Walmart, Target, Macy’s and Kohl’s are among retailers that have recently said they are canceling some orders to better balance inventory levels, a replay of a strategy used at the start of the pandemic. Large retailers cannot afford to have closeouts and excess inventory in the warehouse so they want to cancel orders they don't need, get rid of inventory they don't need and try to balance inventory. Other steps retailers are using to clear inventories as spending has slowed on some non-discretionary categories are employing markdowns, packing away closeout products for the following year and in extreme conditions even shutting down warehouses to save on high storage costs. The elevated inventory levels also reflect intentional over-buying to mitigate shortages and the easing of supply chain constraints. One risk of canceling orders is straining or damaging relationships with trading partners who may specialize in buying excess inventory and liquidation stock. After the pandemic arrived, many retailers were called out for not honoring their contracts to pay in full for goods that were in production as well as for requests for postponements, discounts or delays in payment. Several issued statements assuring their commitments, with Levi’s and Gap offering low-cost financing to factories to weather payment delays.
This is an industry wide problem with retailers being the bad guys because they are the ones canceling orders. It would be great if there were ways to get rid of inventory and closeouts without putting the burden on suppliers. If demand has fallen sharply retailers cannot simply continue to take inventory that is not selling, the end result of that strategy is that they have way too much excess inventory and dead stock of what is not selling and an inability to find space for inventory of items that are selling. If that happens it takes a long time to get it right again and re-balance inventories, and if they cannot figure out how to liquidate merchandise they may find themselves shutting down warehouse to reduce costs and excess merchandise. Closeout buyers may be able to help with this liquidation process. What retailers should be doing is working with their suppliers to communicate likely future demand based on re-forecasting and in partnership plan promotional and clearance activity as necessary to keep the supply chain moving. This would be a better front end alternative to dealing with liquidation inventory on the back end. There are no winners in this game, the ones who do best are the ones who have good technology helping them manage the huge number of SKUs across the business to get the best balance of inventory and availability for customers. Liquidating inventory can be costly and may lead to companies going out of business.
While it may come as a surprise to shoppers, most retailers don’t have a real-time accounting of what exactly is in stock and where. Closeout merchandise has a way of creeping up on you, full inventory checks are periodic and labor intensive, like the overnight shift American Eagle does once a year, where employees fan out at more than 950 stores across the nation to tally thousands of pieces of clothing in multiple sizes and colors. This closeout process is not only a way to get rid of inventory no longer selling, but it creates room in the warehouse for new products and get old closeouts out the door. The rest of the year, like many other retailers, it can only account for about 75% to 85% of its products.
“It’s more important than ever that we know exactly what we have,” says Rempell, American Eagle’s chief operating officer. “Accuracy needs to be at close to 100% and today its not.” The widespread problem has taken on new urgency during the pandemic as brick-and-mortar retailers race to compete with Amazon by fashioning their stores into fulfillment centers and offering customers the option of picking up online orders or scheduling fast delivery. Closeout websites have become popular because they can offer consumers deeply discounted closeouts and overstock inventory at reduced prices. Closeouts are often available due to businesses shutting down a warehouse, companies going out of business or downsizing and other things like package changes, canceled orders and discontinued inventory. Suddenly, the stores have to guarantee to online shoppers that an item is where they think it is — and hasn’t been put in a shopping cart, stuck on a mannequin, stranded in a dressing room, stolen or lost. Busy stores, many of them understaffed, are ill-equipped to do double duty, with inventory accuracy rates of 70% to 90%, lagging significantly behind distribution centers at above 99.5%, according to McKinsey.
“You need a level of accuracy to enable a seamless customer experience that retailers weren’t ready to offer,” says Michael Ryba, a partner at Boston Consulting Group. “The pandemic has absolutely put a spotlight on inventory management in a pretty dramatic fashion.” If retailers don’t know where even a tenth of their inventory is, that could potentially cause problems with dead stock sitting in a warehouse.where it will eventually turn into liquidation stock going to a closeout buyer. In a recent Auburn University study, researchers found that just 13% of retailers have an accurate inventory count on their website. That means they could be promising items they don’t have. It’s difficult, however, to quantify exactly how many order cancellations or missed sales that results in, and how much dead stock turns into inventory overstock.
The CFO of Walmart John Rainey also said this week the company had “canceled billions in orders” to manage with inventory pileups that have developed over the last few quarters across discretionary categories like apparel. “We feel much better about the back half of the year,” said Walmart US CEO and president John Furner. “We still have the inventory to work through and ingest from the backlogs, as we said. So we need a couple of quarters to do that.” The supply chain was choked last year with containers arriving late and huge amounts of surplus inventory having to be liquidated on overstock clearance. This lead to closeouts and liquidation stock and companies were forced to sell liquidation inventory for pennies on the dollar. The overstock wholesale business has been busy due to supply chain problems.
News that Walmart and Target are both canceling orders will send ripples through the broader retail space. Given that fashion is a discretionary spend, major fashion brands will be feeling particularly vulnerable right now. Boohoo and Asos look particularly vulnerable. Shares in both are down almost 80 per cent in the past 12-months. Discount retailers like Dollar Tree, Ollies, General Dollar and TJ Maxx may do well in the 4th quarter if they have enough of the right inventory and have liquidated dead inventory from the warehouse. Adding to the problems fashion brands face is that delays to orders earlier in the year – particularly from China where ports were inactive due to lockdowns – meant that backlogs of orders created inventory bottlenecks, inventory overstock, excess merchandise and liquidation from suppliers.
If you are trying to reduce inventory in your warehouse, you can do a simple Google search to identify inventory buyers who may be able to help. Try searching the following terms: closeouts, inventory liquidators, buyers for overstock inventory, get rid of inventory or clear stock from warehouse.
Consumers across the Western world are now facing a cost of living crisis thanks to the war in Ukraine which had led to soaring energy costs. This is causing huge increases to gas and electric bills for households. In addition, consumers don’t have discretionary spending so they are looking for cheaper goods like closeout housewares, closeout toys, overstock inventory of lawn and garden and more.
In Germany and the UK, the cost of household energy is set to rocket this winter. Both countries are considering rationing energy in the coming months, and there is even talk of controlled ‘blackouts’.
Abercrombie & Fitch’s Hollister division reported a 4% decline in first-quarter revenue due partly to the clearance inventory reduction sales required to sell off holiday inventory, a factor that contributed to its gross margin declining to 55.3% from 63.4% a year earlier, Abercrombie CFO Scott Lipesky said. That decline was also tied to freight costs increasing by $80 million from a year ago, a figure that exceeded the retailer’s own forecast by $15 million, Lipesky said.
Merchandise USA is an overstock closeout buyer specializing in buying discontinued merchandise, closeouts, surplus inventory and dead stock. If you are trying to downsize your warehouse or get rid of inventory that isn’t selling we can help you. Too much old inventory sitting in the warehouse can affect your bottom line and potentially hurt your business. Having an overstock liquidation sale is the fastest and most proven way to keep the warehouse stock clear and create space in the warehouse.