Factory overproduction is a category of closeout merchandise that is created due to the nature of the relationship between the factories and their commercial accounts. Overproduction takes place when a factory is producing merchandise for an upcoming season, and wants to be sure that it will have enough stock to meet the demand from distributors, importers, and wholesalers. For example, if the end of the school year is fast approaching, and the factory produces prom dresses, it will want to run its machines at full steam to ensure that is has enough supply for dress wholesalers that purchase from it to resell to dress stores. While the factory runs the risk of overproducing merchandise, it prefers to take a small loss on the excess inventory than to lose wholesale customers that will switch their buying to another manufacturer.
If a large department store is left without enough products to sell, it will not take a chance next season, and will give its orders to the factory’s competitor. While many producers research market demand so that they can manufacture just the right quantities, it makes more sense from a business point for them to produce extra products to meet any unexpected demand. In addition, if the factory has extra wholesale dresses available, it can sell its excess products to new retail accounts.
Not all overproduction can be purchased from factories. If Jones New York places an order to have women’s suits made, it does not want any excess suits to be produced. If there are any extra suits made by the mill, they are expected to be destroyed. As the license holder, Jones New York would be the only entity that would have the right to sell those items. In order to purchase brand name inventory from a mill you would need written permission from the owner of the brand. A safer route would be to purchase non branded and generic merchandise, since you would not be obligated to seek a release paper for the closeout goods.