UK retailers are losing millions in revenue and putting themselves at risk with tied-up capital due to excess stock, finds new research by product performance management (PPM) platform ROI Hunter.
The scale of the stocking crisis in the retail sector has been laid bare, with an average of nearly £900,000 (£882,781) of revenue lost every quarter due to overstocking, the research revealed. Currently, as many as 62% of retailers are struggling with overstocking, which is threatening their financial stability.
The buildup of stock that retailers are struggling to shift has forced discounting among nearly half (48%) of their inventory on average, which is an unsustainable solution. Short-term discounting will only go so far in preventing an accumulation of products sat in warehouses, stemming financial losses and addressing reduced profit margins.
“Overstocking began last year due to misconceptions around consumer demand for products, with little foresight into how the current cost of living crisis would shake the retail industry. Beyond this, the current promotion strategies favoured by retailers are unknowingly worsening the situation. For example, many are unable to promote seasonal items online quickly enough at full price and they often go out of season or become discounted as it takes weeks for advertising algorithms to catch up,” says Karel Schindler, CEO at ROI Hunter.
Poor visibility of product inventory and lack of purchasing control are exacerbating stocking problems for retailers. Over half (56%) lack insight into which products are likely to become deadstock, raising the risk of more items falling into this category and adding to the piles of excess products requiring precious warehouse space.
With almost two-thirds of retail marketers (62%) saying they have little impact on what the purchasing department orders, this only raises the risk of deadstock levels spiralling out of control. Additionally, an average of 47% of the marketing budget is currently spent pushing items with low availability (with the last size available or even out of stock).
Overstocking isn’t the only issue that retailers are contending with. They must also consider the impact of the recession on consumers, with 43% becoming more cautious with how and where they spend their money. Second hand selling sites are also gaining in popularity, as 44% of consumers have shopped for pre-owned items over the last year.
“Retailers need to face the stocking problem head on, or otherwise suffer both financial losses and reputational damage, as excess deadstock might ultimately need to be sent to landfill. To ease the issue, inventory product management and promotional strategies that are informed by real-time product performance data can allow retailers to track deadstock items and accurately forecast demand. Marketing departments can choose the best strategies for dealing with current products, while purchasing can make informed decisions about the stock that’s needed,” says Schindler.