1. Operations & Supply Chain

How Sellers Can Avoid the Holiday Hangover: 4 Steps to Minimize Excess Inventory

2022 was a tough year for retailers and e-commerce sellers. With supply chain snarls around the globe, they’ve struggled to get the products they need. Now that those snarls are easing and products are flowing, sellers face diminishing consumer demand, which poses the threat of inventory sitting around unsold. In a survey of retail executives by KPMG, 56 percent said they’re expecting a holiday hangover and a lot of excess inventory to deal with in 2023.

This will be a headache. Among other things, excess inventory brings expenses, such as the cost of storage space to hold it. And excess inventory isn’t just product sitting around, it’s capital sitting around — capital that could be devoted to better purposes, like growth or marketing.

However, there are ways to avoid those dreaded holiday leftovers. Here are four ways to minimize excess inventory and have a happier new year:

1. Communicate with your suppliers.

You have a better chance of avoiding excess inventory if you have a clear channel of communication with your suppliers. Start communicating now. Share your 2023 purchasing plans with your key suppliers early on to make sure they’ll have what you need when you need it. If you’re planning a line of lightweight summer clothing, for example, tell your fabric supplier now, not in May. Touch base often and let suppliers know of changes or updates to your order. Letting your suppliers know you treat them as your partners will help you find success together.

2. Expand your sales channels.

Obviously, more customers mean more sales. The trick is reaching those customers. You can do it by expanding the channels you sell through. If your focus has been only selling on a single e-commerce site, consider branching out to other platforms to diversify your audience. Also consider working with influencers on prominent social media or “social selling,” where you can use short videos and livestreaming to sell your products. Social selling is a growing opportunity. According to research by LinkedIn, 78 percent of social sellers outsell peers that don’t use social media.

3. Negotiate terms that suit you.

Efficient inventory management requires flexibility. You can get it by negotiating flexible terms with your suppliers, particularly in the area of minimum order quantity. MOQ is the fewest number of units a supplier requires before it will fill your order. The lower your MOQ, the less chance of excess inventory. Buyers may also negotiate better payment terms and flexible shipping schedules to help with cash flow.

Many e-commerce platforms have buyer verification programs that label buyers based on activity and revenue — those that have revenue above a certain level, like, say, $1 million. If you’re a member of a buyer verification program, tell your suppliers. Then they’ll know your business is reliable and repeatable, and they’ll be more willing to fill your orders fast, give you flexible terms and offer lower MOQs.

4. Offer loyalty rewards.

It’s more expensive to acquire a new customer than it is to keep an existing one — up to seven times more, according to ThinkJar Collective. A great way to retain existing customers is with a loyalty program that bonds customers to your brand and helps you avoid excess inventory by boosting sales to them. Indeed, adding a loyalty program to your e-commerce business can raise average order quantity by a whopping 319 percent, says Incentive Solutions. Experienced e-commerce sellers understand their customers well — where they are, what they like, how they shop — and build such programs to increase their customer lifetime value.

Even in these uncertain economic times, e-commerce sales are expected to continue to grow. Sellers that succeed will be those that are nimble and efficient. You can’t be either if you’re burdened with excess inventory. Keep your inventory to a minimum and you can pivot when the market does. With less excess inventory, you can run more efficiently, boost profitability and improve your competitive position.

Min Yang is director of customer success and buyer growth at Alibaba Group

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