How To Liquidate Excess Inventory

You are not alone if your company has excess inventory. Many businesses overorder inventory or sell less of a particular item than they anticipated. And sometimes, over time, that inventory turns into surplus inventory products that are unsellable. Whatever the reason for your firm's surplus inventory, learning how to successfully dispose of excess inventory can help your company limit the harm to its bottom line. This article will describe surplus inventory, provide information about inventory liquidation, and lead you through the process of liquidating inventory. Finally, we'll discuss how your company might reduce surplus inventory in the first place by using better inventory management practices.



What is excess inventory?

Excess inventory is goods that your company has on hand but does not expect to sell. This is typically because excess inventory simply outnumbers projected demand for the given product. When inventory reaches the end of its product lifespan and your company is unable to sell the item as-is, it has become excess inventory. Also referred to as surplus inventory, excess inventory, overstock, or B-stock; excess inventory is a liability that can cause your business all sorts of headaches, including:

  • High carrying costs

  • Reduced profit margins

  • Resources wasted managing inventory that’s virtually unsellable 

  • Resources diverted from the rest of a business’s inventory management strategy 

Typically, businesses have excess inventory because they incorrectly forecasted demand, mismanaged their inventory ordering processes, do not understand what inventory they need and when, or because an unforeseeable event such as a supply chain crisis, a natural disaster, or even a global pandemic has caused rapid, extreme changes in customer behavior.

Whatever the reason for your company's surplus inventory, surplus inventory liquidation can help you reclaim some of the costs associated with excess inventory. 

What is inventory liquidation?

Inventory liquidation occurs when a company sells off inventory for cash, nearly often at a significant discount. While liquidation is frequently associated with a business's closure, this is not always the case. In fact, even when the rest of the business is working smoothly, many businesses turn to inventory liquidation to dispose of surplus inventory. Your company can liquidate inventory on its own using a variety of methods, or you can pay an inventory liquidator to do it for you. There are numerous ways to transfer excess inventory in today's environment, so take some time to analyze which strategies work best for your company and profit margins. 

When should inventory liquidation occur?

While full-on inventory liquidation is frequently regarded as a last choice, your company may profit from attempting to sell off "underperforming" inventory before it becomes unsellable. This differs from when a company facing bankruptcy proceeds with a liquidation sale as part of its legal filing. Remember that there is nothing preventing your company from liquidating any inventory at any moment. The longer you keep merchandise that your company can't sell, the more money you'll spend keeping, managing, and safeguarding it.

What are the goals of inventory liquidation?

There are a variety of reasons why a business may choose to liquidate excess inventory, including:

  • Minimizing profit loss by shedding excess inventory from a business’s balance sheet

  • Reimagining a business’s offerings, especially after a rebrand, merger, or pivot

  • To prepare for a bankruptcy filing

  • To “clean up” a business’s poor inventory management strategy and prepare for better days ahead

Remember that "softer" inventory liquidation techniques like bundling and discounts aren't actually liquidation at all, but rather precursors to liquidation that can help you mitigate more severe profit losses later on.

How to liquidate inventory

Once again, there are numerous strategies to liquidate inventory, ranging from a standard sell-off approach to sales and promotions that your company can handle on its own. Here's some information on some of the most popular methods for liquidating surplus inventory:

1. Refresh or repackage excess inventory

This is more of a preventative technique than a liquidation strategy. If your company sees that inventory is getting increasingly difficult to move, think about modifying the way that inventory is sold, marketed, packaged, and so on. Bundling inventory is one example, in which your organization combines two or more things and sells them together, usually with one headliner item that is in great demand.

2. Boost exposure

If you're not sure why your inventory isn't selling, increasing your exposure to it may help prevent it from being unsellable in the future. Move inventory across your store, highlight it in marketing emails, or move it up the price list your consumers see when they place an order with your company. While this method will not work for every product, it is a low-risk option worth investigating.

3. Offer discounts

Before starting a liquidation sale, your company might consider offering a discount on products that it anticipates will soon become excess inventory. For example, you could provide a tiny discount, drop the price, run a buy-one, get-one sale, or anything similar.

Another opportunity to move surplus inventory is to offer those items as a free gift with purchase or a similar promotional strategy. 

4. Call your suppliers

When you buy a product from a wholesaler, it is usually yours. However, there are exceptions to every rule, and suppliers will occasionally buy back products from loyal customers, particularly if they can buy inventory back at a discount. So don't be afraid to phone your merchants and let them know what's going on. There's a chance they can assist you.

5. Liquidate your inventory independently

Previously, firms had to hire an inventory liquidator to sell off excess inventory. Today, there are numerous alternatives to liquidate merchandise online, frequently at little or no additional expense. You should, however, be on the lookout for scammers. If something appears to be too good to be true, it most likely is.

6. Talk to a liquidation company

If the other strategies fail, it may be time to contact a liquidation company about selling off your inventory. These businesses will frequently pay you a lump fee for your inventory and then manage the remainder. While you will not recuperate your costs, you will receive something in exchange for your extra merchandise.

7. Donate excess inventory

If inventory liquidation does not appeal to you or does not work for your company, consider donating your excess product. Your accountant should be able to assist you in determining whether giving surplus goods can lower your tax liability, allowing you to minimize some profit loss. 

FAQs

1. What is the difference between excess inventory and surplus inventory?

Excess inventory and surplus inventory are often used interchangeably. Both refer to goods a company has on hand but does not expect to sell. The key difference lies in the terminology, with "surplus inventory" implying an actual excess beyond demand.

2. How can I prevent excess inventory in the first place?

To avoid excess inventory, businesses can implement better inventory management practices, closely monitor demand, and maintain accurate forecasts. Understanding customer behavior, streamlining ordering processes, and adapting to supply chain disruptions are also essential strategies.

3. What are some softer inventory liquidation techniques mentioned in the article?

Softer inventory liquidation techniques include bundling products, increasing product exposure, and offering discounts on underperforming items. These techniques aim to mitigate potential profit losses by making products more appealing to customers.

4. Can I return excess inventory to my suppliers?

While it's not common, some suppliers may consider buying back excess inventory from loyal customers, particularly if they can acquire it at a discount. It's worth reaching out to your suppliers to discuss this possibility.

5. Are there tax benefits to donating excess inventory?

Donating excess inventory can potentially lower your tax liability, depending on your location and the specific circumstances. Consulting with your accountant or tax advisor is essential to understand the tax implications of donating surplus goods and how it may help minimize profit losses.

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