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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.
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:
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.
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.
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.
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:
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:
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:
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:
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:
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.
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:
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.
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.
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.