The Hidden Burden: Rising Costs of Excess Inventory in Retail

In the aftermath of pandemic-era supply chain disruptions, retailers are now grappling with an opposite challenge: excess inventory that’s significantly impacting their bottom line. With average days on hand up 12% since 2021, many companies are failing to follow Target’s successful example of aggressive inventory reduction.

Key takeaways:

• Interest costs for retailers have surged 40% since 2021, while warehouse rents hit record highs
• Warehouse labor rates have increased 13% since 2021, according to the US Bureau of Labor Statistics
• AI/ML-enabled forecasting can reduce working capital by 10-20% and store shortages by 50-60%
• Two-thirds of customers will switch retailers if desired items are out of stock
• Many retailers are holding excess inventory that could take over a year to clear through normal channels

The true cost of excess inventory often goes unrecognized due to organizational silos between inventory decision-makers and those managing holding costs. With soaring interest rates and increased warehouse expenses, companies must adopt comprehensive strategies including AI-powered forecasting, inventory optimization, and effective product lifecycle management to address these challenges.

The hidden costs of excess inventory