Retail's Future: How Advancements in Technology Could Eliminate Sales and Closeouts

Two years ago, Hype NJ began to use a data-driven approach to purchasing closeout inventory at below-wholesale prices directly from brands and distributors. Before this, Hype NJ primarily used an “online arbitrage” model.

2 years ago, I came across an interesting line on Patagonia’s website: "Matching inventory forecasts to actual sales is rarely perfect. No matter how bluebird our crystal ball, there’s inevitably some extra jackets or activewear at the end of the season."

On one hand, it was obvious: brands put items on sale because they have too many. On the other hand, I saw a business opportunity. Often, “past season” styles are still in demand, but brands are still trying to clear them out of their inventory. I began developing relationships with brands and distributors to purchase this inventory. When making purchasing decisions, I would make use of open-sourced data to ensure I would be able to make a profit on the inventory I was purchasing. Using this model, I generated over $1,000,000 in revenue.

However, I cannot help but think: It is true that matching inventory forecasts to actual sales has “rarely been perfect” in the past. But will this be true in the future? If I had to guess, the answer would be no.

For many years, clearance sales and closeouts have been part of the retail industry. They give shoppers discounted goods and provide businesses with a chance to clear their shelves. Nevertheless, this traditional model may change significantly soon due to technological advancements. One development that could cause such a shift is better inventory prediction methods; if they become accurate enough eventually there would not be any need for sales or closeouts at all.

I first read about this concept in Thomas Friedman’s book, The World is Flat. In the book, Friedman discusses Walmart’s “Just in Time” model. This is an inventory management system that is used by Walmart to minimize excess inventory. In theory, this model would allow Walmart to keep just enough inventory to meet consumer demand. While no one truly knows how well this has worked in the past, it certainly has more potential now with recent advancements in technology.

Why is this important?

The traditional idea of sales and closeouts may become outdated as inventory forecasting improves. In a world where stores can match supply with demand perfectly, there will be little use for steeply reducing prices to get rid of extra products. Rather than having sales events, retailers can keep prices stable which would cut down on fluctuation in pricing. This might create a more predictable shopping experience for shoppers and steadier income for stores in the process.

Another significant implication of improved inventory forecasting is the potential decline of traditional retailers and resellers. As brands gain the ability to sell directly to consumers through e-commerce platforms, the role of brick-and-mortar retailers may lessen. This direct-to-consumer (DTC) model allows brands to maintain greater control over their inventory and pricing, reducing reliance on third-party retailers. Additionally, the precision of inventory management could lead to a reduction in the secondary market, where wholesalers and resellers thrive on acquiring excess stock and selling it at a profit.

I am looking forward to seeing how these advancements in technology are going to impact inventory forecasting and management.