7 Strategies for Inventory Reduction in Retail [2023]

Retail businesses always want to be well supplied.

After all, there is nothing worse than having customers willing to pay for your products, only to end up cancelling the deal, because you do not have the item in stock.

At the same time, having too many items in stock could also be a problem since you need to find space for them and maintain them until they are sold.

Ultimately, you need to find the balance, and apply smart inventory reduction strategies.

We will get to that in a bit. But first things first.

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What Is Inventory Reduction?

In simple words, reducing inventory items to meet the needs and demands of customers is called inventory reduction.

For example, in your inventory there are 100 Kindle e-readers, you have managed to sell half of them, and then the other half just takes up space in your warehouse, because no one wants to buy them.

To prevent excess inventory from pilling up in the first place, it is important to make sure you have researched user demand, reduced inventory levels, and maximized your average inventory costs, in order to improve your GMROI (Gross Margin Return on Investment).

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7 Strategies for Inventory Reduction

1. Try to Predict the Demand
2. Utilize Data to Get the Timing Right
3. Optimize Your Processes
4. Automate the Replenishment Process
5. Transfer Inventory to Balance It
6. Optimize the Prices
7. Get Rid of Unnecessary Items

1. Try to Predict the Demand

More often than not, business owners are focused on potential sales. However, they are quite likely to forget about user demand.

While, no one expects you to be Nostradamus, the lack of basic prediction regarding the customer’s demand for your products, is, perhaps, the number one reason for excess inventory.

This could also be the case for when there are not enough products in stock, even though the demand is high. Keep in mind that 31% of online shoppers say they would switch to a competitor the first time a product is unavailable on their preferred website.

Of course, it is not an easy task to determine the consumer demand for certain products. A lot of factors need to be considered, like forecasting the future trends, assessing previous, current, and seasonal buying patterns, and so on.

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2. Utilize Data to Get the Timing Right

Getting the right timing is as important as getting the right quantity. You cannot afford to be too late when purchasing orders, and purchasing too early might mean you will have lots of excess inventory just sitting on your shelves unsold.

So, in order to nail the right timing, we need to revisit the previous strategy – and hopefully predict the proper demand for the products.

What is more, you could and should utilize data to help with your inventory management. Inventory control systems, for example, can provide you with information about stock availability, product returns, customer behavior, and future demand forecasting.

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3. Optimize Your Processes

Another great way to make sure you nail the perfect timing, is to integrate your vendors into the supply chain processes, whenever possible – warehousing, logistics, safety stock, etc.

This way, you will have a much greater awareness around the movement of your products in the supply chain, while also minimizing some costs associated with vendor lead times, for example.

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4. Automate the Replenishment Process

Automation is key in almost all industries in 2023. Whatever makes your job easier, faster, and more accurate is good for business, after all.

Retail can also take advantage of automation, particularly in the replenishment process. This process allocates space in your inventory and replaces missing products on your store shelves.

Here, advanced analytics can automatically suggest orders, and reorders whenever the products are slow or what can suggest the best times to do so.

This will allow your team to focus on other areas, and will additionally ensure that your customers undergo the best shopping experience possible.

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5. Transfer Inventory to Balance It

A common issue, many retailers face, is that they have an item in stock in one location, but the same item is completely depleted at another location. This lack of inventory balance could end up being quite costly for the businesses.

Typically, store managers take action – to transfer inventory – only after the issues have occurred, and more often than not, because there is an angry customer they are facing.

Instead, it is way better to proactively plan your stock. Let AI and advanced analytics help you take a more systematic approach, and suggest what are the most profitable inter-store transfers.

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6. Optimize the Prices

The pricing strategy you have chosen is closely linked to your inventory. For instance, you can sell 1,000 items for $12, but you may very well sell 1,300 items of the same product for $8.

Again, you should use the data you have gathered, in order to decide what is the best pricing strategy for your products – one that satisfies both the inventory supply, and your revenue, as a business.

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7. Get Rid of Unnecessary Items

No customer demand makes an item unsellable. Of course, it is best to prevent pilling up such stock in the first place by understanding the product life cycle.

Still, what do you do when you get to the point where you simply want to get rid of unnecessary items that are just taking up space, and costing you a lot of money?

The classic method is to run an inventory reduction sale. Sure, your short-term profit may be lower, but you will gain much more benefits in the long run.

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Final Thoughts

Inventory reduction is not the most pleasant of processes, even though it is an essential part of any retail business.

Throughout the clever use of inventory reduction strategies, like automation, price optimization, inventory transfer, demand forecasting, etc., you will hopefully be able to prevent any future losses due to excessive stock that you cannot sell.

At the end of this article, we would like to remind you that DevriX is a leading WordPress agency. We have plenty of experience in building and scaling eCommerce websites, so do not hesitate to contact us, in case you need any assistance.