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overstocked warehouse
  • Retailers who overstocked during the pandemic are now stuck hoarding a mountain of goods in their warehouses that they cannot shift.
  • Without the ability to target these cash flow blockers lurking in the stockroom, retail businesses have struggled with intelligently solving their inventory issues.
  • The key lies in using solutions that drive business intelligence forward, such as inventory planning and demand forecasting software. With it, firms can gain visibility on their inventory, accurately forecast sales, and factor in variables such as supplier costs and lead times down to meticulous levels of detail.

by Jill Liliedahl

In the early days of the pandemic, retailers were overwhelmed with demand. Locked down consumers, desperate for a distraction, scrambled for everything from at-home fitness equipment and gaming consoles to gazebos and scatter cushions — and warehouses were cleared of stock as supply chains buckled under the extraordinary pressure.

Stockouts were disastrous for retailers during the pandemic, up by 250 percent — and with 37 percent of consumers saying they would simply shop elsewhere if they could not find what they wanted, the general mood was one of impatience. Rather than benefit from the surge, retailers suffered. According to data from Brightpearl, almost half (46%) said they experienced stockouts. 

It is fair to say that most companies who survived these ecommerce waves emerged rattled at best. The lucky ones managed to balance stock levels reactively, replenishing a steady stream of their best-selling products as the orders came in; even successfully growing their business. Most, though, had taken a severe hit to profits, and in what is called a ‘bullwhip effect’ in supplier circles, ended up over-purchasing a mass of stock as a safety cushion.

From Stockout to Overstock

When we consider the unpredictability of the last couple of years, overstocking seems a forgivable choice. Worldwide shut-downs had consumers stuck indoors, sustained only by a stream of online deliveries. Of course, this level of demand could not be maintained, and in 2022, they dropped considerably. What no one could have anticipated was the number of coinciding crises that would emerge, sending retailers across the globe into a state of cash flow paralysis.

Among them, a global supply chain crisis — rife with driver shortages and lengthy shipping times — buttressed by a lack of resources and skyrocketing costs was brought on by the Ukraine war. High rates of inflation and increased cost-of-living means consumers are buckling down on discretionary purchases and saving their cash for food and gas. Even returns are up, reaching 17 percent in 2021 from 11 percent in 2020

The result? Retailers who overstocked during the pandemic are now stuck hoarding a mountain of goods in their warehouses that they cannot shift. With the return on inventory investment slowed, cash flow predictability was damaged. Unsold stock is another revenue drain that is an absolute killer for cash flow. It not only loses firms money, but the cost of stock liquidation delivers a devastating blow to the bottom line that can be lethal for business.

Overstock Brings a Multitude of Problems

Retail Week recently warned that the post-pandemic problem of excess stock could be the final nail in the coffin for retailers, while other reports describe merchants being overstocked by more than 30 percent with no space to keep it all. In the UK, too, one banking source said the 37 listed businesses that make up ‘UK retail plc’ have £2.8bn in excess stock — a huge concern when inflation is hitting 30-year highs. Even Target recently admitted its plans to ‘right-size its inventory’ by making additional markdowns across the board.

These reactive, ‘stop-gap’ solutions are not viable for all, and are actually making things worse. Six out of ten retailers have increased their prices to cover expenses and make up for losses, whereas 29 percent are instead choosing to ‘take the hit’ in order to keep their prices stable. In either case, nobody wins, as it is either the retailer or the customer that gets hit in the pocket.

In addition, there are no indicators of when the outlook will change. In terms of supply chain issues at least, experts have predicted the effects could last well into 2023. This means firms will have months of uncertainty to battle with, stuck in a tug of war between what they can sell and trying to dispose of what they cannot.

It is clear that this inability to smartly manage stock is a corrosive force on retailers, both in terms of revenue and their long-term viability. The crisis is severe — so much so that 26 percent of online retailers are only six weeks away from going bust if their cash flow issues do not improve.

Clearing the Mist Over Inventory

The crux of the issue here is a lack of visibility across inventory planning and purchasing, stock control and supply chain.

Without the ability to target these cash flow blockers lurking in the stockroom, retail businesses have struggled with intelligently solving their inventory issues. There needs to be a means of laser-focusing on sources of trapped revenue, smartly preparing for unpredictable peaks and valleys in demand, and factoring supply chain issues such as extended lead times, into purchasing decisions.

The Key Lies in Inventory Planning Software

So what is the solution? One thing is for certain — it is not in spreadsheets. To calculate something as nuanced as forecasting predictions among so many environmental factors would be almost impossible, not to mention time-consuming. The key lies in using solutions that drive business intelligence forward, such as inventory planning and demand forecasting software. With it, firms can gain visibility on their inventory, accurately forecast sales, and factor in variables such as supplier costs and lead times down to meticulous levels of detail.

Access to this data leads to better decision-making and more optimized cash flow, which is essential for survival as we enter a tough recessionary climate. New solutions like data-fuelled demand forecasting are needed to empower retailers to keep a consistent stock of their best-selling items, release duds, eliminate the risk of overselling, and make informed decisions around purchasing, marketing, pricing, and even staffing. Then, they can step off the overstock/stockout see-saw and get back on the ladder towards profitability and growth.

Jill Liliedahl is the Vice President of Revenue for Inventory Planner by Sage. After six years as an entrepreneur, Jill now works with ecommerce businesses, helping them to be more efficient and make informed purchasing decisions that boost their bottom line.

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