My Online Sales Abruptly Stopped. Now I’m Stuck With Too Much Inventory.

closing down liquidating all inventory shutting down warehouses

Shoppers are eager to head back to brick-and-mortar stores, while inflation is stoking fears that consumers are pulling back their spending on some items to still afford the essentials. Closeout brokers and excess inventory buyers specializing in selling overstock inventory and liquidations may find these challenging times to navigate. Although the pandemic seems to be subsiding, we are doing business in unprecedented times where inflation is at a 40 year high. This, combined with the supply chain problems is creating situations where sellers have to get rid of closeouts and overstock in an effort to manage their inventory levels.

That combination spells bad news for many e-commerce-focused retailers, and their stocks have recently tumbled amid a broader more recent selloff. As investors feared their growth could be screeching to a halt and profits could be harder to come by. This would not be surprising under today’s circumstances. Keep in mind Amazon FBA warehouses expanded like crazy in the past 2 years, creating hundreds of millions of square fee to warehouse space, leading to businesses having to liquidate closeouts and shut down 3PL warehouse. In some cases they were able to move their 3PL warehouse to a smaller facility. This allowed them to have closeout brokers get rid of unprofitable merchandise while making space for new products. Overstock inventory is an everyday part or doing business, but when the inventory levels become so high that it affects the business cash flow then it may be time to have a liquidation sale and allow excess inventory buyers to help you out. If you are stuck with too much inventory, take the necessary steps early in the closeout process so you don’t jeopardize your everyday sales.

Wayfair Chief Executive Officer Niraj Shah told analysts on a recent conference call Thursday that the “typical seasonal pattern of gradually building demand” that the business is used to tracking has been transpiring in a more “muted” fashion. This means consumers buying habits are slowing down and they are not grabbing fistfuls of closeouts and overstock inventory the way they were only one year ago. There is now too much inventory in the market, creating a surplus inventory situation where products don't sell as quickly as they used to. This creates overstock inventory that must be sold to closeout distributors.

He also said he has noticed more shoppers are devoting a larger share of their wallets to non-discretionary categories and “reprioritizing experiences like travel.” This means traditional retail sales may slowdown leading to big box stores having too much inventory on hand and getting stuck with overstock inventory and closeouts. Closeout brokers and surplus buyers can be useful in certain circumstances because they can help reduce inventory levels buy purchasing complete lots in large quantities. Excess inventory buyers are accustomed to explaining the complete closeout process of how it works, and they can buy everything in one fell swoop.

As 2021 drew to a close, the 2.7% market growth across the year was the lowest rate of online growth recorded in the 22 years of IMRG and Capgemini’s index. This lead to a slowdown in ecommerce sales in general, thus backing up inventory levels and increasing activity among closeout brokers, excess inventory buyers and overstock buyers. In general, it affected businesses of all kinds. Companies that were already struggling may have been forced to liquidate inventory from 3PL warehouses and other third party storage.

Overstock companies specialize in helping businesses that may have too much inventory on hand. This can be due to many different factors including package change, slow selling merchandise, making room for new merchandise in the warehouse, containers arriving late, and even shutting down a 3PL warehouse. While there are reasons explaining January’s slow sales growth, online retailers may start feeling the pinch both because of lock downs lifting and because of the rise in the cost of living.

But while sales were low, average spend was up month-on-month after falling steadily since August 2021. The huge increase in gas prices and food costs are also playing a role in decreased consumer spending. As consumers have less discretionary income, they have less money to spend on special deals and closeouts of toys, sporting goods, lawn and garden and housewares overstock.

Out of the verticals most popular for online shopping in January 2022, fashion was top with clothing seeing a 5.4% YoY increase in online sales – when further broken down, womenswear saw a 25.2% YoY increase in online sales, closely followed by a 19.4% increase for footwear and a 16% increase for menswear.

But other categories didn’t do as well, including skincare, which saw a 48.2% YoY drop in online sales in January this year; makeup, which was down 45.7%; and electrical goods, which saw a 36.7% drop in online sales. In retail, brick-and-mortar’s steadily rising drumbeat of foot traffic is eCommerce’s pain, at least for now. During good times inventory moves well and there is little need to sell anything on closeout or liquidation. But as the economy slows down it may be necessary for businesses to find alternative ways to sell their merchandise including discounting overstock and even liquidating entire warehouses.

A slew of recent earnings reports from retailers, focused both on general commerce and on niche segments, show that in many cases, online sales are still growing, though at a tepid pace from lofty year-ago levels (when the pandemic was in its darkest days) and in some cases digital sales have outright declined. As you are probably aware, there was a huge backlog in containers coming into the country and for awhile we had a shortage of inventory in the market. But now, will containers getting unloaded in ports there is a huge supply of surplus inventory just sitting in warehouses collecting dust. It is much better to liquidate old inventory and get rid of it so you don’t have to pay high warehousing costs to store it.

Now, it should be noted that much of the data — reflecting the quarter that ended during the fall — is backward looking. Much might change as we head more firmly into the holiday shopping season, into colder weather months. If COVID cases spike during the next few months it seems likely that the increased foot traffic being spotlighted in the retail reports would decline, tipping the balance back toward online sales. Closeout brokers and closeout websites flourished during prior Covid waves as consumers stayed away from public places and retail stores. Indeed, across the global stage, eCommerce sales are slated to grow by as much as 23% between Thanksgiving and into Cyber Monday, year over year.

But for now, the novelty of being able to be out and about, in public, and able to touch and see merchandise in person, no doubt has led to the shift back to brick-and-mortar locations. As convenient as it may be to buy closeouts online without ever leaving your home, there is something to be said for holding a product in your hands and actually feeling it. Customer returns are much higher for ecommerce sales, and this is also what created such a large surplus inventory of Amazon and Walmart merchandise returns. There are closeout brokers that specialize in selling returns of liquidation inventory only.

In two notable examples of the impact to eCommerce, the Best Buy said that during the quarter that ended in October, domestic comparable online sales of overstock inventory were down a bit more than 10% as measured against last year (where in that quarter, online sales surged more than 173% year on year). Domestic comparable online sales, overall, were up 2%, itself a slowing growth rate from the nearly 23% seen last year. Separately, Dick’s Sporting Goods said eCommerce sales gained a muted 1% in the latest quarter, as compared to last year (though up 97% from 2019 levels, which indicates just how firmly entrenched the great digital shift has become). On Tuesday (Nov. 23), Wall Street was quick to shy away from these two names, sending Dick’s and Best Buy down double-digit percentage points.

The blunting of eCommerce has hardly been confined to the aforementioned firms. As has been reported in this space previously , general-category giants like Walmart and Target have seen marked slowdowns in their own eCommerce operations (and where Walmart’s own showing on this metric was an 8% gain in the U.S. — growth is growth but down from previous earnings reports that showed double-digit gains). This is due to inventory buildups as a result of too much inventory arriving at one time. Remember, for almost one full year there was a shortage of inventory which lead to a shortage of closeouts and liquidation stock as well. Target and Walmart, of course, differ from Dick’s and Best Buy in that they also offer groceries and other items that find continued success in curbside (which would be counted in online).

The headwinds seen in eCommerce are being “made up” by in store traffic. After all, these companies are reporting overall sales growth even in instances where online sales are dwindling or at least slowing. So in other words, even though there may be closeouts due to online sales slowing, there is not as much discontinued inventory or liquidations to be had because in store sales are making up for the online slowdown. Walmart’s 9.2% same-store sales gains in the U.S. outpaced the online growth slowdown; Best Buy is targeting double-digit sales gains for the remainder of the year. Though the puts and takes are tough to discern in some instances — we don’t know exactly how things are shifting — there’s a starkly illuminating tell that in-store sales are gathering momentum at the expense of electronic conduits. That “tell” can be found with Amazon’s own slowing momentum, where third-quarter revenue growth slid to 15% from last year, but down from the 28% revenue growth seen in the second quarter (year over year). Many Amazon sellers are shutting down their FBA seller accounts and liquidating their entire inventory. They are finding they are losing money selling online and the storage fees and warehouse costs are too high to survive. Some of these sellers move all their inventory to 3PL warehouses but often find these costs are also so high they cannot make a profit. This is the reason so many businesses liquidate their entire inventory and move out of the 3PL warehouse or close down the warehouse and get rid of the inventory. The closeout process and liquidation process is always the same. Identify slow selling products to get rid of, discount the prices to below cost, liquidate the entire inventory to closeout brokers for cash.

The question becomes whether the pivot — assuming the pandemic really does move fully into the rear view mirror — toward in-store commerce hits online so much that the latter channel shows significant declines. A wholesale closeouts decline seems unlikely, given the fact that surveys show that several segments, such as bridge millennials, intend to continue shopping online even after the pandemic ends, across food, retail and groceries. Merchandise USA is a closeout liquidator in business more than 37 years. We specialize in buying and selling excess inventory throughout the United States, Canada, South America and Central America. We help businesses liquidate entire inventories of housewares, sporting goods and lawn and garden products. We work with closeout brokers and closeout websites as well as liquidators.