To a furniture retailer, there’s nothing scarier than a warehouse full of dead stock. With inventory targets to hit and new products to acquire, excess stock is the last thing they want hanging over their heads. While some may reluctantly wait it out, hoping the products will eventually sell, others will cave and turn to steep discounts. Unfortunately, both options can be very costly.

If you let unsold inventory idle for too long, it racks up handling costs as its own value depreciates. Meanwhile, if you discount it too liberally, your contribution margins take a massive hit.

While most retailers remain trapped between these two options, others are investing in improving the sales process for overstock inventory — with impressive results. In this article, we'll dive into the foundational issues that drive revenue leakage in clearance products and explore 3 strategies that you can implement to address this problem at its core.

Why clearance is a constant source of revenue leakage

Offloading clearance inventory tends to put furniture retailers in a double bind. Whether you decide to let these products sit until they sell or mark them down to clear showroom space, you risk massive revenue leakage at every step.

But that’s just the half of it — handling clearance also ties up your capital, jeopardizing your ability to acquire and offload full-price stock. Its effects, in other words, ripple through every line of your P&L.

What does this impact look like at scale? The most common short- and long-term financial burdens include:

Hefty operating expenses

If you’ve ever seen an overcrowded warehouse and scratched your head, wondering how you can possibly hit your inventory targets, then you know what a cash drain floating stock can be. Whether you’re storing it in a warehouse, a showroom, or moving it back and forth between the two, you’re paying to keep clearance inventory on hand. 

And these costs only increase with every effort you make to showcase these products. If you keep it in a clearance outlet, you must invest in renting, outfitting, and staffing a new space. But if you keep it in a regular showroom, you steal prime real estate from your much more profitable full-price inventory. Plus, should a piece ever need repairs, you face additional transportation, material, and labor costs.

All the while, this unsold inventory continues to leak more value with each passing day.

“Gut-feel” pricing

To make this headache go away and increase sell-through, you may lean into an aggressive discounting strategy. But discounting is a fine line to walk.

While retailers need to set clearance prices that offset high operating expenses, they’re also painfully aware that consumers expect such items to be heavily discounted. And, without accessible data to tell them just how high of prices they can get away with, they have to rely on educated guesswork.

As a result, they usually end up discounting a little too zealously. In fact, U.S. retailers lose as much as $300B in revenue annually from overstock and clearance markdowns. That’s 12% of their total sales.

How, you might wonder, does this happen? Imagine that you have a $1,000 recliner with an $800 market price that simply won’t move. So, after marking it down first 20%, then 40%, you eventually give in and sell it for $300 on clearance. That’s already $500 in lost revenue, before you even account for any operating expenses. Then, imagine that the same scenario happens across hundreds or even thousands of markdown products. You can see how quickly the losses start to add up.

Cash flow constraints

Between the high operating expenses it creates and all the revenue it relinquishes to discounts, clearance can also threaten your open-to-buy budget. With less working capital, you won’t be able to invest in as many new product lines from your suppliers.

This will make it harder to keep faster-moving — and higher-margin — items in stock, stifling your ability to respond to market needs and seasonal shifts in demand. And, without a steady pipeline of fresh inventory to keep shoppers engaged, your highest-value customers may decide to take their business elsewhere.

As a result, your full-price sell-through rates will decline, and you’ll need to convert even more inventory into clearance, perpetuating the cycle of excess stock. 

3 strategies to prevent revenue leakage on clearance products

If all of the above sounds familiar and you’re at your wit’s end with your clearance inventory, then we’ve got some tips for you. With the right approach to clearance optimization, you can preempt overstock revenue leakage — while protecting full-price sales.

1. Fine-tune your demand planning with predictive analytics

In a perfect world, supply and demand would exactly align, and there would be no need for clearance sales. While such a reality doesn’t exist, a robust demand planning strategy can bring you a little closer. By stocking in sync with consumer demands, you can nip clearance revenue leakage in the bud by reducing the amount of clearance you have in the first place.

If your supply chain or ops team is lean, there’s a whole ecosystem of predictive AI tools on the market designed to help you streamline your demand planning. You might, for instance, invest in inventory software to automate your demand forecasting and stock management. If you choose to go this route, make sure to partner with a solution that knows the furniture industry.

Or, if you’re looking for an all-in-one clearance solution, consider outsourcing your demand planning to SaySo. SaySo is purpose-built for furniture retailers and leverages a combination of historical and real-time customer data to tell you which SKUs are in the highest demand and driving the most value.

2. Embrace price optimization

With price optimization, you no longer need to guess your way to higher sell-through rates and more balanced margins.

Price optimization leverages consumer willingness-to-pay data to help you set a precise dollar amount for each clearance SKU. This data might, for example, tell you that a SKU has already leaked too much value and is better written off than actively showcased. But, in many other cases, it will tell you that customers are willing to pay much more for your dead stock than you think. And, with a firmer grasp of their upper limits, you can significantly dial back your discounting and retain much of your inventory’s original value.

The best solutions on the market even help you uncover more holistic, long-term pricing strategies. SaySo’s markdown and pricing optimization engine, for example, takes willingness-to-pay data from every transaction and breaks it down via a user-friendly dashboard. Armed with these insights, you can more strategically price your active stock to boost its sell-through while reducing the need for clearance.

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3. Improve inventory turn with a strategy that drives conversions while protecting margins

Traditional clearance solutions usually force retailers to choose between two priorities: sell through their overstock inventory or protect their profit margins. But gamified online shopping offers both benefits at once. By selling your clearance products through an online storefront, you can create a bespoke virtual shopping experience for your customers while reducing operating costs in tandem.

On the merchandising front, gamified experiences enable you to entice customers at more flexible price points. You might, for example, use a Dutch auction format — where prices start high and incrementally decrease until a bid is cast — to attract new customers. By inviting customers to compete against one another, the format facilitates deep engagement and quick sell-through. But, because the product ultimately goes to the least price-sensitive user, Dutch auctions also help you fetch the highest margins from each conversion.

Meanwhile, with everything prominently presented online, there’s no need to invest in transporting and physically showcasing your clearance inventory. You can simply store it in a distribution center until it sells.

If building out the virtual storefront and gamified software sounds like a huge development undertaking, SaySo is happy to step in. SaySo works with industry-leading furniture retailers to help them build co-branded and gamified storefronts for their clearance inventory. 

Take a look at how SaySo stacks up to traditional clearance solutions:

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And the proof is in the results. By partnering with SaySo to create a co-branded digital storefront, leading furniture retailer Ashley Canada slashed transportation costs by 20% and gave customers a shopping experience that 75% said they’d use again.

The cherry on top? They learned that their clearance customers were higher-intent than they thought. Not only did Ashley x Descend customers pounce on clearance inventory at higher price points, but many of them headed over to Ashley Canada’s regular site and purchased at full price.

Are you ready to recapture the value of your dead stock?

See what SaySo can do for your clearance inventory by booking a demo today.