices and promoting your products on your most visited channels, you can attract bargain-hungry shoppers and boost sales.

Here are some tips for running a successful post-holiday sale:

  • Offer deep discounts: Shoppers expect to find great deals on post-holiday sales, so be sure to offer major discounts on your excess inventory. Aim for at least 20%–30% markdowns and even more on slow-moving items.
  • Promote your sale early and often: Start promoting your post-season sale a few weeks before the holidays. Show your customers what products will be on sale and how much they can save. Be sure to advertise on your website, social media, and email marketing.
  • Create urgency: Let your customers know that your post-holiday sale is for a limited time only. This will foster a sense of urgency and encourage them to shop now.
  • Target your messaging: Use your customer data to segment your audience and target your messaging accordingly. For example, you could assign different email campaigns to customers who purchased gifts during the holidays and those who didn’t.
  • Make it easy to shop: Make sure your website is easy to navigate and your checkout process is smooth. You should also offer a variety of shipping and payment options.

In addition to a post-holiday sale, you can employ retargeting strategies to reach bargain-hungry shoppers. This type of online advertising allows you to show ads to people who’ve already visited your website.

You can create retargeting campaigns aimed at:

  • People who viewed abandoned carts. This is a great way to remind shoppers about the products they’re interested in and encourage them to complete their purchase.
  • People who purchased certain products during the holidays. This is an excellent opportunity to cross-sell and upsell complementary products.
  • People who visited your website during the holidays but have yet to make a purchase. This will bring your brand and your post-holiday sale to the forefront of their minds and nudge them to shop.

With retargeting, you can reach a wider audience and advertise your post-holiday sale more effectively.

3. Repackage excess inventory into bundles

If you’re unsure what to do with excess items, consider offering them as bundles at reduced prices. Consumers are drawn to bundled deals because they save both time and money.

Combining your top-selling products with less popular or slow-moving ones helps clear out excess inventory and enhances your revenue and customer satisfaction. This strategy presents a triple win for your business.

Seeking inspiration? Take a cue from Bath & Body Works: They often package a variety of their signature fragrances in body washes, lotions, and mist sprays as a set, promoting it as the perfect gift or “treat yourself” bundle. The appeal lies in receiving a coordinated collection of products at a lower price than purchasing each item individually. Bath & Body Works frequently updates the combinations and offers to keep their bundles fresh, attractive, and in tune with seasonal trends and scents.

This approach effectively encourages the movement of their inventory, ensures their products are consistently in circulation, and continuously attracts and retains customers with the promise of value and convenience in each bundle.

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4. Reduce returns by offering exchanges and gifts

Returns are a major headache for retailers, especially during the holiday season. In 2022, American shoppers returned more and sooner than the previous year, with at least 10% of orders sent back each week from November to mid-January 2023. That can put a strain on retailers’ resources and profitability.

One way to cut down on returns is to encourage customers to exchange products instead. This allows you to keep the sale and avoid the costs associated with processing and returning products. You can also offer incentives for exchanging products, such as a free gift to encourage them to spend more money in your store.

In addition to reducing returns, offering exchanges and gifts brings several other benefits, including:

  • Greater customer satisfaction: Buyers have a higher chance of leaving with a good impression of your business if they can exchange their purchase for a different product.
  • Increased customer loyalty: Customers are more likely to return to a store after a positive experience. Offering exchanges and gifts is a great way to show customers that you value their business and are committed to their satisfaction.
  • Lower inventory costs: Exchanging products reduces inventory costs because you don’t have to pay to ship the returned items back to your suppliers.

To incorporate exchanges and gifts without hurting your profit margins, be sure to make the exchange process easy. That includes crafting a clear and concise return policy that outlines the necessary steps. You may also want to consider providing free shipping on exchanges.

Also, let customers know they have the option to exchange products and that they can receive a free gift if they do. You can promote your program on your website, in your store, and on social media.

5. Try pop-up shops

From traditional stores to online platforms, many brands are experimenting with pop-up stores — and enjoying fruitful results: 80% of store owners who opened a pop-up called it a successful investment, and 58% intend to open another in the future.

An appealing characteristic of pop-up shops is their ability to push excess inventory quickly and effectively. They’re more than just a method for liquidating overstock though; they’re a practical way to build closer relationships with customers. Additionally, the temporary and exclusive nature of pop-up shops entices customers to make purchases on the spot, which helps move excess inventory faster.

Besides eating away at surplus stock, pop-up shops also enhance brand exposure. That increased visibility positively impacts sales and customer loyalty, laying a solid foundation for the launch of new products in the coming year.

Pop-up shops offer a dual advantage: They help manage excess inventory while simultaneously strengthening a brand’s market position and customer loyalty. They’re a straightforward and effective solution for handling post-holiday inventory issues.

6. Consider donating

Turning excess inventory into a positive force is both practical and socially responsible, so consider donating your surplus products for mutual benefit.

Today’s consumers place great emphasis on corporate social responsibility. Donating excess goods to a reputable cause or organization supports community welfare and enhances your brand image. That act of goodwill resonates with consumers, potentially increasing your customer base and loyalty.

Plus, donations may provide tax benefits, depending on your business location.

Before proceeding, consult with a tax professional to understand the possible deductions your business might be eligible for. This step ensures you maximize the financial advantages of your donation while positively impacting society.

Wrapping up — Don’t drown in excess Q4 overstock inventory

The only thing worse than running out of stock is finding yourself burdened with excess inventory as the sales season winds down. If you’re confronting this issue after the Q4 holiday rush, take solace in the fact that many retailers are in the same boat.

Facing slower sales and escalating storage fees, the mounting pressure on your bottom line is palpable. The tight cash flow that ensues as the new year rolls in only adds to the challenge for numerous sellers. However, with strategic planning, creative solutions, and the right partnership, you can capitalize on this opportunity for brand growth, enhanced customer loyalty, and positive social impact.

Consider navigating the challenge of excess inventory with tailored solutions from MyFBAPrep. Take control, make informed decisions, and turn what appears to be a setback into a setup for future success. Explore how MyFBAPrep can transform your overstocked situation today.