It’s not just the ‘most wonderful time of the year’; it’s also the busiest.

In a given holiday season, retailers increase their inventory 3 to 4 times normal just to meet consumer demand. 

This means additional warehouse space is absolutely necessary. And the last thing a warehouse needs is limited space disrupting the management of their inventory. 

But unfortunately, that’s exactly what happened this year.

U.S. retailers saw a record $732 billion of inventory in 2022, a 21% increase from last year. As retailers failed to both move and sell products, warehouses began overflowing with inventory.

Reports referred to this as an “inventory glut.”

Now instead of normal holiday preparations, warehouses are troubled with too much slow moving inventory. 

How did this problem arise and how are retailers managing?  

How Did Inventory Glut Become Such A Problem? 

Situations like inventory glut don’t just happen overnight.

They’re the result of a unique combination of supply and demand imbalance and a volatile retail environment.

This sounds more complicated than it is. Let’s break it down:

First, the pandemic altered the retail market. Consumer demand skyrocketed as stay at home mandates facilitated lots of online shopping. This ongoing trend lasted 2 years.

Second, supply chain issues affected deliveries. To continue meeting demand amid longer lead times, retailers ordered further in advance and in excess to ensure availability.

Taking their queue from recent spending habits, these items included:

  • Household appliances
  • Electronics
  • Apparel 

But as supply chain issues began to resolve, consumer spending cooled off around Q1 2022. Purchases shifted to away from goods to pre-pandemic services, such as:

  • Vacations
  • Restaurant dining
  • Outdoor entertainment

With piles of inventory stacking up, retailers banked on consumers continuing to spend money like they had the past 2 years. 

Unfortunately, that wasn’t the case. And just like a game of musical chairs, the music stopped and retailers were left standing with huge piles of inventory.   

Consumer spending also lessened as inflation rose, jumping up 8.5% in July from the previous year. Non-essential items to a backseat to more fundamental products like gas and groceries.

So just what are warehouses left to do with an overflow of inventory?

Warehouses Respond to Too Much Inventory 

Warehouses thrive on having the space to hold and move products. Space is valuable, especially leading up to and during the holiday season.

“Once it’s already bought, once it’s in your warehouse, once you own it as a retailer, you need to manage it,” says Brandon Rael, Business Transformation Leader at Capgemini Invent. “Otherwise you’re losing space in the warehouse.” 

As a result of warehouses being swamped with increased inventory, space has become extremely limited.  

An additional 800 million square feet of warehouse space was expected to handle excess inventories this year, reported by Prologis Inc. As the world’s biggest owner of warehouses by square footage, their 5,800 list of customers includes big name companies such as Amazon, FedEx, and Home Depot. 

Without the space needed to store incoming items for the holidays, retailers have had to take drastic measures to move products out as fast as possible.

Pre-Holiday Promotional Sales 

For retailers, excess inventory means less warehouse space. For shoppers, it means discounts galore on the horizon.

The best option retailers have to move inventory out of the warehouse is through promotional sales.

“As many companies are still receiving goods that were delayed from last year, warehouses are busting at the seams,” states Joe Crews, owner and consultant of Key Warehouse Solutions with over 30 years of experience.

So that irritation at seeing holiday products and deals hitting stores before Halloween candy is gone? You’re going to see more of it this year…and much sooner. 

Stores like Target have already taken the lead to move overstocked inventory with aggressive deals. They ran a Black Friday promotion from October 6-8 and are extending their price match guarantee through December 24. 

While getting rid of too much stock is the goal, it comes at a cost.

“Unfortunately [retailers] will take a margin hit,” says Rael, referring to retailers forced to sell products at less than full price. But this is just a necessary evil to make room in warehouses.

He continues. “There will be financial implications but there’s an overabundance of inventory in warehouses and stores retailers have to get rid of.” 

If the deep discounts retailers ran this summer were unsuccessful and fall sales fail to deliver necessary relief to warehouses, retailers could be in a world of trouble this holiday season and after.

Worst Case Scenarios 

Sometimes inventory just can’t be sold. 

In that event, retailers have to resort to worst case scenarios to get rid of it. 

“Retailers have to get creative and get as much money back from that product as possible,” states Crews.

This can be done several ways:

Discount Retailers 

These are your TJMaxx and Marshalls establishments. As retailers continue looking to offload excessive inventory, these businesses will see a growing supply in merchandise. Inventory liquidation company Channel Control Merchants added an additional 25 retailer clients in 8 month this past year due to the influx of products. 

Hold onto Items

This isn’t ideal but it can work for some seasonal products that can be cycled back through stores next holiday. Items that go out of trend quickly, like apparel, aren’t as lucky. It’s important to remember the longer retailers hold onto dated items, the more they’ll have to mark down the price. 

Dumping Items

If warehouse space is needed and inventory won’t sell, items can be thrown away. Unfortunately, some retailers will do this as a last resort. It costs more to store inventory than to keep it, especially if the chances to sell it continue to drop. However, in this case brands should consider donating excess inventory to help both needy consumers and their image. 

Crews says in the end, it all depends on the product. “There’s wide networks where retailers can dispose of products…and there’s not one solid answer that can be universally applied.”

Retailers will have to find the solution that best fits their business.

A Lesson Future Holiday Seasons

While inventory glut was a singular circumstance this year, it doesn’t mean retailers shouldn’t take notes on ways to better handle their inventory. 

“Warehouse storage space is always a challenge, for every industry regardless of the time of year or unique challenges,” says Crews. 

So what can retailers do to avoid another instance of inventory glut?

A key factor is visibility in your supply chain. This means knowing:

  • What products you have
  • How much
  • Where products are located
  • Where products are going 

Investing in the right inventory management software or equipment aids in visibility. It initiates a more proactive approach if and when disruptions occur, which we’ve witnessed can occur anytime.

“This is a time for retailers to course correct and see what they can do differently in the future,” clarifies Rael. 

As retailers continue processing through the excess inventory they’ve acquired, the forecast for next year is open to developing a completely new outlook.