How Pre-Orders Help Solve Retail’s $562 Billion Overstock Inventory Problem

Last June, Charli XCX released her sixth album. Rolling Stone, NME, Billboard, and Entertainment Weekly all agreed it was the best one of the year. The love for “Brat” wasn’t just about the music; it was the movement.

Charli XCX kicked off “Brat summer” and the summer’s biggest color trend along with it. Every brand from Gucci and Prada to H&M and Zara embraced this bright green, somewhere in between lime and chartreuse. The New York Times declared, “You can’t escape this color.”

Until you could.

Brat green made way for more subdued colors, chocolate browns and buttery yellows. If brands forecasted demand based on last summer’s sales, they’d likely have a surplus of neon green inventory collecting dust in their warehouses. That kind of thing happens all the time.

Overstock inventory is a $562 billion problem in retail. Pre-orders are the solution.

Understanding demand with real-time sales data

The brat green trend is an extreme example. But it does demonstrate how unpredictable demand can be. Most retailers decide what to buy based on the sales data from the previous year, which is only 65 to 75% accurate. 

What if they’re launching an evergreen product in a new color? They’ll just have to hope customers like it.

Pre-orders help brands understand demand more accurately because it’s based on what’s actually selling, not what's predicted to sell based on last year’s trends.

With visibility into that data, brands can:

• Update a factory order: The presell period gives brands a sense of which items they’ll need to produce more of.
• Reorder popular styles: Proactively reupping best sellers creates a smooth, uninterrupted customer experience.
• Reallocate marketing dollars: At the same time, they can move marketing dollars away from those items to focus on the ones that may need a boost.‍
• Avoid overproducing inventory: Think about how much Super Bowl merchandise sells — but not for the losing team.

The avalanche effect of overstock inventory

Overstock is a massive problem for brands because it’s such an easy trap to fall into. Brands are more likely to order too much rather than too little. The downsides of going out of stock are much more obvious.

But overstock has an avalanche effect. Most brands will put overstock items on sale in order to move it. They may lose 20 to 30% of their margins. If that happens regularly enough, customers will start thinking of them as a discount retailer. Worst case scenario, that inventory will end up in a landfill, never to be sold.

Overstocks cost brands $562 billion every year. Let’s put that massive number into context. There are 191 countries in the world. If overstock inventory was the 192nd one, it’d rank 89th in terms of Gross Domestic Product. That’s slightly more than the GDP of Jordan, slightly less than that of Tunisia.

How Sachin & Babi achieved 0% overstock inventory with pre-orders

Purple Dot data shows that brands using pre-orders cut excess inventory by 50%. Specializing in occasion dresses, Sachin & Babi took that even further. The brand launched a line of bridesmaid gowns exclusively on pre-order, gaining real-time visibility into the pre-order demand, forecasting, and the size curve. With that data, they were able to batch the optimal number of orders to the factory.

Sachin & Babi saw 0% overstock in pre-order collections.

Warehouses are full of overstock inventory, destined for either deep discounts or a dumpster. Pre-orders ensure they don’t have to be. When a brand takes advantage of the presell period, they’re able to use data to forecast demand much more effectively.

The better they can forecast demand, the more of it they can convert. That means more in sales — and far less money lost to overstock.

Sachin & Babi is one of countless brands we’ve helped win with pre-orders. If you want to make pre-orders part of your growth, get in touch at hello@getpurpledot.com.

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