How Retailers Can Solve Post-Holiday Inventory Challenges
Retailers are facing what is for many an unprecedented glut of inventory. With supply chain challenges and inflation afoot, plus astronomical rates of return, retailers need to figure out how to move what’s in stock.
Rick Berger, president of the omnichannel store solution NewStore, weighed in on how retailers can solve their post-holiday inventory challenges.
Can you contextualize how big a problem excess inventory is in the wake of this holiday season?
Inventory glut was a thorn in retailers’ side all of 2022, especially for the public brands that had to answer to their investors and Wall Street every quarter. In short, the root of the problem boils down to cooling consumer demand in the face of inflation combined with the supply chain hangover caused by the logistical issues of 2021.
While a strong holiday shopping season and heavy holiday discounting helped solve a part of the problem, there are more headaches coming. Most brands will face a tsunami of returns in the first few weeks of January, as they do every year. But this will not just affect retailers in Q1. By the end of 2022, US shoppers are expected to send back more than $279 billion worth of merchandise, equivalent to 26.5% of consumer purchasing for the year.
When you combine this unprecedented wave of returns with the fact that many brands are still facing excess inventory challenges, it’s clear the industry will not be out of the woods for a while.
What are some of the steps retailers can take to combat excess inventory?
There are many things retailers can do to combat excess inventory, but there is no silver bullet. First and foremost, retail brands must roll out an inventory management system that creates real-time inventory visibility everywhere across the enterprise. While every retailer has some sort of inventory management system, few are using the combination of serialized inventory and RFID. By using RFID in conjunction with a serialized inventory system, retailers can gain real-time visibility into their inventory levels. They can see which items are selling quickly, which are sitting on the shelves, and which need to be reordered. This can help them to make more informed decisions about which products to stock and when to restock.
Second, retailers should unlock store fulfillment, turning every brick and mortar location into a mini-warehouse. Our customers who deploy store fulfillment tend to sell down to the last item before they ever have to discount. Accurate inventory visibility allows customers to more easily shop for existing products across store locations, effectively helping to buy up excess inventory. But only 31% of brands in one survey show inventory availability online, down from 44% in 2021.
There are, of course, many other ways to handle inventory excess, but these all come into play after the fact: Adjusting production levels, promotions and discounts, donations, pivoting to subscription models, and finally typical liquidation channels. It is better to upgrade inventory systems to provide real-time insights and then get that data into the hands of every store associate.
What are the obstacles to taking those steps? In other words, why hasn’t every retailer already done that?
There are several reasons why it can be difficult for retailers to take the necessary steps to combat excess inventory. For starters, limited resources are the main challenge for smaller brands. Implementing an inventory management system and regularly conducting inventory audits can be time-consuming and costly, and may not be feasible for these types of retailers.
On top of that, many global brands have complex supply chains with multiple suppliers and distributors. This makes it difficult to accurately track and forecast inventory levels and the locations of those products – even with an inventory management system in place.
Changes in consumer demand is another hurdle. Shopper behavior is difficult to predict, and without systems in place to monitor demand trends, retailers will struggle to keep up. This can result in excess inventory, as retailers may have overproduced or ordered too much of a particular product.
There is also a stigma associated with excess inventory as well as competitive implications. Retailers may be reluctant to sell excess inventory to liquidators or donate it to charitable organizations because doing so can be perceived as a sign of mismanagement or failure at the executive level. Additionally, retailers may be hesitant to offer promotions or discounts on excess inventory for fear of devaluing their brand or losing market share to competitors.
At the end of the day, managing excess inventory can be a complex and challenging task for retailers, as it requires accurate forecasting, effective inventory management, and the ability to adapt to changes in consumer demand and market conditions.
How will the tech that enables those steps evolve in the next few years?
In the next few years, there will be many buzzword-filled technologies that claim to be a silver bullet for inventory management challenges. Expect to see lots of AI, machine learning, robotics, IoT, and blockchain solutions being thrown around as the magic solutions to everything. All of this will be helpful, more or less.
But in the near term, I am most excited about the innovations we will see in RFID technology and the impact those developments will have on serialized inventory. As the retail industry continues to pivot away from hardware and legacy tech in favor of SaaS solutions, RFID technologies will become more efficient, affordable, and easier to adopt. The mass adoption of RFID and serialized inventory in retail will dramatically improve inventory accuracy, traceability, and data analytics capabilities.