Retailers have invested heavily in predictive analytics to drive accurate purchasing. Yet they still have significant overstock problems because even the most sophisticated models can’t predict variable impacts like COVID-19 and drastic shifts in consumer demand resulting from supply chain delays, inflation, and high interest rates.
In 2021, fueled by the convenience of online shopping, governmental stimulus checks, and more time at home, consumers stocked up on electronics and home goods. They even updated their wardrobes as the world reopened. Retailers were hopeful the spending sprees would continue; however, appetite has dropped off in recent months and consumers have pressed the brakes on discretionary spending. Now, stuck with millions of dollars of stagnant inventory, retailers are scrambling for an outlet — turning to price slashing, long-term storage, and redirecting sales to secondary markets.
Retail’s Excess Woes
Excess inventory isn’t a new problem. Our reverse supply chain industry experience shows that 25% of returned stock and 5% of a retailer’s on-hand stock at any given time is non-productive excess. What’s unique about this time in history is that retailers are dealing with countless confounding variables that have amplified the volume.
Kohl’s recently shared that they are retaining an extra $82 million worth of inventory, while Gap admitted to excess increasing by 37% in Q2 2022. Even Walmart reported a projected 13% profit loss as consumers shift from general merchandise and apparel to grocery. At goTRG, we can support these claims, as we’ve seen this impact first-hand. In the past six months, our clients shipped 46% more brand-new excess goods to our facilities than the year before.
Some retailers are discounting their surplus inventory and hoping to sell in stores, but many want to steer away from this strategy for fear of diluting their brands by training buyers to expect significant future price cuts. Others are storing excess goods, which they must do sparingly because certain categories lose value over time.
One successful approach retailers can embrace is to partner with returns management and re-commerce companies to reposition their inventory and resell their goods on the secondary market. They may have to sacrifice profit margins on secondary channels, but they’ll move through goods faster and protect their brand’s integrity by having a third party sell products on their behalf. In the process, cash-strapped consumers will reap the rewards — a win-win strategy for both sides.
What Retail’s Overstock Strategies Mean for Consumers
Better quality on the secondary market. The secondary market typically offers a mix of new, used, open-box, and refurbished bargain items. What will be unique about this year’s array of secondhand products, will be the ratio of brand-new items available as retailers offload historic volumes of excess inventory into these channels.
Retail’s overstock woes ahead of the holiday shopping season means consumers will gain access to a breadth of new and unopened inventory for potential gifting on e-commerce marketplaces like Wish, Amazon, eBay, VIP Outlet, Wayfair, BackMarket, and others. Additionally, they will likely see more overstock inventory pouring into closeout stores like TJX, Burlington, and Ross.
We predict categories like electronics, gaming, and furniture will be readily available to buy across these sites. Bulky items, like furniture and appliances, are expensive to ship and store, but they typically sell faster and at higher margins than other categories. Retailers can recover an average of 72% of furniture’s retail value on the secondary market.
Electronics, like smartphones, TVs, and laptops, will be another hot secondary market category because retailers need to move these items before the next generation model arrives. Retailers can recover an average of 66% of retail value for re-commerced electronics, further incentivizing them to harness this channel instead of sitting on aging (and eventually obsolete) inventory.
Fewer apparel deals. Untold volumes of excess goods are a net positive for consumers’ wallets. However, we predict shoppers will see fewer clothing deals compared to other categories previously mentioned in this article. Unlike bulky items, apparel is light in weight, easy to store, and less expensive to ship. Additionally, mass-market, basic clothing staples can retain their original value better than smartphones, which become obsolete when the next generation emerges. Save for high-fashion trendy or seasonal items, excess apparel doesn’t need to be rushed out the door. Retailers can “pack and hold” items that won’t go out of style and resell them for (up to) full price in the future.
Several retailers have already stated their intention to implement the pack-and-hold strategy. Kohl’s said they will store unsold merchandise until 2023. Gap said they are keeping excess fleeces and sleepwear until the holiday season, when they plan to sell through these items at full-ticket price. Carter’s echoed that sentiment, holding on to fall and winter items until shoppers ramp up demand. Even secondary market resellers may be packing and holding. Rather than pushing overstock apparel onto resale platforms and diminishing its value, resellers can now grow and store excess inventory at Amazon warehouses.
The pack and hold strategy has several advantages for retailers, but storage fees will undoubtedly cut into profit margins. And as a result, consumers will not see as many secondary market deals on jeans and shirts as on dressers and tablets in the months ahead.
More bargains, more places. Shoppers will likely be able to find bargains on unopened items across various secondary channels and physical storefronts, sometimes snagging deals directly from the retailers themselves. Even though discounting items can weaken a brand’s image, retailers and manufacturers can’t only rely on third-party resellers to move all of their stock. Retailers will need to offer discounts at the store level, especially for items that may be difficult or expensive for them to transport to a secondary location.
Target, Walmart, Best Buy, and Bath & Body Works have announced promotions to help clear their shelves. Budget-conscious shoppers can expect to find more deals on discretionary goods such as clothing, electronics, furniture, home goods, and bath until retailers exit this stock.
The Bottom Line
In the short term, consumers will reap the rewards of faulty demand planning as the secondary market floods with excess goods. Unfortunately for retailers, re-commerce is not always as profitable as first-hand sales. However, reduced consumer demand, high storage fees, shipping costs, and product obsolescence means retailers must utilize all available resources to recover the highest possible margins. The key will be to be strategic about which categories to push and which to hold back.
David Malka is Chief Sales Officer at goTRG
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