Which of the following is the least profitable method of liquidating markdown merchandise?

Quick take: This post will showcase the many ways to handle surplus stock. You’ll learn: 

• How to creatively sell and market excess stock
• How to avoid having surplus inventory to begin with
• The retail inventory tools and solutions to use in order to stay on top of stock control 

Having too much inventory is pretty high up on the list of no-nos for retailers. In addition to taking up precious backroom or shelf space, surplus stock ties up capital and can keep you from re-investing in your business or buying things you actually need.

That’s why regularly paying attention to your sales and inventory data is so important. You need to keep an eye on how products are moving so you can make the right purchasing and marketing decisions. At the same time, staying on top of inventory counts enables you to get a handle on the merchandise you have so you can prevent having too much stock in your store.

Still, excess inventory problems can sometimes turn up because of things you can’t control. Perhaps there was a sudden change in what’s trending, or your demand forecasts didn’t pan out as well as you hoped. Whatever the case, don’t fret. If you’re looking at a surplus of merchandise in your store, there are several steps you can take to liquidate them:

1. Refresh, re-merchandise, or remarket

When an item isn’t selling, the problem may not necessarily be the product itself. In some cases, the issue may lie in how you’re marketing or positioning the merchandise. Try to refresh your marketing and merchandising efforts when it comes to your slow-moving or old inventory.

One thing you can try is to reposition them in your store. Put them in a different area in the shop or switch up their shelf arrangements. Retail management consultant Judy Crockett says that this could be an excellent way to freshen up your merchandise.

“Freshen the display, move things around, create new, brightly-colored signage and replace worn out price tags,” she advises. “Make it look new and fresh for your staff and customers–customers who may not have even seen the items in the previous location.”

Fashion retailer Vanessa Cooreman Smith of Flourish Boutique shares that they sometimes “re-market” slow-moving items in their stores. “We will re-photograph an item for the website, we will post a blog about the uses and advantages of the product,  or we will display it differently in our brick and mortar store.”

Do note that while re-marketing a product can pay off, it may require you to shell out funds. Vanessa warns that retailers should be smart when implementing such tactics. A marketing refresh “can increase your cost in the item so be careful,” she says.  “But  if you have an item that you think could be a good seller, and your current images or marketing efforts aren’t doing it justice, then this can be a good strategy.”

Bonus resource: Need additional tips and examples on how to refresh, remerchandise, and remarket? We’ve got you covered with this instructional video.

2. Double or even triple-expose your slow-movers to sell old inventory

This handy tip is from retail expert Christine Guillot. According to her, if you’re dealing with slow-moving inventory, it’s a good idea to double or triple-expose your merchandise. 

This means having those items in more places in your shop. You could, for example, display them towards the front of your store and then have the same products at the back. 

Pay attention to your retail analytics and the flow of traffic in your location, to figure out which areas of your store are frequented by shoppers. Use that information when deciding where to place your slow-movers. 

You could also identify cross-merchandising opportunities. If a particular product is slow-moving, it may help to display with a matching or complemantary product.

Now, if these merchandising tactics won’t work, you may need to consider slashing your prices. 

This brings us to our next point…

3. Discount those items (but be strategic about it)

If remarketing or remerchandising doesn’t work, consider lowering prices for of excess stock. Kat Rosati, Brand Manager at Apparel Booster, advises retailers to discount prices at certain increments. “Start off with something small, say 30% and then continue to discount,” she says.

You can also kick this tactic into high gear by creating a sale event. Why not run a flash sale to instill a sense of urgency in your customers? Or, if you have a ton of merchandise that you need to get rid of, consider running a store-wide event and aim to draw crowds to your store.

Judy recommends hosting a high-impact event with “lots of bells and whistles” to attract customers. “The bigger the event, the better, since sensing or seeing a crowd, implies huge deals, and instills an ‘if I don’t get it now it won’t be here later’ mentality and sales will soar. The sale becomes more about the event than it does discounts.”

Plus, “if done right, you are gaining new customers to help regular sales into the future,” she adds.

Vanessa at Flourish Boutique echoes this and says that holding flash sales and events has helped them liquidate inventory while growing their customer base at the same time.

“Twice a year we have a big Overstock Sale where we encourage a door buster mentality and discount things as deeply as we can to free up our capital for new items,” she shares.

“We also do online flash sales where we mark down poor performing styles (and mix in a few good sellers as loss leaders). The nice thing about these types of sales is that they not only turn the inventory as desired, but they often lead to growth in our customer base and attract new consumers to our business.”

We can see this in action in the clothing boutique Francesca’s, which occasionally holds flash sales featuring select products.

A note on sales:

Be sure to time and implement your sale events wisely. Doing them too often can result in the events losing their allure and can train customers to hold off on buying from you until you discount your items.

Additionally, make it a point to collect new customer information. Add them to your loyalty program or email list so you can reach out and alert them when you have new (and more profitable) items in your store.

Finally, remember that while discounting merchandise is a proven way to attract customers, it may not always be the right strategy for you. If you’re a retailer catering to high-end markets or if you’re trying to preserve a certain image, you may want to think twice before running a huge sale, and instead implement a different stock liquidation strategy (see below).

4. Bundle items

Bundling is another standard technique for merchants. It’s the second most popular pricing method for retailers across all sectors (next to discounting), according to a study by Software Advice, a research firm for web POS systems. According to their survey, 90% of respondents said they implement it in their businesses.

If it makes sense for your store, consider grouping certain products together and selling them for a slightly lower price than if bought separately. This will allow you to move merchandise without having to take such a big hit on your profits.

“Bundling related products with your excess inventory for an irresistible offer is a win-win situation for your business – your average order value increases, and you get to clear out excess inventory,” says Ashley Orndorff, director of marketing at ParadoxLabs.

The Vitamin Shoppe in N. Little Rock is doing just that. In January 2022, the team decided to run a promotional bundle. Customers who purchased a specific brand of pre-workout powder can snag an additional item — either the intra-workout supplement or protein powder — at half the price. 

This is an excellent bundling strategy because all the products offered in the promotion are closely related. People who want to purchase pre-workout items are likely interested in other supplements that can enhance their performance. This, combined with the fact that many people decide to implement fitness resolutions during the beginning of the year, make this a timely and effective promotional bundle. 

Depending on what you’re trying to sell, there some ways to bundle products. Try the following methods:

Bundle multiple units of the same item – This tactic works best if you’re trying to move small to medium-sized items. Group several units of the same product and sell them as a package. For example, if you’re looking to move merchandise that comes in multiple colors, bundle them together and see if they sell faster.

In Software Advice’s pricing report, they give the example of how online retailer DoitWiser approaches bundling. “DoitWiser sells water bottles for $19.75 each, but the price drops to $18.76 per bottle when three or more are purchased.”

Bundle complementary products – Does the surplus stock complement any other items in your store? You can add value to both products (and potentially sell them more quickly) by bundling them together.

According to Vanessa, this type of product grouping helps them liquidate excess inventory in her stores. “If we have a boot sock, for example, that isn’t selling fast enough, we will have a promotion where you get a free pair of boot socks when you purchase any pair of shoes.”

Bundle your slow-moving merchandise with faster-moving ones – If an item isn’t moving as quickly as you hope, see if you can pair it with a product that has a faster sell-through rate.

That’s what T-We Tea, a San Francisco-based retailer that sells house-made teas and accessories, did with its products. They noticed that their low-margin items (such as tea accessories) were moving faster than their high-margin ones (house-made teas) so they opted to group them together at a slightly lower price. As a result, they were able to move products faster while maximizing profits at the same time.

5. Offer them as freebies or incentives

This tactic works best for low-cost items. If a product is tough to sell, use it as a giveaway or incentive instead. You can, for example, offer it as a “bribe” to get people to either sign up for your mailing list or to increase their basket value (i.e. “Spend $75 or more and get a free bag”).

This is one of the tactics that Flourish Boutique implements in their stores if they find that a particular item is a “dud,” but doesn’t have such a high cost. “We’ll use it as a freebie or giveaway in event swag bags, in trade for people signing up for our email list or text service list, etc.” In doing so, Vanessa says that they’re essentially deploying the cost of the product as a marketing expense.

Another retailer that’s doing this well is the apparel store William B + Friends, which recently ran a promotion where they gave away free earrings to shoppers who buy 3 items or more.

Pro tip: When implementing this tip, be sure to promote your freebies by having signs outside your door. Doing so will grab shoppers’ attention and drive foot traffic to your shop.

Here’s an example of this tip in action from Miniso.

6. Get your employees in on the fun

Remember that sometimes, it’s not just the merchandise that needs some spiffing up. In certain cases, you may also need to refresh the attitude of your staff. “It may not be that the product is a poor seller; it could be your staff does not like the product, so they do not sell it. Keep an eye out for this behavior,” adds Judy. When this happens, talk to your associates, re-train them, or find better ways to boost morale and motivate them.

In the same vein, Chris recommends turning your associates into “mobile merchandising statements” by getting your team to actively talk up your slow-moving products. 

“Say you lead a store that sells kitchen and entertaining merchandise. You might have these seasonal print aprons that are slow-moving. Your week-long focus could be around hosting a dinner party, and maybe your employees could wear those seasonally focused aprons all week long while on the sales floor.” 

“Doing this gives a reason and an occasion to speak about a particular item more,” she adds.

In the summer of 2019, Bed Bath & Beyond ran a similar initiative at its store in Lakewood, CA. Some of the store’s cashiers had a compact wearable fans around their neck (image below). And as they were ringing up sales, they would casually mention the products, by saying something like: “Can I interest you in this lovely cooling fan?”.

Consider doing something similar in your store. Get your team to wear or use the products in-store to generate interest from shoppers. 

7. See if you can return or exchange them

“When possible, return the merchandise to your vendor in exchange for credit or new merchandise,” adds Judy. “If they sold you a dog, or the product simply was wrong for your market, make a case for returning it. Just be sure you are keeping the merchandise undamaged and in fresh packaging. Your vendor wants to keep you as a customer. Use that relationship to your advantage.”

If you have a great relationship with them, you should definitely explore this option. Just look at what OFY, a luxury men’s boutique in Miami, is doing. According to Ofir Farahan, owner of OFY, when certain styles aren’t selling, they work with their vendors and swap the merchandise. 

“We’ve developed strong relationships with our vendors who will allow swaps,” he says. “They don’t want products sitting on the floor for so long, and obviously, we don’t, either. So we work hand-in-hand and try to find a way out.”

8. Consider running BOGO or multi-buy discounts

A multi-buy offer is a type of sales promotion that allows customers to purchase products at discounted rates if they buy a certain quantity or amount. BOGO promos as well as offers like “Buy 3 get 1 free” are some common examples of multi-buy discounts. 

This type of promotion can be very effective in moving excess stock, particularly if you’re selling commodities (like toiletries or home supplies) or merchandise that are purchased in sets (like clothes).

We can see an excellent multi-buy promo in action in the following example from the baby apparel retailer, Leo + Zo. Customers who purchase 3 sale items can enjoy an extra 15% off. The company has also made the promo extremely easy to redeem; shoppers can just pick out 3 eligible items and the discount will automatically be applied at checkout — no code required. 

9. Sell them on online marketplaces 

You can try to sell the items on sites such as eBay, Amazon, or Etsy. This route will require a bit of time, though, since you’ll have to create product pages and photograph each item (if you haven’t already done so), but these sites could be great avenues to help you move surplus stock.

Do note that each marketplace has its own rules and fees, so take note of the fine print before signing up. If you need more information, check out our post on how to sell on Amazon, eBay, and Etsy here.

10. Consider liquidation companies

Alternatively, you can go the liquidation company route and just sell your surplus inventory to organizations that specialize in taking stock out of merchants’ hands. 

Do note that these companies may cherry-pick items and will buy merchandise at much lower price points, so you likely won’t see any profits with this method. But you’ll at least be able to free up space and capital for your business.

11. Donate — then take advantage of tax and marketing opportunities

One other option is to donate your surplus inventory to charity–and get some tax deductions out of them. 

Research how these deductions work in your state or country, then start giving what you can.

According to Gary C Smith, president of NAEIR.org, a  gifts-in-kind organization that provides free merchandise to non-profits, schools & churches, businesses in the United States can “can earn a federal income tax deduction under Section 170 ( e )(3) of the U.S. Internal Revenue Code.”

In an insightful post on the topic, he writes:

The IRS Code says that regular C corporations may deduct the cost of the inventory donated, plus half the difference between cost and fair market value. Deductions may be up to twice-cost.

Let’s say you’re a retailer of office products and you buy a desktop stapler for $2.00. Your price to the home office consumer is $4.50. Your deduction is $3.25. If the markup is considerably higher, deductions are limited to twice cost.

If you’re an S corporation, partnership, LLC or sole proprietorship, you qualify for a straight cost deduction.

It’s not just about taxes, though. Amy Kilvington, a Marketing Executive at Interior Goods Direct, says that donating your merchandise can also have a PR benefit.

We also recently worked with Dog’s Trust [the UK’s largest dog welfare charity], to donate and make products for them out of our materials. It’s been great PR for us.”

Bonus tips: How to avoid having surplus inventory in the first place

The best way to deal with excess stock is to try to avoid the issue altogether. Here are some quick tips for doing that:

Improve stock ordering by observing how customers interact with your merchandise 

Ensure that you’re ordering the right products by keeping your customers’ needs in mind. Talk to them and observe their behavior so you can gain insights into what items will sell.

“As shoppers come into your store your sales staff should hear them make comments about fit, quality, etc. for a particular item — this will help clue them in as to why they do or do not like a particular item,” says Kat. “I would start off by talking to the sales staff to figure out what comments have been made and why the product isn’t moving.”

Forecast demand 

Howard Forman, an Associate Professor of Marketing at California State University, Fullerton advises retailers to forecast demand. “Companies need to collaborate with customers and suppliers to more accurately forecast demand. Leveraging historical sales is an important element to demand forecasting.”

He continues, “They should also put as much emphasis on their inventory management by focusing on products that are moving the quickest and represents a bulk of revenue and profits. This will significantly reduce excess inventory.”

To make this work, arm your business with inventory management software that can track metrics like stock turn and sell-through. Knowing things like how fast stock is moving enables you to accurately forecast demand and avoid overstocking.

Be strategic about placing orders 

A good rule to follow is to order lower quantities for non-basic styles. That’s what OFY does to minimize overstocks.

“We don’t seriously invest in a wide unit range for styles that aren’t classic pieces,” says Ofir. “For ‘pop pieces’ we’ll do say, 5 or 6 units. That keeps things fresh, and we don’t feel stressed out to get it off the floor. It’s in and it’s out, and if it does well, we’ll reorder it.”

See if your suppliers can ship directly to customers 

“Merchants should also look to utilize direct ship options (from supplier to consumer direct), to avoid holding inventory all together,” says Matthew Davidson, Managing Partner at financial and operational consulting firm Conway MacKenzie.

One company that’s found success with this strategy is Wayfair, an online furniture store. Wayfair works with more than 7,000 third-party vendors that can ship products directly to consumers. This allows the company to showcase and sell millions of products on their website without physically stocking the merchandise.

Bottom line

We hope this post helped you see that you don’t have to sweat the surplus stock. When handled properly, excess inventory can actually open up sales, customer engagement, and tax opportunities for your business.