Exclusive Q&A: How retailers can effectively address excess inventory

With a combination of technology and strategy, retailers can overcome the challenges posed by excess inventory built up in their supply chain.

Chain Store Age recently spoke with Liza Amlani, principal of the consulting practice Retail Strategy Group, about excess inventory trends currently impacting the retail industry. Amlani, who has worked with retailers including Walmart, Nike, and Ralph Lauren Europe in a 20-plus-year career, explained how excess inventory is not a new issue, but new solutions are available to address the problem.

[Read more: CSA Exclusive: Partnering for innovation, from source to shelf]

Historically, what issues have retailers faced with excess inventory?
I can go back to the start of time to discuss excess inventory issues, just because we've always been planning product the same way. I was in the retail industry for 22 years before switching into consulting, and even to this day, my previous teams are still planning the same way. So, that should tell you that we still line plan and sort product in the same way, with core versus fashion. Retailers haven't really incorporated the seasonless concept model.

Because once you have seasonless planning, you should reduce access in theory. Retailers are not using digital tools to better predict quantities across categories and SKUs. So, I'd say that the historical issues that retailers have been facing with excess inventory, we're still facing the same issues today.

How have the COVID-19 pandemic and subsequent supply chain disruption affected excess inventory?
Working with retail clients recently, I can tell you that because of the padded lead times that have increased substantially across raw materials, or in the lack of raw materials plus the increased cost of raw materials, we're seeing that disruption in the supply chain has impacted excess inventory tremendously.

Products are arriving late into the selling season, so retailers are missing a lot of that full-price selling time, which would trigger markdown activity and promotions and then, of course, you reduce the life of a full-price-selling product.

What remedies can retailers take beyond markdowns?
What we're seeing is that retailers are actually trying to sell their excess inventory versus going into a liquidator, or selling into an off-price format. That's been an interesting development. They're still trying to capture some sort of revenue and profitability with promotion and markdown activity to clear out some of that excess inventory.

However, for the most part, there's a certain point in time where retailers are going to have to move on from excess selling with back-to-school around the corner, for example.

How do you see excess inventory trends changing in the next 12 to 18 months?
As retailers and brands start to sift through their excess inventory through markdown and promotion, or holding and bringing it back next season or another full-price selling round, we will start to see that customer service is horrible over buying and production. And what that is going to do is trigger the retailers and brands to rethink how they are sorting their lines and merchandise, and their merchandising strategies overall.

We will see retailers reducing SKU counts. We are going to see a reduction in fashion, and an increase in seasonless so that we are going to be able to pack and hold and hopefully buy into raw materials earlier, instead of chasing raw materials. And then retailers will be manufacturing product in the preseason, seeing how it sells and then continuing to build out that line using the same raw materials. This means feeding into demand with the supply that's already owned in terms of raw materials.

Retailers and brands will buy into raw materials, or they'll really invest in a textile or a fabric trim, or print a color, so that designers are actually designing into those materials versus designers designing and the material teams going out to find materials that they need. A lot of excess product is product that either came in late, or retailers and brands had to buy into because they couldn't predict shifts in consumer trends or shopping behavior.