Member Article

How three online retailers saved more than £100,000 each by simply reducing their inventory levels

The last two years have been a roller coaster for online stores. The supply chain disruptions of 2021 led to many merchants struggling to get their hands on enough inventory, and then overbuying to compensate in 2022.

But now, with an economic downturn looming and the threat of reduced consumer spending increasing, stores who overstocked during the pandemic are stuck - hoarding mountains of goods that they can’t shift.

A survey of 500 fashion retailers including multiples and independents by forecasting software provider Inventory Planner found that 25% of excess stock was written off altogether last year by online merchants, with the average online store sitting on tens of thousands worth of excess inventory due to the downturn in consumer spending.

The danger of sitting on inventory too long is clear. Excess stock was a key factor in last year’s collapse of the online furniture retailer, Made.com, and fashion brand Joules. Mountains of excess stock is a particular challenge because products can start to decrease in value after a while. Excess stock also means businesses have less room to fill their warehouses with new stock – as well as less cash to buy new items and jump on new trends. As the economic crisis worsens, cutting inventory is becoming a crucial strategic move for all brands to ensure they can optimise cash flow.

Here, we speak to three brands who saved hundreds of thousands of pounds - and in many cases boosted sales - simply decreasing their stock holding costs…

Furniturebox

Leading furniture brand FurnitureBox, based in Chippenham, has ditched spreadsheets and turned to real-time buying reports for a more accurate calculation of how much they are forecasted to sell, with up-to-date insights factoring in supplier timescales, seasonality and promotions alongside historical sales data.

As a result, FurnitureBox now holds a leaner inventory, which has boosted cash flow and given the business a buffer to fall back on as consumer demand remains unpredictable.

“From an ROI (return on investment) perspective, we’re able to be much leaner with the stock we hold while still being able to quickly respond to trends,” says James Ewens, Head of E-Commerce, FurnitureBox. “Our forecasting and reporting helps us save money by buying more stock than we usually would.

“For instance, we deliberately overbought in summer 2022 to benefit from a particularly low freight rate. We knew we’d sell the stock and we knew exactly how long it would last. And we were able to make a bigger profit on it.

“Our overall stock holding is much more efficient. It’s saved us around £200,000. And, to be honest, if shipping markets had been less turbulent, that saving would probably have been £500-700K.”

Cycology

Cycling fashion brand Cycologygear.co.uk knew that improving its inventory ordering and investments would have a profound impact on cash flow - but struggled initially to get a handle on it.

“I knew it was crucial that we had the right stock in place at the right time so I would spend hours poring over data from multiple sources and trying to massage it into spreadsheets to come up with a solution that worked,” explains Cycology’s Founder and CEO, Michael Tomchin.

“The trouble was, we’ve got about 2,000 SKUs (stock keeping unit) in every warehouse for every product, so trying to work out the specifics of what we needed was absolutely daunting. It resulted in huge overheads and multiple bad decisions.”

The cycling brand, which operates in four separate regions including Europe, the UK, North America and Australia, knew it needed a new solution and turned to a business intelligence and management tool to transform how they operated.

“Say you hold £1 million in inventory and, at a very conservative estimate, you are able to improve your inventory ordering and investments by 10% a year (for us, it’s actually higher than 10%). That would result in a saving of £100,000 a year”, says Tomchin.

“If you’ve got a heap of small sized products but you’re out of stock of large, which is the one everyone goes for, you’ll lose out on sales and have capital tied up in inventory that’s not moving. It’s of absolutely no value to have heaps of the wrong sizes and it’s a massive risk to cash.”

AYBL

AYBL is a multi-website online clothing brand specialising in women’s gym gear – including leggings, shorts and sports bras.

With five million likes on TikTok and 700,000 followers on Instagram, AYBL ships over 400,000 orders to more than 160 countries each year, including the US, UK and Germany. In 2022, the brand was named the fastest growing private company in Britain with annual sales growth over three years pegged at 359%.

The team has been able to stay a step ahead of the latest trends by ditching manual spreadsheets and using tools that can instantly make them an ‘expert’ when it comes to inventory buying.

“I hate to say it, but I think a lot of merchandisers are too stuck in their ways, too wedded to Excel,” says Reiss Edgerton, Founder and CEO of AYBL

.“It isn’t necessary anymore. With the right technology, you can become an instant expert in replenishment – able to do the job as well, if not better, as someone with 15 years experience and in a fraction of the time.”

He states that inventory overhang is a huge red flag that brands must be aware of: “Overstock is lethal for cash flow and running out of items means missing out on revenue – neither should be happening if you are planning your inventory properly,” Edgerton says.

“I know of multi-million pound businesses that have a team of merchandisers but who are sitting on a ton of excess stock, or who are always running out of key items.

“There’s a smarter way. I’m someone with zero merchandising experience who has been able to use forecasting technology tools to successfully merchandise for AYBL with minimum effort. Our stock is lean and we always have enough to meet demand. That’s had a direct impact on our ability to grow.” The threat of sitting on so much inventory is very real. Online merchants need to consider all solutions that allow them to quickly see where they do and do not have demand, so they can easily identify what needs to be cleared out to free up cash. Cash flow is king - and right now it’s more critical to a retailer’s survival than ever before. In order to free up precious cash, inventory overhang should be the focal point for attack.

This was posted in Bdaily's Members' News section by Jules Stenson .