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Some retailers face backlash from pictures showing stacks of unsold inventory that have been burned or destroyed. This overstock problem is not new, and retailers have tried to manage their unsold goods through donations and resellers, but there is simply too much inventory. Retail giant H&M recently announced that it $ 4.3 billion in excess inventory – an amount that is difficult to imagine and even more difficult to manage.
Far from being just a financial problem, overstocking is devastating the environment. Raw materials are destroyed and a lot of energy is used in the manufacture and worldwide transport of products. Not to mention the hours of work of the people, blood and sweat poured into every product only to be uselessly destroyed.
It’s a frustrating problem because it’s so easy to solve. Those who rely on modern technology are already optimizing their inventory advanced analyticsto completely prevent this massive overstock.
So if a retailer is wondering why consumers and investors are pulling out, it’s because they are still taking a traditional approach in a modern world.
How do dealers get into this mess?
Whether it’s fast fashion or high-end brands, at the end of the day a company’s goal is to maximize shareholder value. As a result, retailers cannot afford to lose sales because they are out of stock.
The consequences of stock shortages are serious, from lost profits to the loss of customers and inevitably market share. The direct and indirect damage from lost sales is so great that retailers prefer to write off unsold inventory or even get rid of it at cost.
Retailers are faced with the challenge of figuring out what the product mix should be and how much of each product to buy. In addition, timing is of the essence as the product is late to market to miss out on potential sales, but too early means there is a cost and cash flow is tied up. These variables, along with vendor pricing and delivery times, make it difficult to plan demand.
Understandably, retailers will buy additional inventory to offset the dynamic nature of the retail industry. Unfortunately, many correct too much and bring in significantly more inventory than they can sell.
Related: The 4 Essential Elements Inventory
But why burn the inventory?
Given increased consumer scrutiny and added legislative pressure, why would a respected retailer like Burberry still choose it? Destroy £ 28.6 million in unsold clothes and accessories?
The answer is complicated, but let’s address some of the reasons:
Bad demand forecast – The main reason retailers find themselves in this no-win situation is the lack of effective planning from the start. It makes sense to add buffer inventory to avoid losing sales, but some retailers are inappropriately bringing in more inventory than they could ever need.
Trademark – Luxury brands like those from Richemont (Cartier, Piaget and IWC) create value through exclusivity. This means that they cannot devalue their products without devaluing the brand. As a result, Richemont has admitted that Destruction of $ 563 million Watches worth 2018/2019.
Incentives – A recent U.S. Customs and Border Protection program says retailers Refund 99% of all fees paid for imported goods that have been destroyed.
Resale – Third-party vendors often sell unsold inventory at discounted prices. This can be an excellent solution, but when too many products are available to the public, they stop shopping at retail prices. Traders need to be careful not to stifle their own demand.
Recycling – Why is inventory being destroyed instead of being recycled? Not all plastics and textiles can be recycled. Most of the goods are made from mixed materials that are both recyclable and non-recyclable. National Geographic reported that only 9% plastic are recycled and less than 15% of the textiles according to the EPA.
Just too much overstock – There are many organizations that accept and distribute donations locally and internationally. While donations may seem like a perfect solution, donating on a large scale can do more harm than good. The enormous amounts of inventory exported have suppressed local markets so much that the East African Community (EAC) fully voted for it in 2016 Prohibit imported clothing.
The truth is that retailers are caught between a rock and a tough place. Retailers need to know that it is possible to keep their shareholders happy without becoming the capitalist villain.
Related article: Amazon destroys thousands of unsold products every week, research shows
Why should traders watch out?
The world has changed and retailers are running out of time to adjust their business operations. Changes in consumer behavior and digital innovation mean that previously beneficial business practices are detrimental to both communities and retailers.
80% of buyers in 29 countries think sustainability is important for them, with the majority willing to pay more for environmentally conscious brands.
Meanwhile, the digital transformation has introduced industry innovations such as advanced analytics that have optimized the way business is done. Retailers adopting these new practices save time and money, leading to them stealing market share from traditional retailers.
We know this doesn’t have to be the case. Leading retailers are already using technology to pinpoint and fix the root cause of their inventory problems. By leveraging advanced analytics, these retailers have optimized their inventory so they can avoid lost sales without paying the price of overstock.
So what is advanced analytics and how can it help?
Advanced analytics and AI accurately predict demand and recommend smart insights to decision makers that they can rely on.
Retailers are able to easily take all of the above factors into account when forecasting demand. This enables companies to have the right amount of inventory, in the right product mix, and at the ideal time.
Perhaps traditional retailers are put off by the complex-sounding terminology surrounding AI, machine learning, and analytics. The reality is that these systems are easy to use and are becoming more intuitive every day. In fact, they provide a consistent, accurate, and scalable workflow that is less prone to human error.
So not only will early adopters of this technology save millions of dollars, but it will also have a positive impact on the environment and communities around the world.
Related article: How AI is changing business decision-making
Retailers, it’s time to adapt.
What is really surprising is that this technology has been around for over a decade. It has been tested, proven, and even recognized by institutions as the future of retail. Still, many retailers choose to stick to destructive, profitable, and outdated processes. Either way, it’s only a matter of time before the old guard is washed away by the tsunami of digital transformation.