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How to turn slow-moving inventory into fast profits

Versha Kamwal
March 27, 2021
7
mins read

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Inventory management is the backbone of an ecommerce business as it can either make it or break it. Keeping a close eye on it can give you valuable insights which can help your businesses to thrive. As an ecommerce merchant, it's essential to focus on top-selling products to generate more revenue, but it's equally important to ensure that your inventory doesn't dust sitting on warehouse shelves. It's necessary to find out ways to convert your inventory into revenue.

In this blog, you'll learn what is slow-moving inventory, how to identify it, and the strategies that can help reduce the impact of slow-moving products or get rid of them entirely.

What is slow-moving inventory?

Slow-moving inventory is defined as the products that sit in your storage for more than a predetermined period of time. The time duration of inventory that can be considered as slow-moving depends on the product itself; it can be 90 days, 120 days, or more.

You can determine how your ecommerce business qualifies a product to be 'slow-moving.' Moreover, your criteria can differ significantly from other businesses in another industry. For instance, it can be 15-20 days for cosmetics, 90 days for apparel, or even a year for luxury products.

Slow-moving inventory eats up storage space and ties up capital. Most importantly, it also contributes to incurring costs in the form of the following:

  • Cost of goods
  • Loans or credit lines to finance purchased inventory
  • Carrying costs such as warehouse rent, labour, and insurance
  • Opportunity cost, i.e. loss associated with not being able to clear out stock

How to identify slow-moving inventory

In order to have room for new inventory and operate at your highest productivity, you must identify slow-moving inventory, and for that, you can use the following business indicators and ecommerce metrics:

1. Inventory ageing

Inventory ageing is an ecommerce metric that determines how many days your products remain in your warehouse before a sale. It is also known as days sales of inventory (DSI), days inventory outstanding (DIO), inventory days on hand (DOH) and is interpreted in multiple ways.

You can calculate the average age of inventory at the product level to identify slow-moving products. A low average age of inventory means your business sells products as quickly as they come in, and a high average age of inventory means that your inventory is much slower to move off the shelves.

2. Inventory turnover

Inventory turnover is a financial ratio that measures how quickly a product is moving from the warehouse to your customers. It is also known as inventory turns, stock turn, and stock turnover.

A high turnover rate means that you are selling products quickly and a low turnover rate means that the product is much slower to move off the warehouse.

3. Holding costs

Holding cost, also known as carrying cost, refers to the total cost of storing inventory. It includes the cost of storage, depreciation, staffing, maintenance, insurance, security, and other costs associated with the inventory.

Holding costs may seem insignificant at first glance but can add up to massive losses. Slow-moving inventory not just hurts sales but creates costly operational inefficiencies. If you see your holding costs rising, it can be an indication of slow-moving inventory.

4. Gross profit

You can determine the gross profit of each product in your inventory to identify slow-movers. A higher gross profit means that the product is moving fast off the shelves, and lower gross profit will indicate slow-moving inventory.

5. Forecasting

Forecasting is a process of making predictions based on past and present data by analysis of trends. You can use your historical data to discover patterns in your inventory to identify slow-moving inventory. You can compare inventory turnover rates against customer demand surges and dips, whether they are affected by seasonal, promotional, or other trends. It will also provide an insight into a product’s gross profit, inventory costs, and seasonality fluxes and help you identify which product is moving slowly.

What causes slow-moving inventory and what could be the solution?

There are several reasons why your inventory is not moving quickly. And usually, it's not one reason but a summation of many. In such scenarios, posing the right questions can give you the right solution.

1. Perform a root-cause analysis (RCA)

To track the cause, you need to analyse the source of the inventory issue. You need to plan production and supply with a comprehensive study of historical trends by identifying exponential surges and dips in sales. This will help you accurately forecast demand and manage your inventory levels. Here are a few questions that you can discuss with your team:

  • Did we order too much quantity to lower cost-per-item?
  • Did we make an incorrect prediction of demand and supply?
  • Did a competitor launch a product, drop its prices or has a better marketing campaign?
  • Is our price competitive, and is our product value proposition clear?
  • Is it affected by seasonal demand?

2. Optimise your website layout and navigation

If you have your own online store, you can use it as the most efficient sales platform. Besides conducting regular performance reviews of your website, you can re-position slow-moving products on it.

Moreover, your website may offer a comprehensive range of products. It is possible that some products might be overlooked among hundreds of others. This means slow-moving products may be due to lower visibility on your website.

In such a scenario, you can ensure that your products are appropriately categorised, be as visual as possible, and highlight each product. You can promote multiple slow-moving products together by creating a lookbook or a showcase to give your customers a more visual look of the products you’re offering. You can also adjust search results to populate slow-moving products when customers explore top-selling products.

Things you need to look for:

  • Are slow-moving products easily found on the online store?
  • Are the links on your product listing page that lead to a specific product page functioning properly?
  • Is the search bar functioning properly?
  • Are slow-moving products classified under correct categories?
  • Can you promote slow-moving products on the landing pages which receive high traffic volumes?

3. Enhance your product page

When you sell on marketplaces, your product page must have all the vital information that motivates a customer to buy your products. As sales are influenced by how well the products have been represented on the product page. To understand why your inventory is not selling, you need to review your product pages for your slow-moving items.

Showcase adequate high-quality product images

Your products can capture your customers' attention with high-resolution images from all angles. It will help your customers to know what exactly are they buying.

Run your product page with the following checklist:

  • Are the product images compelling?
  • Have you used high-resolution images?
  • Do you have images from all the angles?
Puma presents high-definition images of its products from all angles on Myntra

Create informative product titles and descriptions

You need to create a descriptive title that includes product specifications and unique selling proposition (USP) such as 100% natural, sustainable, and more. When it comes to the description and FAQ, you need to as informative as possible. So include all the features and benefits of your product so that your customers have every reason to make a purchase.

Here a few things you need to check:

  • Does your product have a descriptive and relevant title?
  • Is your product description informative?
  • Did you include product specifications, features and benefits?
  • Did you include answers to frequently asked questions?
HP has curated all the product specifications, features and benefits in the product description
HP has curated all the product specifications, features and benefits in the product description

Leverage metadata & SEO

Search engine optimisation (SEO) and metadata are powerful digital marketing strategies that improve the searchability and visibility of your products. Using them means more traffic and more opportunities to convert prospects into customers. Make sure that you include multiple keywords throughout your product page by distributing your keywords consistently in the product title and description.

Here are a few things you need to look for:

  • Does your product page have relevant and unique meta title and description?
  • Did you include multiple yet relevant keywords for SEO?
  • Are you using correct search filters?

4. Run promotional campaigns and use merchandising techniques

The objectives of promotional campaigns and merchandising techniques are simple—to inform customers what you have to offer and persuade them to make a purchase. Here are a few ways to approach and attract customers:

Utilise email marketing

You can look for insights into your sales data to identify the customers who have purchased the slow-moving products. Then, you can use email marketing campaigns to target the lookalike audience. You can also incentivise customers to purchase with a coupon.

Levis' email marketing ensures to keep customers hooked
Levis' email marketing ensures to keep customers hooked

Offer product kits

You can use product kitting to your advantage by bundling slow-moving products with fast-selling products that will be more compelling to customers. Alternatively, you can bundle multiple slow-moving SKUs or complementary products (products that add value to each other) to increase sales.

Let's take a few examples:

  • If your slow-moving inventory comprises hats and socks, you can combine them into a kit.
  • You can include Bluetooth headphones with smartphones.
  • You can bundle different products from the same range together.

Innisfree's green tea balancing kit
Innisfree's green tea balancing kit

Give discounts

Discounts are a great way to promote stale products through targeted email and paid social media campaigns. Some options for discounting include, clearance sales, daily deals, flash sales, and low-price add-ons.

Biba, a premium ethnic wear brand, running a mid season sale to clear out its stock
Biba, a premium ethnic wear brand, running a mid season sale to clear out its stock

5. Offer gifts and make donations

Despite selling your slow-moving inventory, you can still clear your stock. However, it won't bring you any profit, but there are other benefits entailed with it. Customers trust brands that are committed to a cause and they love freebies.

If you haven't donated your products or offered them as gifts, it's might time to do so by using your slow-moving inventory. However, the following methods won't get you sales right away but in the near future.

  • You can use your slow-moving products for social media giveaway campaigns. It can be an excellent opportunity to build brand awareness and customer loyalty. You can also use them as a gift with a minimum purchase threshold to increase the average order value (AOV).

SheaMoisture hosting a giveaway on its Instagram handle
SheaMoisture hosting a giveaway on its Instagram handle

  • You can also donate your slow-moving inventory. Donating can serve as an opportunity to put your money where your corporate values are. This socially-conscious option creates marketing content that shares your company’s story with customers. For example, an apparel company can donate slow-moving socks and t-shirts to homeless people.

Warby Parker donates one pair of glasses for every purchase
Warby Parker donates one pair of glasses for every purchase

Wrapping up

Slow-moving inventory blocks your resources as well as your revenue. Identifying it and its reasons can enable your business to learn and pivot. You can analyse the risk of inventory becoming obsolete and formulate an effective sales plan. With bold and drastic strategies, you can liquidate the inventory, soar up sales, and ultimately strengthen your bottom line.

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