Site Map
Show Mobile Sub MenuHome & Garden
Our response to COVID-19...
Mobile Menu

Filter by

How has the overstock crisis been exacerbated by the pandemic?
Damon Westbury
Post Image

The Covid-19 Pandemic has had a profound impact on all sectors within our economy, with the retail industry being one of the hardest hit. July’s CBI’s monthly trade survey showed that the vast majority of retailers expect sales to be lower in July than 2019, despite the reopening of stores and 62% believing that a lack of consumer demand being the biggest challenge they are facing.



But the challenges go well beyond demand and extend into far and wide-reaching issues with supply. With global supply chains still feeling the impact of the Covid-19 manufacturing and transportation hiatus, many retailers both traditional and online are struggling to fulfil demand and find quality stock. This is now a common issue across a broad array of retail sectors and products;  from garden furniture and accessories to in-home entertainment such as electronic consoles, puzzles and board games, loungewear, as well as the furniture and technology necessities to set up a functional home office. The ‘out of stock’ issue, combined with slow delivery times is now dramatically impacting a retail bounce back, limiting revenue, causing a significant consumer satisfaction issue and a huge surge in the volume of customer complaints that retailers customer call centres are having to manage, with many reporting a 30-50% surge in incoming customer contact.


Simultaneously, the problem of excess stock is increasing and exacerbating in a wide number of industries, categories and product lines, especially in areas heavily impacted by purchasing seasonally. Excess stock and the management of it, however, is nothing new. It has always been a significant challenge for the manufacturing and retail industries for and even prior to Covid-19, the Council of Supply Chain Management Professionals suggests that the world is sitting on roughly $8 trillion worth of goods held for sale, although accurate figures relating to the scale of the problem are challenging to come by.  Again pre- Covid-19, the Asset Based Retail Association reported that British manufacturers alone, were saddled with at least £5bn of unsold stock; not even accounting for goods held in retail stockpiles or sitting on retailers shelves. 



Excess stock presents a significant issue for retailers and many employ large resources to help manage the issue.  Consumer product giants, such as P&G and Unilever, employ hundreds of people, many with advanced math degrees, to help manage supply chains and match it as with demand, and for a very good reason: In recent reports, P&G’s 2010 total inventory,  was valued on the balance sheet at $6.4 billion. Beyond the balance sheet and the impact of having working capital tied up in excess stock, there are significant other challenges and costs associated in managing this valuable commodity; from warehousing, insuring and managing storage damage and expiry dates. Analysis by Advanced Supply Chain Group (ASCG) showed that prior to the UK outbreak of COVID-19, stock management issues cost retailers £1.6billion. Furthermore, there were 10 retailer profit warnings from June 2018 – January 2020 all quoting stock inventory management issues, which saw an average of 22% wiped off the market value of each retailer. The analysis also highlighted that profit warning quoting stock surplus issues saw higher average losses than those associated with poor stock availability, and it is expected that these losses could rise beyond £66billion this year because of the impacts of weak customer demand and a slowdown in consumer spending on non-perishables.


Some industries are impacted more than others, but all industries face the same challenge on products that are not made to order. A senior executive in the UK fashion industry recently told me that for every pair of shoes sold, on average one shoe of the pair is effectively given away through an average discount of 50%. Beyond the margin challenges created by discounting, brands must also be wary to maintain their position as a premium brand and not a discount brand through continuous sales and offers and while factory outlet stores have traditionally been a good option for some of the largest retail brands, continuous sales in their stores or their owned and operated websites are to be avoided.



But the issue of excess stock does not stop with margin issues, company valuations and brand equity. Beyond warehouse industry growth which is currently growing at a Compound Annual Growth Rate (CAGR) of 6 – 8%, according to Beroe Inc, a procurement intelligence firm, the excess stock also presents a significant and often unspoken environmental issue. 


Beyond the building of storage facilities themselves, which takes a significant amount of carbon and resource by creating the steel, cement and bricks for new buildings,  The Royal Institute of Chartered Surveyors (RICS) estimates that 35% of the lifecycle carbon from a typical office commercial development is emitted before the building is even opened) the stock itself represents a huge carbon footprint for the UK and global economy. From the mining of raw materials to the energy and water used in the manufacturing process, to packaging and transportation;  every item on every warehouse shelf is effectively a block of carbon. 


What is perhaps most concerning is that a large proportion of stock is then destroyed, incinerated or buried in landfill. In 2018, the fashion industry faced a reckoning when it was revealed that Burberry had destroyed £28m in "deadstock" (products it couldn't sell), and it was reported H&M had burned 60 tons of usable clothes since 2013 - a claim the company denied. But these brands are not the only brands to incinerate or put unsold stock into landfill in order to prevent discounting and the creation of grey and secondary markets. While in the fashion industry, the backlash from Burberry saw many fashion houses find new channels and charities to donate their stock to, there is still a significant amount of wastage in this industry and others.



It remains to be seen if Covid-19 will act as the reset for the mass global overproduction of goods, as a result of rebased consumer demand. While there are green shoots, from powerful automated supply chain technology and a movement to more homegrown, local and tertiary manufacturing industries, vs. large scale offshore ones, as we discussed with Nick Munro in one of our recent spotlight series, the margin requirement to buy goods at the lowest price, combined with the need to have sufficient stock to avoid the ‘out of stock’ problem, along with increased retailer volume flexibility, all means that this problem shows very little sign of going away soon.


Solving the problem of excess stock is core to our proposition at buyfair. Our company vision is to become the global sustainable marketplace, solving the environmental and economic challenges presented by the overproduction of stock. We will do this by reducing the environmental wastage and unlocking business value by connecting buyers and sellers to facilitate the discovery and sale of premium brand excess stock, direct from the brand.


For more information on how we can help your business buy the right stock and indeed sell overstock click here.