Inventory Lifecycle Management: Online Liquidation Strategies

Excess inventory due to changing consumer behaviors, aggressive competitor actions or simply missed forecasts is a fact of life. When the inevitable happens, marketing can help in various ways. From in-season promotions and end-of-season clearance sales on your website to outlet stores and third-party distribution, retailers can deploy several strategies to aid in the liquidation of extra inventory.

Because of the flexibility of the online environment, merchants can monitor inventory rates during peak selling periods. During the holiday shopping season, for example, online retailers are notorious for taking immediate promotional action to aid in moving slow-selling merchandise. For example, consumer electronics merchandise that underperforms during Black Friday weekend will be heavily promoted throughout the rest of the holiday shopping season.

Another tactic frequently used in the apparel category is end-of-season clearance sales. Retailers will typically merchandise clearance items on their main site in separate clearance pages that are linked or in header navigation that's found on all pages. For example, J.C. Penney uses a clearance tab in its header navigation that sends visitors to a clearance landing page and includes category navigation to browse the section. Other retailers will include clearance items within the full price category pages, usually after scrolling through all of the new or first-run products.

An "outlet store" strategy is another option for retailers. It's different from the clearance strategy noted above in that an outlet store is generally less merchandised from the main site and is structured as a separate microsite. The main reason for doing this is to avoid cannibalization of the full-priced products. This strategy is most often deployed in the consumer electronics category, where new product introductions drive the need to clear out older models.

Problems with cannibalization can occur when new features may not be enough to offset the lower price offered on older models. Test various strategies to highlight your outlet store from your main site. Usually a link or banner ad from the homepage rather than persistent links in the navigation from all site pages is best for minimizing cannibalization.

Sometimes brands will employ a strategy that has no links from the main site and relies on other channels — e.g., natural search, search marketing and affiliate marketing. This further minimizes cannibalization and gives merchants more control over how consumers discover and engage with their outlet store.

Another good liquidation strategy is to use eBay, K-BID and other auction sites. Merchants can set up branded stores on these sites and then use the traffic driven by the partner site to liquidate excess inventory. Auction functionality can be used to improve the total amount recovered. Brands can even further minimize cannibalization of their full-priced products on their flagship sites by using third-party sites. In the final liquidation stage, merchants can use online sites such as FreeFlow, a B-to-B asset recovery company, to move any remaining inventory.

Despite their best efforts, merchants can be left with excess inventory. Moving that inventory via several online strategies can help improve the amount recovered through liquidation while preserving brand pricing integrity and avoiding cannibalization.

Jim Wehmann is senior vice president of global marketing for Digital River, a provider of global e-commerce solutions that builds and manages online businesses for software and game publishers, consumer electronics manufacturers, distributors, online retailers, and affiliates. Jim can be reached at jwehmann@digitalriver.com.