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Why small businesses are getting rid of excess inventory

Justin Ho Aug 24, 2022
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Major retailers, like Target, have also been adjusting inventory to meet lower anticipated demand. Joe Raedle/Getty Images

Why small businesses are getting rid of excess inventory

Justin Ho Aug 24, 2022
Heard on:
Major retailers, like Target, have also been adjusting inventory to meet lower anticipated demand. Joe Raedle/Getty Images
HTML EMBED:
COPY

Over the last few weeks, several big retailers have said they’re trying to get rid of the excess inventory they built up during the pandemic. For instance, Target has been marking down clothing, electronics and furniture, to help move it out the door. Walmart said it canceled billions of dollars of orders, to “help align inventory levels with expected demand.” Kohls, Macy’s, and Nordstrom have made similar announcements.

And it’s not just big retailers, either. After stocking up on inventory earlier in the pandemic, many small business owners have been trying to reduce that inventory this year.

Managing inventory is all about making a prediction about how much stuff a business will sell based on how much the business has sold in the past. And right now, making that prediction is not easy.

“I can’t look at what happened in 2020 and 2021 and think it’s going to repeat itself in 2022,” said Brandelyn Green, owner of the hair products company Voice of Hair.

Green works with manufacturers to make products like shampoos and conditioners. And typically, she supplies her manufacturers with the plastic bottles, caps, and other packaging materials the products are sold in.

Throughout the pandemic, she’s been stocking up on that packaging. But now, she’s rethinking that strategy.

“I have a lot of inventory, and I have been honestly trying to bleed through that, instead of buying more and sitting on it,” Green said.

That’s because sitting on all that packaging ties up a lot of cash. And right now, Green said she would rather hold on to that cash, since the economy’s so uncertain. 

As a result, she’s trying a new strategy: asking the manufacturers that make the hair products she sells if she can use their packaging instead.

“And instead of me buying it and shipping it to them, I’m just using what they have,” Green said. “I don’t have to keep all of that in my own warehouse, and I also don’t have to pay as much for stuff that I’m not using right now.”

Green said buying packaging from her manufacturers ends up costing her more for every bottle. But she said that extra cost is worth it, since it lets her buy only what she needs, instead of buying extra inventory, and waiting six months or more to work through it.

But business owners aren’t only worried about the next six months. They’re also concerned about how business is going right now.

“Business is down,” said Tracey Mangano, owner of Cardsmart Greetings, a greeting card and gift shop in Buffalo, New York. “The inflation, it’s killing us. The prices are absolutely ridiculous for some things, so I’m just watching my inventory because people don’t want to pay that price.”

Mangano said she’s been trying to stock more budget-friendly items, like cheaper gift cards, clothing, and jewelry. Meanwhile, she’s not stocking as many specialty items, like greeting cards that congratulate you for getting a driver’s license.

“Maybe I’m not going to reorder that right away,” Mangano said. “That’s not the same as getting a wife’s birthday card, or sympathy card, or an anniversary or wedding card. Those are the ones you’ve got to keep in stock.”

There’s another reason why managing inventory is so difficult right now: interest rates. Keeping the right products in stock often means taking out loans to fill the shelves, and borrowing is more expensive now that interest rates are rising.

“If you’ve got a million dollars worth of product, and you’re paying 2% to finance it, and now you’re paying 6% to finance it, it’s going to hit the bottom line pretty hard,” said Pat Whelan, who manages imports at Sahadi’s, a grocery store in Brooklyn that carries products from the Mediterranean and the Middle East.

And given how much inventory other businesses have built up during the pandemic, Whelan said it’s hard to even find warehouse space to store his inventory.

“Somebody will say, ‘yeah I have a little space, how much do you have?’ And you tell them, ‘well, I’d like to put in, like, 500 pallets’. And they go ‘well, no no, we can’t do that’,” Whelan said.

Whelan said the grocery store is whittling down its inventory. That means slowing down his imports to help free up space.

In the meantime, Whelan said he’s not going to stock a single new item until next year at the earliest.

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