What is one consequence of holding too much inventory?

Holding too much inventory can lead to high storage costs, which is a significant consequence of overstocking. When a business has excess inventory, it incurs several types of costs. These include the costs associated with warehousing the inventory, such as rent, utilities, and maintenance of the storage facility. Additionally, there can be costs related to security, insurance, and inventory management systems.

Moreover, excess inventory can lead to capital being tied up in goods that are not being sold, which can impact a company's cash flow negatively. These storage costs can accumulate quickly, eating into profits and potentially leading to financial strain if the business does not effectively manage its inventory levels. This understanding highlights the importance of inventory management in a business strategy, emphasizing the need for an optimal balance to minimize costs while meeting customer demand.

In contrast, the other options do not accurately reflect the consequences of holding too much inventory. Improved cash flow would typically result from efficient inventory management and not from excessive inventory. Lower prices and increased sales might seem advantageous, but they are not directly caused by holding too much inventory; in fact, excessive inventory may lead to markdowns, which can negatively affect pricing strategies and overall sales performance.