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This article is for educational purposes and does not constitute legal or tax advice. For specific advice applicable to your business, please contact a professional.
Stocking the shelves for the holiday rush can be tricky. While you want to have enough inventory to meet your customer’s needs, you may also find yourself with excess inventory post-holidays. There are times throughout the year you may be faced with excess inventory, and actively managing it can help you better forecast how much cash flow your business will have on hand and what decisions you can make moving forward. As we head into the new year, what are some strategies you can consider to turn that surplus into profits?
What is excess inventory?
Excess inventory refers to inventory that has not been sold and is not anticipated to sell. This type of inventory is sometimes referred to as deadstock or overstock. Some circular economy businesses repurpose deadstock, using the materials to make new products. There is no set time that defines inventory as excess or overstock, but it can apply to inventory kept in stock for weeks, months, or years without being used or sold.
Strategies for excess inventory management
There are a range of reasons that might cause your business to have excess inventory on hand. Demand can fluctuate with economic conditions or market demand. Not only can this inventory take up precious storage space in your warehouse and shelves, it could also impact your bottom line. Here are a few common strategies business owners might use to alleviate excess inventory:
Bundling products or services
Bundling products or services can increase sales. If you offer beauty services, for example, you could bundle a haircut and a product or offer a discount in exchange for multiple bookings. Bundling can also potentially help sell a slower-moving product by pairing it with a popular one. A customer may be inclined to pay a slightly lower price for the bundled deal rather than paying full price for the more popular product on its own.
Discounting
Offering sales can incentivize hesitant customers to try your products. This could be an opportunity to sell inventory that would otherwise sit on your shelves and offer your customers a discount for goods they may have not noticed or could not afford. You can offer discounts on a regular basis or at times when that inventory — such as seasonal products — is more likely to sit on your shelves.
Repackaging as an incentive
Some items may have a shorter shelf life, like flowers or food. Consider repackaging these items as rewards or incentives for customers. This strategy can help build relationships with your long-time customers or foster a relationship with new or prospective customers.
Remarket inventory
Perhaps items in your inventory have had a hard time selling by not reaching the right audience. Consider updating keywords, product titles, and descriptions or adding visuals to communicate your goods and services more clearly to your customers. Items in your inventory may also have multiple uses that potential customers aren’t aware of. Remarketing is an opportunity to reach an audience who is looking for the type of inventory you have in stock.
Donation for a tax write-off
Another option to consider is donating inventory in exchange for a tax deduction. According to the IRS, the basis of contributed inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. You must remove the amount of your charitable contribution deduction from your opening inventory and it isn’t part of the cost of goods sold. If you are looking to donate food inventory, special rules may apply. Depending on the type of inventory you donate and the organization you donate it to, be sure to follow up with a tax professional to make sure that donation qualifies for a write-off.
Buy now, pay later
For customers hesitant to make a large purchase or those actively managing their budget, buy now, pay later could be a good option to break up a payment into multiple payments. This could make a purchase more manageable and approachable for a customer. According to a recent Afterpay Festive Forecast report, one in ten Americans plan to use a buy now, pay later service this holiday season. Offering this payment method as an option could hep your business reach new customers.
Selling online
From a dedicated online site for your store to marketplaces like eBay or Amazon, there are many ways to reach customers online. Taking a more omnichannel approach to selling excess inventory could increase your sales by reaching a larger audience who may be less familiar with your store or not local to your area. If you are a Square seller, consider using Square Online to accept and manage orders online, in-store, and on social and mobile.
Automation
Automating your inventory management can eliminate manual errors that often contribute to excess inventory in the first place. As an added bonus, automating inventory management takes the burden off staff, who in turn can focus on other areas of the business, like customer services or sales. According to the Square Future of Commerce report, 37% of global retail businesses have already automated their inventory management.
