How Luxury Conglomerates Manage Excess Inventory and Lessons to Learn
Excess inventory has long been a key topic for retailers and in particular luxury brands — it is very difficult to accurately forecast and match demand and supply for individual goods, as people’s tastes may differ from what has been produced.
In order to preserve your brand and its value it is therefore necessary to understand how to manage excess inventory in a smart way. We’ll show some lessons learned from luxury brands and retailers that can be applied to your business.
Lackluster Growth in 2023 — How Luxury Retailers Dealt With It
2023 was a difficult year for many luxury retailers, as growth in consumer spending has slowed globally from post-pandemic heights, particularly in e-commerce channels. The WSJ reported that consumers started tightening their belts, citing several luxury retailers and the difficulties they are experiencing.
The online retailer MyTheresa for example, reported 44 percent higher inventory numbers by the end of 2023 than a year earlier. Luxury brand Prada has shifted increasingly from wholesale distributors to their own stores, where they can tightly control prices and quantities.
All signs are pointing towards luxury retailers increasingly looking to find ways to re-sell excess inventory while still preserving brand value and pricing power.
We’ll look at a number of strategies you can employ to manage your excess inventory, and how you can do it in a sustainable manner. We’ll also show examples of how luxury retailers have employed similar strategies in their business.
Strategies Luxury Brands Use to Offload Excess Inventory
Some of the following strategies are employed by many luxury brands globally to deal with excess inventory. A few of those may also apply to a small business like yours, even if you do not have the brand recognition of a global player (yet).
The strategies also differ in their approach towards sustainability and the 5 R’s: refuse, reduce, reuse, repurpose, and recycle.
Applying the 5Rs to your inventory management, helps you not only find a suitable strategy to optimize your inventory costs but also limit the environmental impact your business has.
Limited Production
Quite straightforward, limiting production and matching inventory to your demand forecasts is a strategy that helps prevent overspending on inventory. Many luxury brands employ strategies such as demand forecasting to adjust production according to the demand. You can iteratively shift to just-in-time production as a small business.
To do this, forge contracts with suppliers and manufacturers that have shorter inventory cycles, and quicker turnover and ask suppliers for samples or drop-shipping options.
Having an accurate view of demand and supply not only helps to save money but also cuts down unnecessary production, hence being a ‘refuse’ or ‘reduce’ strategy.
Private Sales and Outlets
Designer outlets and chains such as TK Maxx and online retailer Farfetch are a way for luxury retailers to resell out-of-date or excess inventory. Through those outlets and channels, excess inventory and or previous season collections are typically available at a fraction of the price. It is a win for both brand-loving consumers and luxury brands, but may not be applicable for smaller brands or start-ups.
Strategic Discounting
Everyone knows season-end sales and discounts — it is one of the most prevalent strategies to timely rid yourself of seasonal inventory that may be difficult to sell out of season. In particular, the fashion industry has established a regular cycle of end-of-season discounts to attract bargain hunters. If you’re experiencing low demand for particular seasonal items, it hence may make sense to start early with strategic discounts.
Recycling and Upcycling
Recycling and upcycling mean using excess inventory to create new products, either through recycling them, meaning to destroy the existing product, or using the raw materials to create a new product, for example, extracting cotton fibers from unsold fashion items.
Upcycling is even more sustainable than recycling because unsold or obsolete products are not completely destroyed but turned into something with a use-value. A good example is upcycling used tires into swings for children’s playgrounds.
Donations
Charitable donations are something luxury retailers rarely consider because of their importance of brand value and giving away things for free doesn’t usually fit the bill.
However, many smaller independent retailers or brands may choose that option, in particular, if founders and management have a charitable streak.
Shifting Inventory Globally
If you’re operating globally, a smart strategy may be to shift inventory across international markets. In particular, seasonal ware can be shifted from north to south to take advantage of seasonal changes — if you’re selling outdoor camping equipment, the high season in Europe and the US is in spring and summer.
After the European season ends, the spring and summer seasons start in the southern hemisphere and you may be able to shift left-over products to other e-commerce markets where the high season is just starting.
Product Destruction
Last but not least, while not a sustainable strategy, it has been reported that still, many brands are still using destruction as a means of removing excess inventory.
Amazon has been blamed for this behavior in numerous incidents, however, they have increasingly moved towards a more sustainable strategy to offer damaged inventory as ‘warehouse deals’.
Sustainably manage your inventory
Whether you’re operating a small e-commerce store or a number of retail outlets — taking care of a sustainable inventory management strategy can not only help to reduce waste but also save important costs.
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