After any major holiday or sale, retailers start to gain a real sense for their overstock issues as returns start pouring in. Retailers also have to take a good look at inventory distortion, a problem that has cost retailers $1.1 trillion (that’s twelve zeros) globally, and it’s expected to increase tens of billions of dollars each year.
Many retail strategists will tell you the issue is not “how to sell more?” Instead, it’s “how do we sell the inventory that we already have?”
Inventory distortion is a mess, and it’s complicated, but it doesn’t have to be. Here are a few tips on dealing with it:
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Keep market research pragmatic: Depending on the stage of your buying intelligence, a more scrappy market research approach can save you from a whole stack of overstock and profitability issues. If you are looking at an entirely new product grouping, consider running ad campaigns to a starter page for that product group without ever building subcategories or adding SKUs for purchase.
For example: craft a simple message such as, “We are launching our Technical Backpack experience soon. Enter your email here for a complimentary 50% off coupon” and deliver that coupon via email.
Now you’ve obtained live data about intent to purchase, additional email addresses for your CRM activities, a starter audience for social advertising (and Facebook look-alike building), a proxy for your CPA to make sure the product will sell profitably, and more. Bonus: you never lifted a finger from your buyers to put inventory risk in your warehouse.
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Invest in your partnerships: Open communication, intelligence and better tech means both retailer and supplier can be more responsive to market demand.
If you are a supplier: support your retailer by providing them with intelligence around what is selling well through your other partnerships, descriptions of the product and language to help it sell. Let them know if the data integration technology they’re requiring is getting in the way of your ability to be a successful partner. In addition, be proactive about resolving return issues, product defects, etc.
If you are a retailer: give constructive feedback to your suppliers about reviews, returns and customer acquisition dynamics. A retailer selling fast is more likely to get an accelerated and favorable new shipment if the relationship is strong. Likewise, if you are forthcoming and a good partner, your supplier is more likely to give you merchandising insight based on how products have performed with their other partners.
For both parties: come together and agree on a level playing field engagement and avoid high overhead integration technologies that distract from your ability to have strategic conversations. Unify around common language and a shared data schema in the middle to keep operational conversations easy.
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Go digital: If possible, put an emphasis on digitizing the entire process. Many small businesses and mom and pop shops are afraid of the extra effort of including digital labels, tags and inventory systems, but they’ll likely save time in the long run if they put in the hours now. A lack of good inventory intelligence makes opening new online channels very difficult.
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Initiate a drop shipping program: Drop shipping, aka inventory free retail, minimizes the retailer’s inventory and administrative costs, while giving the supplier access to a whole new market.
For suppliers: drop shipping increases product exposure and penetration through existing or new channels.
For retailers: drop shipping reduces inventory risk while increasing product selection.
Bear in mind, however, that drop shipping requires a very strong mindset for partnership. The concerns and friction that exist between retailers and suppliers under a wholesale agreement can become far more acute under a drop shipping partnership without the mindset, information, processes and technology in place.
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Look to a Third-Party Logistics provider (3PL): If you find yourself in one of the following circumstances:
a. Going digital isn’t an option
b. Your warehouse operations aren’t ready for direct to customer (D2C) orders — whether from your own e-Commerce or a drop shipping engagement
c. You are launching a product category significant enough in mass that you do not yet want to reorganize your warehouse for it
A third-party logistics provider allows online stores to focus on their own marketing and business operations while a 3PL handles integrated operation, transportation and warehousing services.
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Link supply intelligence to your marketing efforts: Marketing must be informed by inventory and inventory strategy must be informed by market demand.
What do I mean here?
Marketing can track customer behaviors related to a product, and inventory systems can detect warehouse inventory. So, when marketing and supply tech work hand in hand, business owners will know when there’s a threat of under- or over-stocking a certain product, and can quickly relay that information back to marketing, where promotion and pricing can be adjusted.
Tackling inventory distortion is a long, complicated road, but these tips can shrink the problem for you and your operation.
Jeremy Hanks is an entrepreneur who is passionate about the evolution of the supply chain in the age of e-Commerce. He is Founder and CEO of Dsco, a leading provider of distributed supply chain management software and solutions. Before Dsco, he co-founded Doba, an e-Commerce drop-shipping virtual distributor. Hanks is the co-author of eBay Inventory the Smart Way and Drop Shipping for Dummies, and has spoken at Internet Retailer, Shop.org, RVCF, Magento Imagine, Inc. 500 Conference, Commercism.co, and eBay Live. He is also the founder of LaunchUp.org, a non-profit that focuses on monthly “barn raising” events for entrepreneurs in Utah, Las Vegas, and Hong Kong. Connect with him at JeremyHanks.com, @jeremyhanks, or jeremy.hanks@gmail.com
