This blog will discuss slow-moving inventory, which refers to products that have a longer turnover and remain in the warehouse for at least three months due to difficulty in selling. There are several reasons why inventory may become slow-moving, such as inaccurate forecasts or market slowdowns, which require sellers to evaluate their supply chain and marketing strategy to identify and address the issue. Slow-moving inventory can have negative effects on a seller's bottom line and use valuable warehouse space, making it crucial to find ways to eliminate such products.
What are the ways to recognize ASINs with slow-moving inventory?
Defining slow-moving inventory is not straightforward as there is no universally accepted definition that can accurately identify the issue. Sometimes, an Amazon business may mistakenly flag an item as slow-moving when it's not. To accurately and early identify slow-moving stock, there are various methods to consider.
When businesses hold excessive quantities of a particular product, it can be referred to as overstock. Monitoring the length of time that merchandise has been in stock or absolute inventory levels can help companies keep track of it. For example, if an Amazon seller has a contract to purchase a specific quantity of products at regular intervals, and the inventory keeps increasing over time, it can indicate a slowdown in sales.
What is the meaning of Holding Costs?
If a seller's stock holding costs are increasing, it may indicate that they have ordered too much inventory. This can be a sign of decreased sales, but the seller has not adjusted their ordering strategy.
The rate at which a company sells and replaces its inventory within a given period.
Inventory turnover is a financial indicator that measures how fast a seller sells its inventory. However, this metric is a general estimate that combines different types of products and measures everything in dollars. To obtain a more accurate understanding of what is selling slowly and what is not, a reliable inventory management service can calculate the stock turnover for individual items.
Average days to sell inventory is a financial metric that, like inventory turnover, is not very effective in identifying specific slow-selling items unless the company only sells one product. This metric calculates the average time it takes to sell inventory that equals the inventory's value. However, this metric does not account for products that sell out and get reordered multiple times versus those that do not sell out at all.
Why is having too much slow-moving inventory bad?
Having excessive inventory that is slow-moving can lead to costly challenges and consequences, including:
Lower Amazon IPI score
Amazon's Inventory Performance Index (IPI) measures the efficiency of inventory management within FBA businesses. When a seller has too much stock on hand, and the items are not selling as quickly as they should (within 90 days for Amazon merchants), the sell-through rate can decrease, indicating to Amazon that the inventory is not performing well. This can result in a lower IPI rate, leading to decreased storage limits.
Lower Amazon rankings
Most businesses on the platform generate 80% of their income from 20% of their top sellers or items. Slow-selling products receive less attention and may have poorly optimized or outdated listings. Poorly optimized product listings are less likely to appear at the top of Amazon's search results, resulting in less traffic and lower sales. Thus, slow-moving inventory ties up money in inventory holding costs.
Higher opportunity cost
In eCommerce, opportunity cost refers to the value of inventory that could have been bought and sold instead of products sitting in a fulfillment center or warehouse. Therefore, excess Amazon stock should be put on sale or liquidated to improve the sell-through rate and maintain a low opportunity cost.
Storage limits are filled with non-selling items
With Amazon's new storage-type limits, profile-wide inventory restrictions are imposed, meaning that more slow-moving products result in less Amazon FBA storage space for top-selling items, leading to stockouts. This can lead to lower limits and a cycle of lower and lower storage limits that can be difficult to recover from.
Higher risk of merchandise obsolescence or deterioration
Most products lose value over time, especially items that evolve quickly, such as gadgets. While this is great for customers who want the latest products, it also means that electronic items can quickly become obsolete or out of trend once they reach the end of their life cycle.
Adverse effects on cash flow
If excess inventory cannot be moved quickly, sellers will incur unnecessary expenses on top of general storage fees per month. The more unsold inventory a seller has in their Amazon warehouse, the more they will need to pay. Additionally, penalties are involved in keeping inventory with Amazon after six months, which increase significantly after a year, and extra penalties can add up quickly. Storage expenses in the fourth quarter of the year are also about six times higher than average, so holding excess inventory during this time can be expensive.
How to sell slow-moving inventory?
Here are five easy ways to increase Amazon sales and shift slow-moving FBA inventory:
Launch a sale
The most straightforward way to liquidate inventory is to offer discounts on excess and old stock. Heavy discounts may be necessary to spur customer demand for slow-moving products, such as discounts between 30-70%. While this may result in selling items at cost or even a loss, the goal is to move old and excess inventory and look to the future. Effective promotion of sales to customers is also important, but too many sales within a year can reduce their effectiveness and appeal.
Check for improvements in product listings
Sometimes slow sales are due to non-optimized product pages. Improving product images, keywords, titles, and descriptions can increase sales and boost product visibility on Amazon.
Selling bundles of products is a popular pricing strategy that sellers use in addition to offering discounts. Bundling involves selling a set of goods at a slightly reduced price compared to if they were sold separately. This allows sellers to discount stock while maintaining profit margins.
Another way to move slow-moving inventory quickly is by leveraging additional sales channels, which can vary by industry. For instance, partnering with companies that have access to more customers or selling on other online marketplaces could be useful if advertising efforts have not reached the right audience. Joining platforms that share deals or collaborating with other companies to offer special deals are other options.
Donating slow-moving inventory to charity organizations is a viable option if other methods of selling the stock are not feasible. Not only can this be a beneficial way to move old inventory, but it can also enhance a brand's reputation.
To manage excess inventory on Amazon, it is essential to find a balance between cutting potential losses and recovering as much as possible. It is not ideal to make zero profits or lose money, nor is it productive to waste resources and time on items that remain unsold for months on end. By identifying, tracking, and selling slow-moving or overstocked items before they become obsolete, sellers can improve their rankings and sell-through rates, avoid storage expenses, and recover capital. With some luck, slow-selling products may even become top-selling items.
Consider using Amazon listing monitoring software to help manage inventory and stay on top of product performance.