Eliminating excess stock

No matter what time of year, businesses are looking at ways to maximise sales but are stuck with excess stock that’s been going nowhere.

Depending on the nature of the business, a company may have products gathering dust for a number of reasons throughout the year – short-dated stock, seasonality, repackaging, leftovers from a winter sale, etc.

All businesses face an excess-stock challenge at some point every year, but no one wants to be weighed down by excess stock, whatever the time of year.

Leading up to Christmas, for instance, expectations rise with sales forecasts looking promising. It’s the time of the year when most retailers across Australia stock up in preparation for the year’s busiest season. However, a number of retailers still have piles of excess stock taking over their warehouses, or the holiday season doesn’t meet the sales expectations.

Whatever the reason, there are ways to eliminate excess stock, make room in the warehouse for new products and focus on growing sales with new product lines. It sounds simple – maybe because it is.

The obvious and most common solution is to ‘mark down’ the inventory in-store to eliminate excess – sometimes multiple times. This, however, is costly. Unsold products are sitting on shelves in stores and warehouses.

Another solution, by default, is to liquidate the excess inventory. Liquidation of inventory results in selling assets off quickly, often for less than what was paid for them, and retailers must take a loss on their income statement.

Why do retailers turn to liquidation? It generates cash immediately, hence it is often integrated into most retailers’ supply-chain strategy. This is a solution by default to excess inventory issues.

Liquidation, however, presents a missed opportunity for getting more value for excess across a business.

Restoring value from excess stock

An alternative solution promises to recover the value of excess stock immediately: corporate trade. This offers businesses the opportunity to recover the value of their excess stock and allows them to fund their media advertising spend partly with their own inventory.

With corporate trade, excess inventory is purchased with cash or a trade credit. Payment is typically equal to the wholesale/acquisition cost of the inventory. In return, the retailer commits to allocating a portion of its media spend or other expenditures through the corporate trade company, using the trade credit as partial payment.

Managing excess stock can be a living nightmare for companies. At Active International, we have witnessed this for the past two decades: year after year businesses struggle with excess stock.

We have helped many companies successfully recover the full value of their excess inventory or depreciated assets. Spending the trade credit on media, freight, travel, and other services makes a significant difference on their company’s books. There is no doubt that when corporate trade is executed correctly it adds significant value to any business.

Corporate-trade companies typically sell the inventory to the same distribution channels that the retailer has in place. In addition, corporate-trade companies have partnerships across multiple categories, so they often provide access to new distribution channels – those that the retailer would not have access to otherwise, such as trading partners or private networks.

Remarketing channels, or clearance distribution, is something that corporate-trade companies have spent years building. This often results in a new distribution channel that clients may otherwise have never had access to.

The good and the bad

Retailers wanting to eliminate their excess stock have a few options to consider. Liquidation is straightforward and widely accepted, but is limited in the financial benefit it delivers.

Corporate trade is an alternative. It delivers businesses higher financial benefits by recovering the full value of their excess stock and offering the opportunity to partfund their media, freight, travel or conferencing spend, to name just a few options.

However, retailers may not realise the financial benefits immediately. It’s essential to ensure they use their trade credit in order to receive the full value this solution has to offer.

Ultimately, the business objective will determine which option is best.