What Happens To Products That Don’t Sell at Retailers Like Walmart, Target, Best Buy, etc.
Introduction
Marketplace listener Blake Waller from Denmark, South Carolina, brought up a crucial question: What happens to products that retailers like Walmart, Kmart, and other big-box stores don’t sell? The situation can be fraught with challenges, but there are several steps companies take to manage their unsold inventory.
The Bullwhip Effect and Its Impact
The Bullwhip Effect is a phenomenon observed in supply chains where demand forecasts are altered as they move from retailers to suppliers. This effect can lead to an overproduction of goods, resulting in unsold inventory. For instance, James Merwin, a bathroom fixture company executive, faced a massive surplus of 30,000 toilets when the housing market crashed in 2008. The supply — and thus the inventory — quickly outpaced demand, leading to a painful surplus.
Price Strategy for Unsold Inventory
When products are not moving, retailers often decrease prices to stimulate sales. Target, for example, has a clear pricing strategy. They discount products after a certain period, sometimes cutting the price to 70% off. If the item still hasn’t sold after the discount phase, retailers might consider selling it to discount stores like T.J. Maxx or Marshalls. However, brands can be sensitive about their products appearing in outlets, as it might damage their brand perception.
Brand Image and Donation Challenges
Donating unsold goods can also pose challenges. For instance, donating clothes or other products to charity might end up in front of retail stores, competing with customers. This can be particularly problematic if the donated items are of high quality but discounted. To mitigate such risks, retailers may seek alternative outlets for disposal.
Disposal Methods
When all other options are exhausted, companies may choose to shred, incinerate, or dispose of these items in landfills. This process is particularly concerning for textile waste, which accounts for nearly 21 billion pounds of waste annually, much of which is from customer returns or unsold inventory.
Logistics and Supply Chain Management
The most effective strategy is to prevent the accumulation of unsold inventory in the first place. This involves improving supply chain logistics and demand forecasting. Retailers like Walgreens have developed sophisticated systems to manage their vast inventory. Reuben Slone, who heads supply chain operations at Walgreens, explains that they manage over 18,000 different items across 8,200 stores, requiring 160 million forecasting predictions every week.
These predictions are based on historical data, weather patterns, and other factors. They use innovative techniques to anticipate demand, such as analyzing concurrent purchases of related items. For example, a spike in aspirin and toothbrushes might indicate an impending health outbreak, prompting Walgreens to stock up on cough syrup.
Conclusion
Managing unsold merchandise is a complex and dynamic process that requires advanced logistics and supply chain management. While it can be challenging, proactive measures can significantly reduce waste and enhance operational efficiency.
Understanding the Bullwhip Effect, employing strategic pricing methods, and leveraging advanced forecasting tools are key to managing unsold inventory. By doing so, retailers can maintain their brand value and ensure customer satisfaction.
So, the next time you walk into your favorite retailer, remember the immense effort behind those strategic decisions. And if you ever come across a sale or clearance, it’s a good reminder of the challenges and complexities retailers face daily.