If your business carries surplus inventory, you’re not alone. Many companies accidentally overorder inventory or don’t sell as much of a certain item as they thought. And sometimes, that inventory becomes surplus inventory—products that are unsellable, even over time. Regardless of why your business has found itself with surplus inventory on its hands, learning how to liquidate excess inventory effectively can help your company mitigate the damage to your business’s bottom line.
In this article, we’ll define excess inventory, offer details about inventory liquidation, and walk you through how to liquidate inventory. Finally, we’ll touch on several ways your business can reduce surplus inventory in the first place through better inventory management strategies.
What is excess inventory?
Excess inventory is inventory your business has on hand that it does not expect to sell. This is usually because that excess inventory simply exceeds the predicted demand for the given product. You’ll know when inventory becomes excess inventory when it approaches the end of its product lifecycle, and your business is unable to sell the item as-is.
Also referred to as surplus inventory, excess inventory, overstock, or B-stock; excess inventory is a liability that can cause your business all sorts of headaches, including:
- High carrying costs
- Reduced profit margins
- Resources wasted managing inventory that’s virtually unsellable
- Resources diverted from the rest of a business’s inventory management strategy
Usually, businesses find themselves with surplus inventory because they’ve forecasted demand incorrectly, have mismanaged their inventory ordering processes, do not understand what inventory they need and when, or because some unforeseeable event—such as a supply chain crisis; a natural disaster; or even a global pandemic—has caused rapid, extreme changes to customer behavior.
Regardless of why your business has found itself with surplus inventory, surplus inventory liquidation can help your company recoup some of the costs associated with excess inventory.
What is inventory liquidation?
Inventory liquidation occurs when a business sells off inventory—almost always at a sizable discount—for cash. While liquidation is often a precursor to a business shutting down, this is only sometimes the case. In fact, many businesses turn to inventory liquidation to sell off excess inventory, even when the rest of the business is running smoothly.
Your business can “liquidate” inventory on its own through a variety of tactics, or hire an inventory liquidator to handle the process for you. In today’s economy, there are plenty of ways to move surplus inventory, so take some time to consider what strategies work best for your business—and your profit margins.
When should inventory liquidation occur?
While full-on inventory liquidation is often seen as a last resort, your business might benefit from attempting to sell off “underperforming” inventory long before the inventory becomes unsellable. This is different from when a business facing bankruptcy moves forward with a liquidation sale as part of its official filing.
Remember, there is technically nothing stopping your business from liquidating any inventory at any time. The longer you hold on to inventory that your business cannot sell, the more costs you’ll incur storing, managing, and securing it.
What are the goals of inventory liquidation?
There are a variety of reasons why a business may choose to liquidate excess inventory, including:
- Minimizing profit loss by shedding excess inventory from a business’s balance sheet
- Reimagining a business’s offerings, especially after a rebrand, merger, or pivot
- To prepare for a bankruptcy filing
- To “clean up” a business’s poor inventory management strategy and prepare for better days ahead
Keep in mind that “softer” inventory liquidation strategies—such as bundling and discounts—aren’t really liquidation at all, but precursors to liquidation that can help you mitigate more drastic profit losses at a later date.
How to liquidate inventory
Once again, there are many ways to liquidate inventory—from a traditional sell-off approach to sales and promotions your business can handle itself. Here’s a bit more about some of the most popular ways to liquidate surplus inventory:
1. Refresh or repackage excess inventory
This isn’t so much a liquidation strategy as it is a prevention tactic. If your business notices inventory that’s becoming increasingly difficult to move, consider changing how that inventory is sold, marketed, packaged, and so on. One example is bundling inventory—where your company combines two or more items and sells them together, usually with one “headliner” item that enjoys higher demand.
2. Boost exposure
If you’re unsure why inventory isn’t moving, perhaps increasing exposure to a product could help prevent it from becoming unsellable down the line. Move inventory around your store, showcase it via marketing emails, or move it up the price list your customers see when they order from your company. While this won’t work for every product, it’s a low-risk strategy worth considering.
3. Offer discounts
Before beginning an actual liquidation sale, your business should consider offering a discount on products it believes may soon become excess inventory. For example, you can offer a small discount, slash the price, create a buy-one, get-one promotion, or something else along those lines.
Another opportunity to move surplus inventory is to offer those items as a free gift with purchase or a similar promotional strategy.
4. Call your suppliers
Usually, once you buy a product from a wholesaler, it’s yours. But there are exceptions to every rule, and sometimes, suppliers will buy back products from loyal customers, especially if they can buy inventory back at a discount. So don’t be shy about calling your vendors and letting them know what’s happening. There’s a chance they might be able to help.
5. Liquidate your inventory independently
In the past, businesses needed to contract with an inventory liquidator to sell off excess inventory. Today, there are plenty of opportunities to liquidate inventory online, often for little to no extra cost. However, you’ll want to be on the lookout for scams. If something seems too good to be true, it probably is.
6. Talk to a liquidation company
If the previous tactics fall short, it might be time to talk to a liquidation company about selling off your inventory. These companies will often offer you a lump sum for your inventory, then handle the rest. While you won’t recoup your costs, you’ll at least get something for your excess inventory.
7. Donate excess inventory
If inventory liquidation doesn’t appeal to you or doesn’t work for your business, you can also consider donating your surplus inventory. Your accountant should be able to help you determine whether donating surplus inventory can at least reduce your tax responsibility, helping you mitigate some profit loss.
How to reduce surplus inventory
Inventory liquidation is a last resort. To avoid liquidating inventory in the future, you can implement various inventory control strategies to help you order the right amount of inventory at the right time. To do this, adopt an inventory management strategy that enables you to understand what you have, where it is, and when you need more. Over time, you can use reports from your inventory records to make better predictions about what products you’ll need in the future.
While there are various systems designed to help you improve your inventory management strategy, inventory apps like Sortly are often the simplest, most intuitive way to get organized. These digital solutions can save time, money, and stress while enabling you to get a better handle on what your business truly needs.
Sortly is a top-rated inventory management app that can help your business take control of its stockroom today. With powerful automation features like low stock alerts, a barcode and QR code scanner, and customizable reports, Sortly can help your company practice optimal inventory control—and avoid surplus inventory from the get-go.
Curious how Sortly can help your business? Try a free, two-week trial today.