The Hidden Costs of Holding Excess Inventory in 2024

In the fast-paced world of e-commerce, the need for precise inventory management has never been more critical. As an experienced Amazon seller and business owner, launching 7 brands of my own and reselling others, I've witnessed the industry's evolution and its challenges. One such challenge that has persisted over the years is over-buying and holding excess inventory due to wrong sales forecasting, which can result in significant financial losses for businesses. In this article, we'll explore the hidden costs associated with this issue and how you can reduce those costs and improve your bottom line significally.

Interest Rates on Loans

Many businesses rely on loans to finance their inventory, and interest rates can be a significant factor. If you are like me, who took the Payoneer loan for my private label, you know what I am talking about.

Holding excess inventory increases the duration for which these loans need to be repaid, leading to higher interest expenses and estimated loss of 7-10%.

Insurance Costs

Excess inventory often requires additional insurance coverage, which can add up to 2-5% to your costs. Reducing excess inventory can lead to significant savings on insurance premiums.

Discounts and Promotions

When launching products or during peak season, we all like to increase our sales velocity using discounts, deals, and coupons. But we also tend to do so when we are in need of a quick liquidation.

Offering discounts and promotions to move excess inventory can eat into profits. Businesses often need to lower prices, resulting in an estimated loss of 5-15%.

Inventory Housing and Handling Costs

Warehousing excess inventory is costly. Rent, utilities, and maintenance have peaked and are on the uptrend. You can check out the detailed CNBC report here.

Managing and handling the additional inventory requires additional labor and resources. Those can contribute to an estimated loss of 3-12%.

Opportunity Cost

The funds tied up in the extra products could have been invested in other profitable opportunities. Although you can never know how much you would have made, the opportunity cost is realistically estimated at around 6–18%.

Obsolete Goods

Over time, excess inventory can become obsolete, expire or out-of-season and can result in significant losses. Businesses report an estimated loss of 15-30% on these items.

Now, here's the good news. We are here to help. bazarr can significantly lower your excess inventory and obsolete goods, which, in turn, reduces all the above-mentioned costs to almost 0%.

How so? Our smart wholesale engine optimizes your inventory levels, ensuring you only order what you need, when you need it. This precise forecast and inventory management can save you significant money, increasing your profitability and sustainability.

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