August 13, 2018
Eliminating excess stock
Posted by Cameron Swan, Group Managing Director, Active International
No matter what time of the year it is, 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, re-packaging, left overs from the winter sale etc it’s just a few. It happens.
All businesses face an excess stock challenge at some point throughout the year, every year, but no one wants to be weighed down by excess stock no matter what time of the year.
Leading up to Christmas for instance, expectations rise with sales forecasts looking very promising. It is the time of the year where most retailers across Australia stock up in preparation for the year’s busiest season. However, there are a number of retailers who still have piles of excess stock taking over their warehouses or the holiday season does not meet the sales expectations.
Whatever the reason, there are ways to eliminate excess stock, make room in the warehouse for new product and focus on growing sales with new product line. 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 very costly. Unsold products are sitting on their 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 sold for less than what they paid for it and retailers must take a loss on their income statement. Why do retailers turn to liquidation? This option generates cash immediately hence it is often integrated into most retailers’ supply chain strategy; it’s a solution by default to excess inventory issues.
Liquidation however, presents a missed opportunity for getting more value for excess across their business.
Restoring value from excess stock
There is an alternative solution which promises to recover the value of excess stock immediately. That is corporate trade that offers businesses the opportunity to recover the value of their excess stock and allows them to partly fund their media advertising spend with their own inventory.
And, this is how it works; 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 their 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 a lot of companies. At Active International, we have witnessed this for the last 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 is adds significant value to any business” Cameron Swan, Managing Director at Active International explains.
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 –ones 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 option. It delivers businesses higher financial benefits by recovering the full value of their excess stock and offering plenty of opportunities for part-funding for their media, freight, travel, conferencing, to name a few.
However, retailers may not realise the financial benefits immediately. It is essential to ensure they use their trade credit in order to receive the full value this solution has to offer.
Ultimately, it is the business objective that will determine which is option is best.