Reducing Surplus Inventory to Free-up Capital

Reducing excess stock, even in a loss, can free-up funds and help a tiny online retailer grow.

Slow selling goods sitting in a warehouse — or, for very tiny retailers, a garage — tie up money and might make it tough to invest in advertising, new product lines, or site enhancements.

Take an example from the world of brick-and-mortar retailing.

During a trip to some locally-owned Ace Hardware situated in a reasonably busy strip mall, a shopper could get a yellowing aisle sign reading,”Electronics.” The aisle’s beige shelving has lots of components and tools hanging neatly on hooks. Among these items are a dozen S-Video analog monitor cables. Most modern computer screens use HDMI or DVI-D connectors. S-Video is becoming outdated. But there are those wires collecting dust and holding captive a number of the retailer’s money that could otherwise be used to increase earnings.

This Ace Hardware store would likely gain from selling the S-Video cables in a deep discount and freeing up the bucks which are otherwise languishing.

Truth is that big and successful retailers do just this type of stock closeout regularly, unlocking funds and using the freed funds to purchase new — ideally — more effective products or to invest differently in the enterprise.

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Do Your Own Inventory Spring Cleaning

Online retailers must regularly examine inventory, including sell-through and turnover rates (how many times all of a product’s stock is sold yearly ). Slow seasonal or selling items, with a few possible exceptions, should be shut out and eventually taken out of the store’s catalogue of regular products because these products tie up vital resources and might be replaced with better selling items which generate predictable and regular revenue.

To do stock spring cleaning, Search for items that:

  • Sell-through less than once each quarter;
  • Are seasonal;
  • Are perishable;
  • happen to be replaced with a newer version or variant;
  • Or that haven’t sold on the internet in a month or more.

These items might be great closeout targets, even if they have to be sold at a reduction.

Where and How to Sell Closeouts

Once closeout products are identified, consider a tiered approach to disposing of these.

First, discount the product — 10 to 25 percent, based on margin — through normal sales channels such as an ecommerce site. Set this original discount price above cost.

If sales do not improve in a week or two, consider another discount, this time approaching actual item cost.

If sales still do not improve after another week, then think about selling the items on auction websites like eBay or marketplaces such as Amazon at or just above item cost.

Lastly, start offering the items in most stations under the original wholesale cost, remembering that the aim is to free up any funds possible.

Exempting Some Slow Sellers from Closeouts

There are a number of exceptions to shutting out products. Some products, however slow selling, help an internet retailer. Examples of these include:

  • Complementary items which ought to be available to support a related product that sells well;
  • Brand picture items which ought to be inventoried to encourage the retailer’s advertising and brand;
  • Seasonal items which would cost more to replace in the next season and that will save nicely.

Avoiding Closeouts from the Future

While it is both a frequent practice to close out items and a fantastic way to free up funds, it would be better if each product in a merchant’s stock sold well so it was never required to discount any item. Bearing this in mind, there are many common reasons that ecommerce merchants wind up with overstocked items.

  • The merchant over estimates projected earnings.
  • The merchant is concerned about selling out of a product.
  • Too much is arranged to fulfill minimum order requirements.
  • Too much is ordered because bulk purchasing looks like a way to save money.
  • The retailer does not think the provider is reliable and orders too much.
  • There’s absolutely not any planning.

In each of these situations, there are things that the merchant can do to avoid ending up with too much or slow moving items. In actuality, simply knowing about the possible pitfalls could be sufficient to help avoid them.

Bear in mind this old expression in the retail industry:”Unless you are selling wine, your stock won’t improve with age.”