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Holiday Hangover: How Do I Maximize Margins for Leftover Stock?

by Anna Ngo
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The post-holiday slump is officially here. It’s a tough time for pretty much everyone, as we recover from the season of excess and attempt to reset and return to business as usual.

As a retailer, no matter how well you try to plan, you’ll invariably end up with items that didn’t sell. Not to mention the glut of returns you’ll have to process before you can finally see how much money you actually made. But if poor sellers and end-of-season clearance stock are not properly managed, you may see all your profits from weeks past go up in smoke.

If your timing, merchandising, promotion and pricing were seemingly spot on and you’ve still got excess inventory, it’s time to take action. Where to begin? Start by reviewing your remaining stock and decide if any of it can be carried over to next season. (Ideally, your inventory control system should be able to accommodate these types of exceptions.) Then do the following, in the order listed, give or take:

1. Take Strategic Discounts 

Where possible, plan ahead rather than waiting till the end of the season. Slow movers and dogs generally make themselves known well before the end of the race. “Consider what promotional mechanics will be most effective and plan to execute them over multiple weeks, keeping them varied enough to maintain customer interest,” advises retail merchandising expert Bronny Jacobsen. The mechanics you choose to implement will depend on what your inventory goals and budget metrics are. 

For example, if you’re heavy in units, bundling might be the right strategy. Bundle deals may mean bundling like items (ideal for smaller products), complementary items (e.g., face wash, toner and moisturizer) or slower sellers with faster movers (e.g., coffee maker and coffee). Discounted items can be grouped with full-price stock to help preserve margin, which from the customer side means items cost slightly less when bought together. Customers save, you clear out excess inventory, and average order value typically increases. Everyone wins! “Everything under” messages will also help maintain margin on items already under that price point, as long as the deal is compelling.

Where your selection is limited, “percent off” messages can help drive foot traffic, but if your selection is wide, the best stock will still sell first and your problem stock will remain a problem. Customers also sometimes struggle to calculate percentages, so you may want to try calling out appealing price points instead. Whichever tack you take, measure your results weekly against plan, making adjustments as necessary.

2. Throw a Sales Extravaganza

If you go this route, go big, even if only for a short time. The sale then becomes more about the event than the discounts. A flash sale, say, for 24 hours only, can instill a sense of urgency and kick traffic into high gear. If your flash sale is online, make sure your markdowns include a few good sellers as well. These are called loss leaders, products sold at a loss to attract customers. Basket size and total spend online often exceed those of full-price transactions, so it’s often worth the sacrifice. Be sure to stop replenishment of slow and clearance lines before you set up your online deals. Keep what’s left intact at your distribution center and sell it online from there, making sure your website delivers a great customer experience.

If you have a ton of surplus merchandise, consider running a store-wide event. The goal here is to draw crowds that draw still more people by creating excitement and a scarcity mentality. While your margins may take a hit in the short term, you are likely to gain new customers and future sales. Be careful, however, not to use this tactic too often or it’ll quickly lose its shine. Savvy frequent shoppers will know to hold off on buying until your next big sale, and you may erode your brand, depending on where you sit in the market. Also be sure to add any new customers to your loyalty program or email list so you can let them know when you have new, more profitable merchandise in store.

3. Give them away as freebies 

 
Limit this strategy to low-cost slow movers only. Your can incentivize customers to sign up for your mailing list (see above) or spend more, e.g., “free tote with purchase of $75 or more.” The dud product can then be considered a marketing expense. Make sure you promote your giveaway with signage clearly visible from outside your store to draw people in. 

4. Leverage your store teams

Encourage your employees talk up slow movers, wearing the items or using them in store wherever possible to generate interest from shoppers. Offer weekly challenges and rewards to motivate staff to move products faster. Consider giving store managers discretion on pricing and positioning of problematic stock by way of “manager’s specials” or allowing staff to purchase in bulk or at a discount. If you sell in more than one store, you may want to move merchandise to a different location where it may sell better. Use this one with caution, however, as rerouting stock is costly and time-consuming.

5. Negotiate with your vendor

If you have a strong relationship with your vendor and the merchandise is in perfect condition and still properly packaged, ask if you can return it for credit or new merchandise. Your vendor wants to keep you as a customer. Use that relationship to your advantage.

6. Sell it on online 

Sell the items on online marketplaces like eBay, Amazon or Etsy. This is easier said than done, however, as you’ll have to invest time to create product listings for each item and possibly photograph the item if no product shot already exists. Each marketplace has its own rules and fees, so read the fine print before signing up.

7. Open a Pop-Up Store

If you can secure a spot at a seasonal destination or high foot-traffic area, this strategy could work, but only if your products are relatively high margin and your brand is well-known. Mall operators desperate for tenants in the wake of the retail apocalypse are often happy to have someone fill an otherwise-empty space for a limited time.

8. Sell it to discounters

If nothing else you’ve tried has worked and you don’t have an outlet store of your own, third-party liquidators can take excess stock off your hands at a deep discount and resell it. While you won’t make money this way and they may not even take all of your overstock, it will free up capital and space for new merchandise. 

9. Donate it

Donating your surplus inventory to charity will give you tax deductions—and a PR opportunity.

In the United States, regular corporations may deduct the cost of the inventory donated plus half the difference between cost and fair market value. Deductions may be up to twice-cost. As far as PR benefits, you can choose a charity that resonates with your customer base and blog about your donation and share the story on social media. The charity may choose to feature you in their marketing collateral as well.