Knowing how many items you have available is a critical part of running a general retail operation, but it’s often forgotten until problems arise. Inventory liquidation is one of the many challenges that retailers face with respect to stock management.
Retail returns management terms relate to the process of liquidating products, usually at a reduced price, to get rid of products that have been marked down or that are outdated and unsold. Why this topic is important for retailers to understand, since it affects profitability, customer perception and future purchasing decisions in retail.
In this article, I’ll look at what liquidation is just in inventory management, why they matter, and how companies that operate in this space can maximize an approach for the finest results possible.
Liquidator’s Role in Inventory Management
A retailer’s ability to remain competitive, optimize cash flow, and to maintain a quality product mix depends in large part on inventory liquidation. The excessive overstocking or hanging on to slow moving merchandise can result in considerable financial damage, but with liquidation providing a strategic option.
Sale of Inventory Items
Inventory Liquidation is the process of selling off surplus, unsold or discontinued products by a retailer. However, these products may not resonate with the current demand of the market and holding on to them can tie up valuable shelf space and capital. Liquidating these items is a goal of reducing risk, moving these items quickly, and recouping some of the investment made to acquire them in the first place.
There are many reasons, as you can imagine, why retailers decide to Inventory liquidation.
Retailers may liquidate inventory for various reasons:
Overstocking: Problem with storage and increased carrying cost may ensue when there’s excess inventory. Liquidation frees up space and lowers cost.
Obsolete Products: If an item’s demand has peaked or demand is low, products that have reached their end of life are discontinued, out of date or even need removing to make way for the next item in stock.
Seasonal Items: Also retailers are required to sell off their seasonal products after peak season because they lose their values.
Financial Health: Retailers in a bad financial situation or that face cash flow problems struggle with this and might seek to liquidate inventory to raise liquidity and keep the business alive.
The Impacts of Financial Liquidation
While retailers don’t get back everything they spent on excess inventory, liquidation can help earn back some of the capital they sunk. While the selling price is lower, the liquidation also allows the retailer to avoid greater losses of goods that have yet to be sold but which — if left unsold — would deteriorate further, or perhaps even become obsolete.
Liquidating Retailers are Dreaded
There are various strategies for liquidating inventory in front of retailers. Each of them has its own positives and negatives.
1. Discount Sales
One of the more basic ways of liquidating products is to run a deep discount sale. You can do this via an in store promotion or online flash sale. Giving steep discounts can draw bargain hunters bent on flushing inventory off the shelves.
2. Liquidation Auctions
Liquidation auction houses online and retail sites can partner up with to sell off large quantities of unsold inventory. Often these auctions are targeted to resellers, who buy in bulk for a fraction of their value.
3. Liquidation Companies
A second option is to work with special liquidation companies who will purchase the unsold or excess inventory in bulk. The norm is that these companies get goods at a steep discount and have the task of selling off the goods through different channels.
4. Describing Donations and Charitable Sales
But some retailers might throw some inventory to charity, or sell it through the lower price and not for profit channels. That can clear old stock as well as reduce tax liabilities and improve brand image.
5. Service and Technology Sectors
In many service and technology sectors, there is a trend toward bundling and bundled discounts.
The second way retailers can mitigate the poor performance of slow moving products is to bundle them with bestselling and best selling products or offer slow moving products as a ‘buy one, get one’ at no additional cost. This can lead customers to buying things that they would not otherwise have considered.
What Should Retailers Keep In Mind While Liquidating
Liquidation can be a great way to manage inventory but retailers have to be aware of some important issues or else the practice can actually hurt your business in the long run.
1. Brand Perception
Liquidation, especially at heavy discounts, can be frequent and thereby negatively influence a retailer’s brand image. They (customers) may begin to connect the brand and ‘discounted’ products so that they would expect low prices in future too. However, retailers are walking a tightrope as they try to clear inventory while managing their pricing integrity.
2. Customer Loyalty
While deep discounts can act as magnets to lure customers, they can also diminish the product’s value in the eyes of loyal shoppers, who may take offense to paying full price. Retailers need to think through the impact on customer loyalty, avoiding the alienation of their regular customers.
3. Legal and Compliance Issues
Rejected product liquidation services also raise some legal considerations, especially if you are in the business that deals with the products that expire, have product safety standards or intellectual property protection. Retailers need to understand what regulations often apply to liquidating certain products—such as food or electronics.
4. Profit Margins
Selling the products for a big discount involves lower profit margins. Retailers must consider whether the benefit of freeing up inventory and recovering some of the costs outweighs the non recovery of lost profitability.
5. Timing
Liquidation happens at just the right time. Deciding when to liquidate is done by the retailers after assessing market demand, seasonal cycles and overall business performance. It is possible to liquidate too early and incur unnecessary losses; it is possible to liquidate too late and have inventory that can’t be sold.
Inventory Management through Liquidation
Those retailers that approach inventory liquidation strategically are best able to see positively how this will optimize their cash flow, minimizing losses. Here are some best practices to consider:
1. Know Your Inventory
retailers should do a detailed inventory assessment before starting the liquidation process. This will tell us which products are better to liquidate and maybe still generate some value, or just write off in entirety.
2. Segment Inventory for Sale
Not every product has to be liquidated in the same fashions. Even if prices are reduced, the demand for certain high demand items may still be sufficient to sell the items, whereas a low appeal item may require additional aggressive strategies, including how about the auction, or donation to charities.
3. Leverage Multiple Channels
An excellent strategy for retailers is to liquidate inventory through multiple channels in other to get the most mileage out of inventory and leverage their reach—their inventory can be liquidated through in store events, online marketplaces or even third party liquidators. A combination of approaches speeds up a liquidation process.
4. Monitor Financial Impact
As the liquidation continues it’s important to monitor the effect on losses due to the sales. This includes tracking the amount of capital recovered and measuring that to overall profitability.
Conclusion
Liquidation is an extremely important tool for retailers when it comes to taking control of inventory, reducing losses and ensuring the head of cash flow. Retailers can learn from the different inventory clearance strategies, timing, and practices that take place, and minimize the negative actions while turning liquidation into a more strategic piece of their inventory management.
Liquidation should be a thoughtful exercise and retailers should not revert to deep discounts. However, retailers could balance the need for inventory turnover with the long term health of the brand, and still look to be successful with this complex aspect of retailing.
