10 JUL-AUG 16
During regular reviews of merchandising data you will undoubtedly run across categories that appear problematic for a variety of reasons. Two typical areas of concern are being overstocked or overbought.
When you notice that a classification is out of line with the inventory plan a determination must be made if the category is overbought or overstocked. “Overbought” and “overstocked” are two completely different problems although they share potentially similar results. Careful review and corrective action should be considered if needed.
Overstocked
If the on-order matches up reasonably well when compared to the planned receiving numbers and the open-to-buy still appears negative several months out you are not overbought but overstocked. An overstocked situation can be rectified by returns stock-balancing for products in a different class and promotional efforts designed to drive additional sales such as spiffs contests trunk shows and – of course – permanent markdowns.
This is also the time to review how the category got overstocked in the first place which could include a negative sales trend receiving more inventory than was ordered not taking timely markdowns or accepting deliveries at the wrong time.
Overbought
An overbought situation requires a complete review of what is coming in by brand size style and color. Most stores I see that are overbought are also “over assorted” resulting in too much of everything or a whole lot of nothing depending on your viewpoint.
I do believe that the receipt of new goods timed well is the lifeblood of any retailer. My preference is to move older stock out as quickly as possible to make way for the new assuming that incoming purchases are reasonably in line with the inventory plan. I do think it is also important to “test” new vendors and styles. I would allocate perhaps up to 10% of my open-to-buy (OTB) for testing new vendors.
A very general rule of
Thumb Depending on the Classification
You might be buying for could be 50% of OTB reserved for ongoing lines you know you are going to carry 20% for size fill-ins and reorder 20% for off-price opportunities and 10% for testing new lines.
Fixing the Problem
If you encounter an overbought situation work first on the biggest problem areas with the earliest ship dates. One common cause in stores that are constantly overbought is that often they try to carry too many brands. Though well-intended in terms of providing a wide variety too often this merchandising approach leads to the line not having any meaning to the store and vice versa. Also look for duplication in styles colors and price points and modify or adjust shipments. Duplications are simply superfluous inventory that will end up in the markdown room. Next look for lines that have consistently not performed well from a GMROI perspective (Gross Margin Return on Investment) and modify those orders. If the overbought situation is simply due to backup orders of strong sellers that have been placed to reserve stock this is less severe – as long as you really do have a system in place to review the orders prior to them being shipped.
Consider a Boot or Sandal Class
That appears overbought for an upcoming season. The most prudent way to approach the class is to minimize carryover going into the off-season. We are in an unbelievably competitive market in which all customers have access at their fingertips to the largest shopping center in the world at all times – the internet. Dusting off last year’s mistakes or overbuying for the next season is the least viable alternative (there are exceptions but few good ones). Yes margin is lost when merchandise is marked down but GMROI turnover cash flow and sales are jeopardized when old merchandise is carried over from season to season. Which would you rather have?
Ritchie Sayner is vice president of business
Ness Development at RMSA Retail Solutions
Author of Retail Revelations: Strategies for Improving Sales Margins and Turnover available through Amazon. He can be reached at rsayner@rmsa.com. To follow him on Facebook please go to www.facebook.com/RitchieSayner.
Ritchie Sayner: Overbought or Overstocked: Know the Difference
Ritchie Sayner
Published in the July/August 2016 issue of Shoe Retailing Today Copyright © 2016 National Shoe Retailers Association Tucson AZ www.nsra.org. All rights reserved.
Summary
The article by Ritchie Sayner discusses the differences between being overstocked and overbought in retail emphasizing the need for careful review and corrective actions. Overstocked situations can be managed through returns and promotions while overbought scenarios require a detailed review of incoming inventory and strategic adjustments to avoid duplication and maintain a balanced assortment.
“I do believe that the receipt of new goods timed well is the lifeblood of any retailer.”
Real-World Examples of Overbought and Overstocked Situations
Understanding the difference between being overbought and overstocked is crucial for effective inventory management. Here are some real-world examples that illustrate these concepts:
- A clothing retailer finds itself overstocked on winter coats due to an unusually warm winter season. The planned inventory was based on historical weather patterns but the unexpected warmth led to a significant decrease in demand. To address this the retailer initiates a clearance sale and partners with a local charity to donate excess stock freeing up space for spring collections.
- An electronics store becomes overbought after ordering a large variety of smartphone models from multiple brands anticipating high demand during the holiday season. However consumer interest shifts towards a few popular models leaving the store with excess inventory of less popular options. The store decides to implement a promotional campaign and offers bundle deals to move the surplus stock.
- A home goods retailer experiences an overstocked situation with kitchen appliances due to delayed shipments that arrived after the peak shopping season. To rectify this the retailer offers discounts and collaborates with online marketplaces to reach a broader audience aiming to clear the excess inventory before the next seasonal demand cycle.
