Clearing Out Inventory


Fred Perrotta

In Silicon Valley, every company wants to be a platform. Platforms make money by taking a skim off of every transaction. The platform business model promises VCs unlimited upside and no hard costs like inventory or equipment.

Amazon started by buying books and storing them in its warehouses. Now, sellers pay Amazon to hold their inventory for them. Amazon is content to take their money for storage and shipping while the sellers bear the burden of inventory planning.

If they sell out, Amazon promotes another seller into the "buy box" and never misses a beat (or a dollar).

If sales are slow and the seller is holding inventory for too long, Amazon charges them a "long-term storage fee."

Following this model outside of ecommerce, Uber doesn't own its fleet of cars and Airbnb doesn't own any real estate. The coworking giant WeWork leases its spaces instead of buying them despite having raised $4.69B in venture capital.

The Problem

Regardless of the vertical, these companies don't want the responsibility of owning their inventory because inventory is expensive and a barrier to growth.

What happens when you can't sell it or when it's selling too slowly?

Inventory sitting on a shelf represents real costs that haven't led to revenue (yet). Imagine the unit cost of your product as a pile of cash sitting on a warehouse shelf. Now imagine that you can't get get to the cash to put it to good use. That's inventory.

We (okay, I) made this mistake of over-ordering. By placing a large "final" order of Tortuga V2, we hoped to keep enough bags in stock to last through the launch of the Outbreaker backpack without having to waste time planning and making another order. I wanted the team, including me, to focus on Outbreaker and to let the V2 bags sell through mostly on autopilot. My inventory planning didn't work out. I fucked up.

As the V3 launch neared, we still had inventory of every product in stock. So we launched a Retirement Sale to clear it out. The sale worked well for the accessories which all sold out. However, most of the sales were to previous customers who were willing to pick up a discounted accessory but didn't need another bag.

Clearing out inventory is particularly challenging for sale-averse v-commerce companies, which don't want to cheapen their products. We didn't mind running a V2 sale since these products were being discontinued.

Some v-commerce companies have the additional challenge of a limited number of SKUs. The fewer products that you sell, the more of a drag on cash flow each slow-moving SKU is.

Options for Clearing Out Inventory

Amazon

Rather than leave discontinued products products on the new website alongside the Outbreaker collection, we moved all remaining V2 inventory to Amazon. Since Shipwire, the 3PL where those bags were stored, integrates with Amazon, this change was relatively painless. Thankfully, we didn't have to physically move everything to Amazon's warehouses or take a write down on the inventory.

We made the move to Amazon out of necessity, but it worked. Since Amazon customers are more price conscious, we don't mind selling discontinued, discounted products there.

Surplus Sales

Another option is warehouse sales or surplus sales. You've likely seen brick and mortar stores run these sales. REI periodically sells lightly used gear at a steep discount at their stores.

Brands like Edgevale and Tellason have taken the concept online and added a bit of mystery wherein you choose a size and product type (jeans, shirts) but don't know which specific product you're getting until it shows up at your door. The tradeoff is that you get the mystery product at a steep discount.

What Else?

What other creative ways have you seen v-commerce brands clearing out inventory? Let me know, and I'll add them to the list.