Companies Overfilled with Unsold Products

By: Jerry Wang

Many retailers have recently oversupplied with merchandise due to reduced sales and an increase in returned items. Because of this, retailers are selling their products to warehouses such as liquidators despite the reduced rate.

When the pandemic struck and lockdowns became mandatory, sales began rising. This rise was caused by many factors, but checks, targeted commercials, and a lack of activities were major factors.

However, companies were not prepared for this boom to end. Because of supply delays, many companies order products in advance. This caused a massive overload of merchandise. J.D Daunt, the chief of commercials at Liquidity Services, described the situation as "surprising to me on some level that we saw all that surge of buying activity and we weren’t collectively able to see that it was going to end at some point."

Returned items proved to be a potentially more concerning issue. Returned merchandise may not resell and, like unsold items, serves to take space from seasonal and staple goods. Noticeably, from 2019, the percentage of returned products have gone from under 5.3 percent to 16.6 percent in 2021. This resulted in a total of 761 billion in lost sales in 2021. This is particularly problematic since the National Retail Federation calculated more than 10 percent of returns in 2021 were fraudulent.

With the excess goods becoming a massive issue, retailers are forced to either sell the extra products at a discounted price which takes space from other products and conditions consumers to expect a lower price, or to sell the product to others such as liquidators who will buy and sell the items at lower costs. While this has always been a dilemma, recent times have increased the urgency. Former Walmart executive, Chuck Johnston, said, "[i]t’s unprecedented… I have never seen the pressure in terms of excess inventory as I am seeing right now.” In the end, most brands have begun relying on other companies.

When companies experience increased cost, they may increase price to compensate. With the current economy experiencing turbulence such as inflation, issues such as these only serve to complicate the situation.

Article: https://www.nytimes.com/2022/07/30/business/retail-returns-liquidation.html