Handling Holiday Excess

Whether you are a retail veteran or an entrepreneur taking a risk on a new storefront, the responsibility of inventory forecasting is never an easy task. Inventory balance is an evolving science, and at times a game of luck. For retailers, decisions on inventory purchases (made months before items actually hit the shelves) necessitate considering consumer spending and confidence levels, projecting spending, and guessing how much shoppers will be buying and when. Let’s face it: every retail business needs to deal with surplus assets, whether it is excess inventory or customer returns.

Holiday planning begins well before the Thanksgiving turkey is carved, to allow enough time for merchandise and promotional planning. It’s the post holiday days, however, that receive little preparation. “The days following Christmas and New Year’s Eve are some of the most important days. A retailer should always be prepared to handle excess inventory, returns and more,” says Jennifer Chapman, director of ecommerce for The Nu-Era Group, a supplier of display and packaging merchandise such as dump bins and clearance racks used for post holiday clearance. Simply stated, if you keep your holiday merchandise sitting on the shelves for too long, it will end up costing more money than the initial purchasing price. This is because the extra inventory is carried on the books as an asset, added to the net profit, and therefore is taxable.

Remerchandising and In-store Tactics to Move Holiday Excess Inventory

Traditionally retailers resort to markdowns, but there are other creative methods to move inventory and have a positive effect on your bottom line:

1) Package slow moving products together. These gift baskets might be just what you need to convince your shoppers that they need multiple items that were previously collecting dust on the shelves. As Retail Packaging blogger, Jesse Kanclerz explains, “When people shop, they may not make a connection between individual products, whereas when they see them grouped together in a gift basket, the light bulb goes off.”

2) Remerchandise products often. Shoppers are visual and logical. They need a reason that makes sense to them to purchase your product. So, you must show them, making the purpose of those hard to move products clear. For instance, say a particular scarf is not selling. Your customers may need to be reminded of the scarf’s purpose (to stay warm), while also ensuring that it fits today’s fashion scene. Combining the scarf with a stylish hat and coat ensemble may be just what is necessary to sell it.

3) Use the World Wide Web to broaden your audience. Perhaps those shoppers browsing your shelves don’t seem interested, but with the help of the Internet, more eyes can view your slow moving product. You can place the item in the Sale Section of your B2C site, or with the help of Craigslist or Ebay, you can find those shoppers looking for deals. Perfect for those independent retailers is the online marketplace, www.LittleIndependent.com, which provides small storefront owners a wider audience for their sale items, increasing the chance of a sale.

4) If all else fails, donate excess items to charity. While you are in the business of making money, supporting a good cause is a better choice than carrying a worthless asset on the books. As Inc.com explains, “You’ll benefit the organizations you donate to and, by removing the items from your shelves, generate a tax deduction as well.”

According to the fifth annual Compass Survey of CFOs, the challenges of merchandising were no different for the 2011 holiday season, especially with the added pressure of cost inflation. As BDO, a retail and consumer product industry advisor, highlights in the sponsored survey, “A vast majority of retail CFOs report they either increased (31 percent) or maintained (51 percent) inventory levels for the holidays, compared to 2010. Bets are in on consumer behavior for the holidays, all that’s left is to wait for the dice to fall.” However, economic turmoil, increasing gas prices, and tight budgets have led most U.S. consumers to continue resisting retailer sales efforts. They’d rather keep the cash than spend it. The Wall Street Journal reports, “A survey of 1,000 U.S. consumers conducted by consultant AlixPartners LLP in September found that 41 percent planned on spending less on holiday shopping this year, up from the 31 percent of respondents who answered that way a year ago.” As a result, retailers may be faced with price cuts and excess inventory, all of which will continue to challenge retailers’ bottom lines, unless they are prepared to move product more creatively.