Excess Inventory: When to Hold and When to Fold

Deciding when to hold onto closeouts overstock products versus offload inventory, especially when dealing with the tricky waters of excess, overstock, discontinued, and abandoned items, requires a strategic balance between potential profit and hidden risks. Here are some factors to consider before making the call to clear stock from your warehouse and offload inventory.

• Excess Inventory: This often includes seasonal leftovers or miscalculations in demand. Sell quickly before storage costs pile up and it becomes outdated. Consider flash sales, bundles, or discounts. You may have excess inventory if your business imported too much of a Seasonal category (think closeouts Christmas products or overstock Halloween inventory). In these cases since you would have to hold onto the inventory for many months, it is probably best to reduce inventory, sell your closeouts and dead stock, make room in the warehouse for new products, and move on.
• Overstock Inventory: Similar to excess stock, but usually due to over-optimistic buying. Move quickly through targeted promotions or liquidation channels. Don't let it cannibalize sales of newer items by taking up valuable warehouse space. If you bought too much inventory and your warehouse is filled with products you cannot sell, get rid of it. Reduce inventory by offering closeouts, excess inventory, overstock products, abandoned inventory and slow-moving products to your customers at reduced rates.
• Discontinued Inventory: Unless it's a timeless classic, sell it off with clear communication about being discontinued. Holding onto it might tarnish the brand image and take up valuable space. Not to mention, if you have discontinued inventory that no longer fits into your line, you aren’t doing yourself any favors by hanging onto it. If you are shutting down the entire operation and moving on, it won’t matter anyway. Just get rid of the inventory or if you have closeouts, you cannot sell then donate them for free.
• Abandoned Freight: Analyze its condition and market value. Businesses leave abandoned freight behind if they are going out of business and shutting down operations. If they have no need for their unwanted inventory, they may leave it behind sitting in the warehouse. Sometimes there is value in these overstock products, but most often they are comprised of dead stock and old merchandise that won’t sell. If feasible, salvage it through repairs or repackaging. Otherwise, consider liquidation or donation to minimize losses.
• Demand & Seasonality: Track current and future demand for the specific closeout products. Selling out-of-season merchandise or discontinued items quickly is usually best. Research upcoming trends and adjust your holding strategy accordingly. To find the best inventory liquidators try searching online using these terms: closeouts, excess inventory buyers, overstock for sale, abandoned inventory, need to clear dead stock from warehouse, downsizing warehouse, liquidation companies, sell inventory for cash, closeout products.
• Competition: Evaluate competitor pricing and promotional strategies for similar closeout products. Aggressive competitors might necessitate quicker liquidation to stay competitive and offload inventory. Remember, there are all different closeout buyers for many categories. Some closeout buyers liquidate excess stock of home goods and housewares while others sell discontinued pet products and closeout sporting goods and camping goods.
• Economic Climate: During economic downturns, consider clearing out inventory faster to secure cash flow. In periods of higher spending, holding onto high-demand items might yield better returns. Closeout companies tend to be busy in both climates, but in general it is a good rule of thumb to reduce inventory during downturns and be flush with cash. Overstock products and excess inventory sitting in the warehouse at the beginning of a downturn will likely continue to be dead stock sitting in the warehouse.

Financial Considerations:

• Storage Costs: The longer you hold onto old inventory, the more you pay for storage. Calculate the cost of holding vs. potential profit from selling to determine the optimal timeframe. If you own your own warehouse and have plenty of storage space, holding onto closeouts and overstock inventory may not be an issue. But if you rent a 3PL warehouse and it is filled with dead stock, closeouts and excess inventory, you are spending a bundle. In this case we recommend liquidating inventory as quickly as possible to avoid expensive storage costs.
• Capital Cost & ROI: Evaluate the opportunity cost of tying up capital in stagnant inventory. Could that money be invested in more profitable ventures? Let’s say you have an inventory of closeout housewares that has been sitting in your warehouse two years. If it has been dead stock just sitting in a warehouse this long, it is likely not too much will change and it will continue to sit in the warehouse. If you have closeout buyers and inventory liquidators working on selling it and closeout brokers searching for buyers, it would be another story.
• Profit Margin: Compare potential clearance sale prices to regular margins. Are you willing to take a lower profit to clear space and free up cash? When offloading inventory and getting rid of closeouts you will most likely be selling at a loss. But if getting rid of old merchandise helps you free up cash flow, it may be worth going through the liquidation sale. If you don’t think liquidating your inventory will help you recover cash, then there is little point in selling.

Product Condition & Marketability:

• Quality & Safety: Assess the condition of the closeout or overstock inventory for damage, recalls, or expiration dates. Selling unsafe or low-quality goods can damage your brand reputation. This is one of the reasons companies selling closeouts don’t want to liquidate name brand closeouts into the marketplace. Brand recognition can have more value than whatever money you might get from having a liquidation sale and offloading unwanted merchandise, closeouts and overstock products.
• Marketability: Is the product still relevant and appealing to your target audience? Outdated styles or technologies might be better off cleared out. Outdated merchandise should always be liquidated as soon as possible. If you have food or drug products with expiration dates you must adhere to these. This is one reason we like buying closeouts of non-perishables. For example, closeouts of pots and pans and overstock garden gloves never go out of style.
• Brand Image: Consider how selling discounted or discontinued items might impact your brand perception. Balance clearance with maintaining brand value. Brand name closeouts can be challenging to find because brand owners my not want their products selling in the liquidation or deep discount retail stores.

Ultimately, the decision to hold or sell depends on a nuanced analysis of these factors. Consider using data analytics tools, consulting with experts, and running test sales to gather insights before making a final call on whether to clear stock from your warehouse and offload closeouts. Remember, holding onto the wrong inventory for too long can be just as detrimental as selling off abandoned inventory and overstock items prematurely.

Merchandise USA is a reliable closeout buyer in business almost 40 years. We specialize in buying overstock inventory and closeouts of toys, pet products, home goods, housewares, lawn and garden, hardware, stationery, sporting goods, camping goods closeouts, etc. If you are going out of business or just keen to clear stock from your warehouse, please contact us. We can help you understand the liquidation process and how to offload excess inventory.