Overstock, under-stock, out of stock: Retail inventory management outlook

Sometimes retailers just can’t catch a break.

Last year, pandemic-driven supply chain disruptions led to empty store shelves and racks, frustrating shoppers who were emerging from quarantine. Trying to get ahead of future need, retailers ditched just-in-time inventory (JIT) approaches and ordered an abundance of product.

But that strategy backfired as buying patterns changed and inflation led consumers to cut back, creating major retail inventory management headaches for brands.

Things don’t look to get easier for retailers anytime soon. What should they do in the meantime? How can they tackle the inventory challenges?

Retail inventory management nightmare

Today, as gas prices and overall inflation soar, consumers are curtailing discretionary purchases and becoming much more selective with where and how they spend their hard-earned dollars. According to recent reports, for instance, consumers have been spending less on goods and more on services, such as travel.

This turn of events has left major retailers with large inventory surpluses that they can’t quickly or easily move.

Target and Walmart were among the first to acknowledge the problem when reporting sharp declines in profits in May. Abercrombie & Fitch, Best Buy, Costco, Dick’s Sporting Goods, Kohl’s, The Gap, Macy’s, and Urban Outfitters are among others acknowledging inventory woes.

For consumers, it means many items we all sought last year to make our lives in confinement more comfortable will probably be much cheaper. Indeed, big chains are likely to take a financial hit and offer markdowns on everything from sweatpants and pillows to television sets, living room sofas and air fryers.

On the other hand, prices for items related to things people might need now as they travel and socialize, such as luggage and makeup, could hold their own or even increase.

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Take a breath: Inventory planning priorities

Retailers, meantime, likely face uncertain times through at least the end of the year. Economic, social, health, and political turbulence will make sure of that.

Economist views vary on whether recession is imminent – stock market gyrations aside. So, nobody’s crystal ball is offering brands much insight right now to help with retail inventory management planning for the next several months.

1. Hit pause. Big-box retailers know the worst thing they can do right now is overreact. The first thing any company must do in a crisis is figure out the problem. In this case, retailers need to reassess what’s still selling and what’s not, whether it makes sense to shift back to a JIT inventory model, and how to more accurately forecast sales in increasingly uncertain times
2. Embrace smart software. Retailers will explore new and emerging technologies to help avoid the missteps of the past several months. For some, that will mean predictive analytics. Others will embrace ERP tools. Still others will invest in tools to help see and manage their sprawling customer, sales, and inventory data. Many will also explore artificial intelligence, machine learning, and other automated tools to glean actionable insights and recommendations for balancing inventory with anticipated demand
3. Plan for known milestones. Many of the retailers who acknowledged inventory challenges say they hope to clear the excess to make room for traditional milestones, namely back-to-school and the holidays. Those priorities never change, regardless of conditions
4. Overhaul the supply chain. Numerous retailers are already learning from the problems of the last few years and are working to transform their supply chains. In fact, Gartner research shows that 96% of retailers plan to invest to make their supply chains more agile, and 90% are planning investments to improve resilience
5. Remember customer experience. This is still the age of the customer. Excess inventory doesn’t have to be rolled into some big sale filled with items people may not really want. But if it’s bundled with other merchandise as part of experiential marketing activations, consumers could see it as more valuable. Who doesn’t like to win something when attending a physical or online event? And such swag could be far more valuable from a marketing standpoint than it would be if it were buried – sad and lonely – on markdown tables at the back of a store

Retailers like Walmart expect it will take a few quarters to work through most or all of their excess inventory. Until then, they have an opportunity to get ahead of future challenges while applying technology to stay in touch with shifting customer sentiment, behavior, and demand.