The terms excess inventory and closeouts are often used interchangeably, but they refer to different parts of the inventory lifecycle, as well as challenges that require distinct processes and strategies. By understanding the differences between excess inventory and closeouts, companies can have a more unified strategy and streamline operations.
This article explores these concepts and outlines strategies for managing them effectively. Let’s begin with the fundamentals.
Excess Inventory
Excess inventory refers to surplus stock that exceeds the current demand for a product. This type of inventory accumulates for various reasons, including inaccurate demand forecasting, overproduction, seasonal fluctuations, or changes in consumer preferences.
Excess inventory is not necessarily obsolete but represents stock that is moving slower than expected. These are products that will remain in inventory, but there are larger quantities than desired at the present moment. Here are a couple of strategies to sell excess inventory.
Discounting and Clearance Sales
Leverage excess inventory for special promotions, such as “End of Season” or “Holiday Sales.” These temporary discounts align with seasonal demand and help clear overstock without devaluing the product long-term. Unlike closeouts, which require permanent removal, excess inventory can be repositioned as part of recurring promotions.
Bundle Excess Inventory with Popular Products
Excess inventory can be repurposed into product bundles, combining slower-moving items with best-sellers. For example, offering a discounted add-on or creating a value pack encourages customers to purchase items they may not have considered otherwise.
This works well for excess inventory because the items are still relevant and can enhance the appeal of in-demand products, unlike closeouts that no longer align with your regular offerings.
Read our blog: Effective strategies for selling surplus Inventory Quickly
Inventory Closeouts
Inventory closeouts, on the other hand, involve selling off remaining stock at significantly reduced prices, often below cost. Closeouts typically occur when a business decides they want out of this particular item and no longer plans to manufacture or carry it again. to discontinue a product line, liquidate assets, or clear out seasonal inventory.
Unlike excess inventory, closeouts signify the final phase of a product’s lifecycle, marking its exit from the market. Once an item is designated as a closeout, the focus shifts from maintaining its value to clearing out the remaining stock.
When Should Inventory Become a Closeout?
Closeouts are often used as a last resort to recover costs and free up warehouse space. Common scenarios for deeming inventory a “closeout” can include:
1- Change in Strategy
Some products may no longer align with a company’s brand image or target market. When repositioning or rebranding, it may be wise to liquidate these items through a closeout sale to streamline the product portfolio and reinforce the new brand direction.
2- Product Deterioration or Expiry
For perishable goods, products with expiration dates, or items prone to obsolescence (like fashion or technology), holding inventory for too long can result in unsellable stock. A closeout sale helps recover some value before the product becomes unusable.
3- Product Life Cycle
Suppose a product is approaching the end of its market relevance due to advancements, shifting consumer preferences, or obsolescence. In that case, initiating a closeout sale is often better than continuing to hold it in inventory.
4- Storage Costs vs. Revenue Potential
A closeout sale becomes a financially sound option when the cost of storing excess inventory exceeds the revenue it is likely to generate. Excess inventory can incur ongoing storage, handling, and insurance costs, quickly eroding profit margins.
5- Market Demand
A significant decline in market demand is a clear signal to transition to a closeout strategy. When products show little likelihood of selling at regular or discounted prices, holding onto them becomes a liability rather than an asset.
6- Decision to Discontinue the Item
When a company permanently stops carrying a particular product—due to underperformance, changes in business focus, or other strategic reasons—initiating a closeout sale is the best way to liquidate the remaining stock. This helps the business reallocate resources to more profitable or strategically aligned products.
7- Upcoming Product Launches
If a new version or replacement product is set to launch, clearing out old inventory through a closeout sale prevents it from cannibalizing sales with the new product. This approach also helps avoid customer confusion and ensures a smoother transition to the updated offering.
8- Seasonality
Seasonal products that fail to sell during peak periods often become dead stock as demand drops. Transitioning to a closeout sale helps clear out these items to make space for next season’s inventory and avoid holding products that won’t sell until the following year.
Strategies for Selling Inventory Closeouts
Here are five strategies specifically tailored to selling closeout inventory, focusing on the finality of these items being discontinued and no longer available for restocking. Unlike general excess inventory, which may still be integrated back into your regular sales channels, closeouts require urgent action to clear out existing stock as quickly as possible. These strategies help businesses recover value from discontinued products while emphasizing their limited availability and the need for rapid turnover.
1. Run Clearance Sales to Your Customers
Clearance sales highlight that the items are no longer available after the current stock is sold, creating customer urgency. Prominent “Final Sale” with steep discounts signal the product’s discontinuation. This approach works well for closeouts because it emphasizes exclusivity and the limited opportunity to purchase, which wouldn’t apply as strongly to excess inventory.
2. Sell Through Discount Retailers or Liquidators
Closeout inventory is no longer part of your regular product line, making closeout inventory buyers or discount retailers an ideal channel. They specialize in moving discontinued goods quickly to secondary markets. This is particularly effective when your priority is recovering cash and clearing warehouse space. Unlike excess inventory, which may still return to regular stock, closeouts often need to be removed entirely from your supply chain.
3. Partner with Off-Price Retailers
Off-price retailers like TJ Maxx or Ross thrive on closeout goods. They value discontinued products to offer their customers unique deals. Unlike managing excess inventory, where you may plan to reuse or redistribute stock internally, partnering with off-price stores ensures closeout items are moved completely out of your regular sales channels.
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Summary
Understanding the key differences between excess inventory and closeouts is crucial for businesses seeking to manage stock efficiently. While excess inventory represents products that are overstocked but still relevant to your regular sales channels, closeouts are items that are being discontinued or phased out, often requiring quick liquidation. Knowing when to offer closeouts—such as when a product is no longer aligned with your brand’s direction or when it’s taking up valuable warehouse space—helps businesses make informed decisions about their inventory management.
Strategies for offering closeouts, such as partnering with inventory liquidation companies, running clearance sales, and emphasizing scarcity through flash sales, are essential for moving these items quickly and recovering as much value as possible. On the other hand, excess inventory can benefit from different approaches, such as bundling, seasonal promotions, or targeting secondary markets, to maintain its value and find new sales opportunities. By tailoring strategies to the nature of the inventory, businesses can optimize their stock management and drive profitability, whether clearing out closeouts or moving excess products efficiently.
FAQ
What is the difference between excess inventory and closeouts?
Excess inventory refers to surplus stock that exceeds current demand but is still relevant to your product lineup. Closeouts, however, involve discontinued products being sold at deeply discounted prices to clear them out permanently.
How can I sell excess inventory effectively?
You can sell excess inventory through discount promotions, bundling with popular products, or working with liquidation partners. Managing excess stock efficiently helps optimize cash flow and warehouse space.
Where can I sell closeout inventory?
Closeout inventory can be sold through liquidation companies, discount retailers, or specialized closeout buyers. These channels help clear stock quickly while recovering some value.