Problems With Retail & Over-Inventory

Having excess inventory poses several significant business and operational problems for retailers. Excess inventory means the company or store ordered more inventory than was demanded. Most businesses are burdened with the costs associated with carrying extra inventory, but retailers have some other unique challenges not as common at non-retail businesses.

Inventory Basics

Inventory for retailers includes available products for each stock keeping unit the coming sells. Traditional brick-and-mortar retail stores carry inventory on the sales floor and usually have additional inventory in a stock room. As stores sell products, automated inventory programs reduce inventory on hand by one unit. Once inventory levels reach an alert point, an automated message typically goes either to the company buyer, a distribution center or directly to the vendor.

High Costs

As noted, high costs are common regardless of business type. When you have too much inventory you have to keep track of it and manage it. This includes the time you pay employees to receive inventory, organize it and put it out on the floor. Wasted or damaged inventory also has expenses. Extra inventory may get damaged, expire or go bad. More inventory available also means higher potential for loss or theft.

Sales or Storage

Retailers make money by merchandising and selling products and services on their sales floors. They make little money on excess inventory that is stored in a stock room. The more extra inventory a retailer carries, the more storage space it needs to keep extra inventory on hand. This also means it utilizes less space to sell products. Also, the more space used for storing products, the more time and costs it takes for employees to organize and find stock when needed.

Financial Implications

Over-inventory also correlates with the financial reality that the retailer is not effectively selling its products or is inaccurately ordering inventory. This means company buyers need to reconsider their strategies and approaches to inventory buying. Company leaders and managers need to decide how to motivate stores and sales staff to do a better job turning over inventory. These processes take significant time, effort and resources that would not be needed without high inventory levels.