Inventory Liquidation: A Guide for Retail Companies (2023) - Shopify (2024)

Inventory management is a crucial aspect of retail businesses, which are filled with challenges that can result in excess stock. Retailers use inventory forecasting methods to predict consumer demand, but if these estimations are off, businesses can end up with unwanted inventory. This surplus ties up capital and becomes especially problematic when it impacts cash flow, creating financial strains that impact other facets of the business.

Take, for example, a retailer who is left with unsold holiday goods. Not only does it take up valuable warehouse space, but reduces the retailer’s ability to introduce new merchandise. It’s a financial burden that affects the business’s bottom line. To combat this issue, companies liquidate inventory. Learn more about how to effectively manage excess stock with this strategy.

What is inventory liquidation?

Inventory liquidation is selling off surplus inventory to third-party companies or customers at significantly reduced prices, usually to convert assets into cash quickly. For retailers, this often means parting with merchandise at cost or below cost to free up space and improve cash liquidity.

While this strategy can offer a quick infusion of cash, it’s important to be aware of the downsides. Frequent or poorly managed liquidation sales may dilute brand value and damage customer perception. This can also lead to strained supplier relationships if wholesalers see a business is regularly devaluing their goods. Employ inventory liquidation carefully, considering both its advantages and potential pitfalls.

Why should you liquidate your inventory?

• Improve cash flow
• Reduce storage costs
• Make room for new stock
• Clear out seasonal merchandise
• Close or relocate a store

Inventory liquidation is a tool for business owners with excess stock. Whether you have outdated seasonal merchandise or too much inventory, liquidating these goods can offer immediate benefits.

Improve cash flow

Carrying costs for unwanted inventory can strain a business’s financial resources. To improve cash flow, companies can reach out to liquidation companieswho buy products quickly, in bulk, and at rock-bottom prices. Look for a liquidation company aligned with your industry—you can find companies who specialize in categories like home décor, sporting goods, or pet supplies.

Reduce storage costs

Storing excess goods involves paying storage fees, which can eat into your profit margins. Liquidating excess inventory through liquidation pallets or secondary markets enables you to reduce carrying costs.

Make room for new stock

Excess inventory can prevent a company from purchasing new, more desirable products. Liquidating excess stock through liquidation auctions or selling it to wholesale companies can solve this problem. You can receive payment quickly, and use it to buy new merchandise aligned with today’s market demands.

Clear out seasonal merchandise

Holding onto last year’s holiday decorations or summer apparel can crowd your warehouse space and affect your cash flow. Liquidating excess seasonal merchandise frees up storage, making it easier to introduce new, relevant products.

Liquidation sales can also attract customers, potentially boosting profit despite the lower price points. Be careful of employing this tactic too frequently though—if customers expect regular liquidation sales, they may be unwilling to purchase goods at full price.

Close or relocate a store

When a store is closing or relocating, it becomes crucial to liquidate inventory fast. Using a liquidation company with inventory buyers can help you sell your products wholesale; you may also consider selling to auction houses. Working with bulk buyers speeds up the liquidation process and can help make the process relatively hassle-free for the retailer.

How to liquidate inventory

• Host a flash sale
• Use online auction platforms
• Collaborate with liquidation companies
• Engage wholesale buyers
• Implement bulk discount offers
• Donate for tax write-offs
• Focus on B2B sales
• Negotiate returns to suppliers
• Distribute freebies or samples
• Dispose of items

For retailers dealing with excess inventory, liquidation can offer a viable solution to free up warehouse space and improve cash flow. Here are practical ways to liquidate your unwanted stock:

Host a flash sale

A flash sale is a quick way to liquidate inventory while attracting a large customer base. Market the sale heavily on social media and with email marketing campaigns, offering steep discounts on excess stock for a limited time. Properly promote the liquidation sale to reach a wide audience and convert surplus inventory into immediate cash flow.

Use online auction platforms

Using online auction platforms like eBay can be an effective way to sell inventory at a fair price. Take quality photos, optimize your images, and provide detailed product descriptions to appeal to potential buyers. Set a reasonable asking price to attract bids, but be aware the saleprice may be lower than the retail value.

Collaborate with liquidation companies

Consider partnering with a liquidation company specializing in your industry. These companies often buy inventory in bulk, offering a quick and hassle-free way to liquidateexcess stock. Carefully vet any liquidation companies to ensure you receive a fair price for your merchandise.

Engage wholesale buyers

Wholesale companies often buy excess inventory for resale. Create a detailed inventory list and approach multiple buyers to negotiate the best deal. Engaging wholesale buyers can reduce carrying costs and free up warehouse space.

Implement bulk discount offers

For products that aren’t moving, consider offering bulk discounts to entice customers to buy more. This can be particularly effective for home décor or paper products where people often buy in multiples. The reduced price per item may lower profit margins but improve overall cash flow.

Donate for tax write-offs

Donating surplus inventory can offer tax benefits, effectively converting your excess stock into a tax write-off. Consult a tax adviser for the documentation needed and to understand the implications for your business finances. Donating goods can also improve your corporate social responsibility profile, earning you goodwill in the community.

Focus on B2B sales

If consumer sales are slow, consider redirecting your focus to other businesses that might need your inventory. B2B sales often involve larger volume purchases, allowing you to liquidate inventory more rapidly. This requires targeted marketing and you may need to adjust your business plan.

Negotiate returns to suppliers

Sometimes the most straightforward way to deal with excess inventory is to negotiate a return to your suppliers. Always read your supplier contracts carefully to know your rights and responsibilities regarding returns. Depending on the contract, you may have to pay restocking fees. But returning unsold goods can give you some of your money back. Eliminating the carrying costs and long-term storage fees for products can offer immediate relief.

Distribute freebies or samples

Handing out small quantities of excess inventory as free samples can serve dual purposes. It not only helps liquidate your stock but also promotes your brand and could lead to future sales. This strategy can also provide you with valuable customer feedback on products, helping you make more informed purchasing decisions in the future.

Dispose of items

As a last resort, if the cost of holding onto excess inventory exceeds the value you could get from selling or donating it, consider discarding it. If you choose this route, dispose of items responsibly, considering the environmental implications and costs associated with waste disposal. Explore eco-friendly disposal methods whenever possible to minimize the environmental impact.

Tips for avoiding excess inventory

• Regularly review your sales channels
• Invest in inventory management software
• Implement a just-in-time (JIT) inventory system
• Be cautious with discount buying
• Monitor customer returns closely

While inventory liquidation can be a solution for overstock issues, prevention is always better than a cure. Here are some tips to help you manage your inventory effectively:

Regularly review your sales channels

Consistently monitoring your sales channels enables you to make data-driven decisions on what to purchase. Knowing which items sell quickly and which languish can help you avoid overstocking slow-moving inventory. This will result in better turnover and less need for drastic actions, like liquidation auctions.

Invest in inventory management software

Proper inventory management software helps you track your inventory, orders, and sales in real time. Keep tabs on which items sell quickly, which ones don’t, and replenish inventory accordingly. Being proactive about using technology can minimize the accumulation of unwanted stock.

Implement a just-in-time (JIT) inventory system

A JIT inventory system allows you to purchase inventory only as you need it. This minimizes the inventory you hold at any given time, reducing carrying costs and the risk of obsolescence. Implementing a JIT system requires careful planning but pays off in more efficient inventory levels.

Be cautious with discount buying

While buying merchandise at discount prices can seem like a good deal, it can lead to overstock issues. Before making bulk purchases, assess whether the discounted items fit into your current inventory needs and sales strategy. Over-purchasing can lead to difficulties in selling later.

Monitor customer returns closely

Customer returns can add to your inventory levels and become obsolete if not managed properly. Establishing a returns management system will allow you to understand why shoppers return items and how you can resell or repurpose products. A dedicated approach to returns minimizes the chances of accumulating excess stock.