In product-based businesses, the issue of excess stock is often a problem that is overlooked. It is, in fact, one of the silent killers known to the fashion business. Being aware of it and actively managing “it” is imperative for the health of any fashion business. Keeping it as low as possible is the ultimate solution, but dealing with reality and having a clear overstock clearance plan is the most effective solution.
Excess stock is a silent business killer because it creeps up on brands without them noticing. Season after season it is normal for some stock to be left unsold. But as it piles up, few realise that these leftover unsold products are effectively cash tied up that cannot be put back into work in the business. Worse, it sits on the financial balance sheet as carrying overstock.
Depending at the rate at which overstock accumulates, it can come to a point when if the business begins to struggle financially and wishes to raise investment, a large stock number on a balance sheet will not be an attractive proposition to a potential investor.
Excess stock is a silent business killer because it creeps up on brands without them noticing.
In the last recession in 2007-8 many fashion brands suffered demise exactly for this reason. The many years prior to the recession were boom years when brands were buying or manufacturing product in large quantities. Sales were good and the possibilities to sell the extra stock seemed endless.
But when the recession began and people drastically cut back on spending, especially on non-essential goods, many brands suffered. They had large manufacturing orders in place, which couldn’t be cancelled. Drastically fewer sales and a lot of excess stock on top of the stock accumulated over the previous years. Many even paid for storage of this stock – more money effectively spent.
With drastically reduced sales, these brands needed to continue to operate as businesses for which they need cash resources. How do you keep going?
Many couldn’t and as a result, had to close their doors. Those that survived, were the ones who had a loyal following of fans and managed to clear off some of the product overstock.
So lets, to begin with, look why and how excess stock comes to exist.
There are two main reasons why product businesses accumulate stock.
Too much stock ordered
Working with the right manufacturer is vitally important for the health of a fashion business. We won’t go into the many reasons why, but one of them is connected to the present problem.
Working with a manufacturer who is right for where you are in business now is essential. Only then the right manufacturing orders can be placed and produced.
When brands try to drive the cost of manufacturing down and commit to larger than necessary minimum orders required by the raw materials suppliers and the manufacturer, then any stock unsold becomes excess.
As most fashion brands are cost-conscious, many move their manufacturing to the Far East where they can get better prices. But that comes at the cost of higher manufacturing volume. It is all good when there is demand and sales to convert the produced stock. But if sales drop, the MOQs, which the factories operate at, do not change. Without a clear alternative factory in place, able to produce less, the brand is locked into a situation where more large orders have to continuously be produced despite the lower demand.
RELATED READING: The challenge western brands face in working with overseas manufacturers.
This cycle of oversupply and under demand soon starts to choke the business and is ultimately unsustainable.
While larger brands may find ways to survive for longer, to a smaller business, this can signal the end.
RELATED CONTENT: Manufacturing in UK vs China vs India
Not enough sales
Another reason for accumulating excess stock is the lack of sales. No matter what the minimum manufacturing order quantity of your factory is, if you are not selling enough of your product, you will be creating overstock.
Many brands consider selling a result of marketing – and in many ways, the two are very interconnected.
But the truth is that even with no marketing, sales can be made. Which means that sales to a product-based business are the most critical activity a brand must perfect and get great at.
Few or no sales for a business that must create a product in order to exist and keep going, means that sooner or later, this excess stock will swallow the business.
Let’s be honest, it is virtually impossible to operate a zero excess stock business. It is impossible to predict the demand for any product at any time. But, there are ways in which brands can deal with overstock systematically and on a regular basis which will ensure longer-term survival.
Let’s look at three methods via which brands can clear product overstock and ensure that there is no cash tied up.
1. Private sale events & pop-up shops
Organising samples sales, private end of season sales or even pop-ups are a great way to clear old stock.
You can have them as big or as small as you wish. You can organise them by yourself or team up with other designers and benefit from the power of joint effort. Benefits of such collaboration include bigger audience reach as well as exposure to new potential customers.
Another way to clear overstock is to also look out for companies organising group sample sales and apply to participate. Again, with more people, there are more sales to be made as well as an added bonus of new customer acquisition.
Pop-ups is also a good way to clear stock. With so many retail units free and available for short term rentals, it is possible in today’s day and age to have your own shop for a period of time. You can sell samples and end of line as well as full-price stock to new clients and gather valuable market research whole at it.
RELATED READING: Shop ’til you pop.
2. Outlets & online discount marketplaces
There are many actual physical shops as well as online marketplaces that facilitate overstock clearance.
If you google on your local search engine page you will be shown many that you can approach to take part.
Some come in the form of market places and usually, such platforms take a percentage of the end sold item price. More often than not, you – the brand owner is responsible for shopping the goods to the customer.
Some, however, like www.outnet.com is similar to the full price model and have buyer items that you must liaise with and show them your left overstock of them to select from and curate the offer they will show to their customers. They act very much in the same way as full-price shops, except they stock past season collection pieces.
3. Refashion the old into new
Re-fashioning old items into something slightly different and new-er looking is perhaps the best way to move old stock.
It may not always e possible to do, but if you had some garments or plainer products, it is worth entertaining the thought of how can they be refashioned into something new. Can you add some embroidery or new detailing to a plain garment or sweater?
Can you embellish a bag on the exterior or add a new strap or detail that will make it updated and perhaps new? Can you shorten a dress, change a sleeve or add some trim to an existing garment to make it look fresh and different from what it was before?
The advantages of doing something like this is that with little effort and creativity you can perhaps offer the product again as part of a bigger collection and still sell at a full price or with a minimum reduction.
The key here, however, is to not spend much time in this re-decoration of the product. The more time and effort you spend – the most actual cost you add to the product without a guarantee that you can recoup it. The trick is to make small changes that visibly have a big effect and offer the opportunity to maintain the full price of the product and present it again to your customer base.
In summary, thinking outside of the box creatively is necessary in order to avoid long-term problems of cash flow. Keeping an eye on the volume ordered from your manufacturer and on the subsequent sales is key. Only then will you really be aware if the excess stock is growing into a problem that needs attention.
By being aware you avoid the nasty surprise in the future when it may be too late to do anything about it.
Discover how to manage better the cash flow of your business here.
