The hardest step in managing excess, slow-moving or obsolete inventory is getting started. Once you’ve decided to ramp up your closeout program, you may have trouble evaluating your options. There are plenty of secondary value channels out there, so you have to decide which are right for your business. That decision process requires careful evaluation.
Why a closeout program is important
Before we jump into the different channels available to you, we have to first address the question of why a closeout program is so important in the first place. That will help set the stage for your company’s needs and what you should look for.
At the most basic level, excess inventory sales reduce waste. With food, this is particularly important. There are the obvious sustainability concerns of the resources used to manufacture food, plus food emits greenhouse gases when it breaks down in landfills. Beyond that, there’s the problem of food insecurity: closeout channels can help get food into the hands of those who need it.
On the financial side, excess inventory sales have a bottom line impact. You can recover value on products that would otherwise simply go to waste. Of course, this is all the more urgent for perishables, where shelf life is limited and time is money.
All of these factors are impacted by which closeout channels you choose, so let’s dive into it.
Selecting your channels
Direct retailers, including discount grocery stores like Bargain Barn and e-commerce companies like Misfits Market, are particularly popular ways of selling slow-moving inventory. These are typically retailers who purchase product, usually opportunistically, and then sell it straight to consumers at a lower price than traditional grocers.
There are a few major advantages to direct retailers. First, you get excellent traceability of your products – you know exactly who’s selling them. Importantly, this also means that inventory doesn’t leak back into conventional retail channels.
There are also societal benefits. The discount retail channel serves many customers who are on limited budgets and often face food or housing insecurity. By selling via this channel, you’re helping to put food on the tables of those who need it most.
Ultimately, direct retailers are best for those who want complete control over where their products end up, and who are willing to navigate a competitive marketplace to ensure that control.
Brokers & resellers
Brokers and resellers are another popular option. Typically, a broker will purchase inventory and then identify potential retailers and resell to them, who will in turn sell to consumers. Brokers are a popular choice for a few reasons.
For one, it can be a much simpler process. Brokers can help eliminate the complexity of selling to a multitude of individual store outlets. It also takes the responsibility of vetting buyers and handling potential credit issues off your plate. You effectively have one buyer rather than many.
Brokers or resellers may also offer to do a “take-all” purchase of inventory. That helps increase sell-through of items that might be considered less desirable for retail customers. Increasing sell-through rate obviously means less waste and more value recovery for your business.
In addition, brokers and resellers often resell products to individual outlets located in inner cities or rural areas, which are often underserved by traditional grocery stores. That means you’re helping to get food to populations who may be facing food insecurity or live in food deserts.
Keep in mind though, it’s important to know where your brokers and resellers are selling your brands. This traceability is key to brand management.
Some brokers also offer white labeling services, in which products are sold on the condition that they will be relabeled under a different brand. Consequently, consumers will be completely unaware that the product is yours at all.
This is a labor-intensive process, so you’ll typically recover less value from the products. It’s up to your company to decide whether the brand security is worth the cost.
One of the simplest ways to get rid of excess inventory without having to dump it is to donate it. This has obvious societal benefits, because you’re helping to support food pantries, kitchens or non-profits that feed those in need. This can help you reach internal or external corporate responsibility goals, and can sometimes be leveraged for positive PR.
On the financial side, donations offer significant tax benefits, helping recover at least some value. However, you’re still paying to transport your inventory, so cost recovery is low. You primarily only save on tax benefits and disposal costs, so you won’t be seeing as much return as you would via secondary sales.
How to choose
Selecting a closeout channel – or multiple channels – might seem like a daunting task. In the end, it’s all about identifying your particular business priorities and selecting the channels that most closely align with them. Focused primarily on sell-through rate? Brokers might be the way to go. Concerned with brand perception or where your products might end up? Secondary retailers or whitelabeling might be better options. Struggling to meet company ESG goals? Consider donations.
Ultimately, the important thing is to optimize your excess inventory sales, regardless of channel. That means forming reliable relationships with your buyers and setting clear and measurable goals for your discount program.
Spoiler Alert’s excess inventory platform can help optimize your workflows no matter who you’re selling to. Our customers have seen 30-40% increases in sell-through rates after adopting our tools.
For more, download our case study with Danone North America to see the real-world impacts of discount optimization.