For many retailers, the COVID-19 crisis and related stay-at-home orders have closed stores and restricted operations creating an increased amount of unsold excess and seasonal inventory. To assist impacted retailers in finding ways to reduce losses and maximize inventory value, RILA recently hosted a cross-functional webinar with 12 industry experts and thought leaders to discuss inventory management strategies, options, and financial considerations.
The panel of experts featured speakers from Gartner, Best Buy, Optoro, IKEA, Guess? Inc., Good 360, Baker McKenzie, Resource Recycling Systems, US Ecology, and Comstock and Holt. Speakers highlighted the impact of the COVID-19 crisis on current and future consumer demand and retail operations and detailed how retailers can use a multifaceted approach to solve inventory issues. Industry experts discussed a range of different approaches and options including pack and save for future sale, liquidate, donate, repurpose/recycle, and destroy as well as financial advantages of specific options. For more details see below.
COVID-19 Impact Customer Demand and Tactics for Full Price Sales – The negative impact of the pandemic on current and future customer demand is expected to be long term and sustained as consumers continue to adapt to new work and life style models and adjust to new financial realities. Some full price tactics retailers can employ for excess and unsold inventory include offering a full assortment online, increasing consumer order fulfillment services to expand pick-up and delivery services, creating temporary darkstore fulfillment centers, optimizing attachment sales and basket size, creating new pop-up partnerships and developing a marketplace presence.
Pack and Save for Future Sale – Some retailers are choosing to pack up specific categories of merchandise and store for sale in 2021. Although this option does not provide retailers with immediate financial return, the added costs of storing unsold inventory until next year is offset by future inventory costs savings. This option also prevents potential 2020 margin drain that would result when retailers use discount marketing to get inventory off store shelves.
Liquidate – It is imperative that retailers with excess inventory seeking immediate financial returns have a reliable resale strategy to efficiently move large quantities of inventory, while still preserving brand integrity and maintaining recovery. Technology based tools can assist retailers quickly and easily liquidate unsold inventory by selling through secondary online markets channels and include white label options for enhanced brand protection.
Donate – The pandemic crisis has intensified the need for product donations and that need is continuing to grow. Retailers can manage unsold inventory by identifying community needs and establishing robust donation programs with qualified charities. In addition to having a positive impact on needy communities, donating products can further retailers’ sustainability goals to reduce waste and provide potential tax benefits. Retailers meeting applicable requirements for tax deductions for donations of food or nonfood inventory to charities can deduct up to 15% of taxable income. In addition, the recent Coronavirus Relief and Economic Security (CARES) Act increased the limit for deductions of food inventory to 25% of taxable income for food donated in 2020.
Repurpose/Recycle – Post-consumer textile recovery companies can take unsold products made of polyester, cotton and polycotton textiles and find ways to reuse the textiles or appropriately recycle what does not have an end market. Repurposing and recycling of excess inventory is consistent with companies’ sustainability goals as a preferable waste management strategy, having a lower environmental impact than landfilling or incineration. In addition, recycling products eliminates waste handling costs although depending on the specific product to be recycled and individual recovery company, retailers could incur some recycling handling costs.
Destroy – Product disposal and destruction is generally retailers’ option of last resort. Waste handling and disposal processes and costs will vary depending on if the product is regulated waste (e.g., products containing circuit boards, fluorescent light bulbs, and batteries). Products falling under the category of universal waste can be landfilled, incinerated (waste to energy) or securely destroyed. For imported merchandise that is destroyed, retailers may apply for a refund of customs duties, certain taxes and fees through the U.S. Customs and Border Protection (CBP) duty drawback process. To be eligible for refunds under the CBP drawback program, the merchandise must be completely destroyed with no commercial value remaining and retailers must be able to provide documentation to support drawback claims.
For more information regarding the topics covered in the webinar please contact:
- General Information - Kathleen McGuigan, Executive Vice President & Deputy General Counsel
- Supply Chain Issues - Jess Dankert, Vice President, Supply Chain
- Customs Issues - Blake Harden, Vice President, International Trade
- Tax Issues - Dave Koenig, Vice President, Tax
- Sustainability Issues - Erin Hiatt, Senior Director, Sustainability and Innovation
- Environmental Compliance Issues - Susan Kirsch, Director, Regulatory Affairs & Compliance
- Retail Compliance Center - Tiffin Shewmake, Vice President, RILA and Executive Director, Retail Compliance Center
Legal Affairs & Compliance
Sustainability & Environment