Excess inventory is a problem for many companies right now. Although e-commerce sales grew to $782 billion in 2020 (a 30% increase) — and rose again in 2021, to $960 billion — consumer spending has slowed, growing only 0.3% in the second quarter of this year. And e-commerce sales as a percentage of all retail purchases dropped to 13.9% in Q2 2023, as well.
This problem with excess is a result of the early days of the pandemic: Consumers were stuck in their homes, ordering everything they needed online, and businesses couldn’t keep enough product in stock, so they bulked up on their inventory and warehouse space.
But now, as inflation rates skyrocket and consumers have less disposable income — and as they shift their budgets to focus on experiences rather than physical goods as COVID restrictions are lifted — warehouses are piled high with goods that won’t move.
And that real estate is pricey: On average, U.S. warehouse rent has grown nearly 3% per quarter since mid-2020, reaching $9.56 per square foot in Q2 2022; in some markets, such as Silicon Valley and Los Angeles, rents are more than $15 per square foot. And while 36% of supply chain managers expect inventories to return to normal in the second half of this year, 15% don’t expect it to happen until 2024.
Clearly, there are inventory management challenges to surmount this year. Between the impact on cash flow and the plain inefficiency of goods sitting idle in a warehouse, companies are shifting their warehousing and inventory management strategies.
Here are three key trends in inventory management to know.
1. Endless Aisle
Businesses are not doomed to have inventory sitting idle forever. Endless aisle technology has been a game-changer for brick-and-mortar retail brands: It allows them to offer a large selection of products without having to physically stock them in-store, giving consumers the ability to get exactly what they want from the store — even if the items are out of stock — while simultaneously allowing retailers to consolidate inventory and warehousing space.
Endless aisle isn’t a new trend, but the problem with excess inventory is making it even more popular because it helps retailers get products off the warehouse shelves faster — and without necessarily having to discount prices.
Here’s how it works: If an item a customer desires is out of stock at the location they visit, an associate can purchase and ship it to a customer from another store, or from a distribution center, during checkout. Indeed, 67% of shoppers expect store associates to be able to sell them a product even if it isn’t available in the store and ship it to them, and 54% of stores can sell inventory from other locations, up 315% from 2021.
Another of the trends in inventory management born from the inventory glut is redistribution. Many companies are moving excess and seasonal inventory from hotspots like California and New Jersey to warehouses located in less popular areas. Here, at inland locations like Nevada or Pennsylvania, away from ports and transportation hubs, rent is cheaper — meaning businesses can keep relevant SKUs in key geographical locations but benefit from reduced warehousing costs for storing less important inventory.
Another approach to seasonal inventory is to relocate it to areas where it’s more likely to be in high demand — think: bathing suits in Arizona warehouses — so businesses don’t have to ship quite as many items long distances. This both saves money on warehousing rent and reduces shipping costs, as well as allows merchants to offer faster shipping to customers.
3. 3PL Partnerships
Another solution to this year’s inventory management challenges is 3PL partnerships. Finding a trusted 3PL provider who offers warehousing services can be a great way for businesses to gain access to warehouse space in strategic locations, such as near ports and e-commerce hubs.
For e-commerce retailers, working with a 3PL provider for both warehousing and fulfillment can streamline the shipping process and save money. Not only does the partnership allow a business access to better warehousing technology — such as IoT devices, RFID, AI, and robotics that increase the efficiency of your fulfillment operations — but it also means a merchant can hold onto excess inventory without having to buy or rent an entirely new warehouse. Being able to scale your fulfillment operations according to inventory fluctuations, demand fluctuations, and seasonality is crucial, too, particularly in these current times of economic uncertainty and high inflation, when demand has been more difficult to predict.
Overall, 3PL partnerships are a great strategy for reducing costs, relocating inventory without excessive costs, and shoring up your operations and exposure to risk during more volatile market periods.
With businesses facing the challenges of so much excess inventory, inventory management is a big obstacle in 2023 — and how you tackle it can make or break your business.
Companies are leaning into trends like endless aisle solutions, redistributing certain inventory to “cooler” areas, and partnering with 3PL providers who have the warehousing space and industry know-how to weather uncertainty.
At GlobeCon, we provide warehouse space just outside the Ports of Los Angeles and Long Beach, prime locations for housing inventory without exorbitant costs. When you partner with us, we handle the logistics of warehousing for you and ensure your operation performs at peak efficiency with limited intervention.
Need a plan for managing your excess inventory? Contact us.