With the right technology to manage inventory and fulfillment, retailers and brands can streamline their operations.
October 02, 2022ed. Note: This article was previously published on Retail touchpoints.
Heading into the 2022 high season, everything old is new again. Nostalgia is all the rage in television, movies, music, and fashion, reviving old trends and creating new ones. At the same time, retailers harken back to a not too distant past when carrying too much inventory was considered an unforgivable sin. In traditional retail, you always want to minimize inventory carrying costs to avoid paying for something you may not be able to sell. This is especially true before the big holiday season, as peak period sales can make or break annual goals.
But amid today’s supply chain issues, inflation and fluctuating consumer demand, many retailers find themselves in the opposite scenario, with overstocking. There are really two options to address this dilemma: slash prices, as some big box stores are doing, or manage excess inventory by storing it until demand picks up. Retailers and e-commerce brands often see profit margins negatively impacted by a heavily discounted strategy, so managing excess inventory is often a more favorable approach. But it’s still a new challenge for an old problem: not being able to correctly forecast inventory demand.
In an ideal world, no retailer would end up with excess inventory because they would have the right information to understand where and when their product needs to be fulfilled most. This requires going back to retail fundamentals and upgrading your technology stack, such as radio frequency identification and other Internet of Things solutions, so you can execute these best practices in preparation for the most lucrative shopping season of the year.
Excess inventory reduces profits
Excess inventory can quickly become major problems for retailers, as well as the brands they stock. First, it can be costly to store this extra supply, especially when storage space is tight. Second, as inventories appreciate, retailers’ profit margins fall. As a result, the value of the assets decreases, as explained by Joseph Malfitano, founder of the restructuring and transformation firm Malfitano Partners, in a recent CNBC article.
This has the secondary impact of potentially causing a drop in a company’s loan base. If the trend continues through 2023, we could see more retailers file for bankruptcy, putting brands in a bad position. While many are struggling with excess inventory, the trend has publicly impacted the business of some of the largest chains. For many of these retailers, turning a profit in 2022 means they will have to beat expectations in the fourth-quarter holiday shopping season, with many turning to e-commerce to boost consumer spending.
Take back control with comprehensive, technology-enabled supply chain management
Those that make changes to the way they manage stocks to avoid the situation in the future will endure, regardless of macroeconomic factors or changes in consumer preferences and demand. Modern retail and e-commerce brands are reinventing their playbooks, turning away from nostalgic but outdated strategies and instead turning to technology-enabled fulfillment solutions, including RFID, that can unlock the visibility and insights needed to anticipate with accurately demand and correctly allocate inventory.
These solutions not only offer the ability to manage excess inventory, but also provide the integration and connectivity required for a holistic view of order, inventory, and fulfillment activity across all channels and warehouses, centralizing all distribution schemes. the supply chain in one place. With real-time visibility and predictive analytics based on current and historical insights, brand operators can make better inventory forecasting, purchasing, and allocation decisions to optimize sales for the near-term and future peak season.
Better Inventory Forecast = Happier Customers
Moving to technology-enabled fulfillment, through RFID and other innovations, not only reduces the chances of excess inventory and lowers costs, it also increases customer satisfaction and drives repurchase. Armed with up-to-the-minute information on stock levels and how and when orders are filled, brands can better communicate with their customers and proactively notify them of delays or changes before they even ask – important, as most shoppers indicate that they prefer a delayed delivery to a poor customer experience, and will not buy from a retailer again after a substandard delivery.
Retailers struggling with excess inventory will continue to make headlines as the bullwhip effect that was set in motion during the last holiday season extends into this year. With the right technology to manage inventory and fulfillment, both retailers and the brands within them will streamline their operations and soon look back on misalignments as a thing of the past.
Ben Eachus is co-founder and CEO of flow space, the software that drives eCommerce compliance for brands. Eachus was an early employee of The Honest Co., where he led supply chain operations and scaled the company’s distribution and fulfillment network during a period of rapid growth prior to its initial public offering. Previously, he managed fulfillment operations at McMaster Carr, a leading industrial supply distributor specializing in same-day delivery.