What is the Challenge in Identifying Fast-Moving and Slow-Moving Stock in Multichannel Retail
For a multichannel business to be successful in the retail industry, having a certain level of inventory on hand (in warehouses, stores or in-transit) is inevitable. Since the movement of inventory stock plays a major role in the success or downfall of a retail business, every retailer must closely monitor and manage their stock performance or inventory performance along with the stock movement. This challenge only gets compounded with the introduction of multiple channels like wholesales (B2B sales), ecommerce, marketplaces, physical stores, franchisees, shop-in-shops and more. This is because there are multiple stock locations and sales channels and identifying which products or stock-keeping units are moving fast and which ones are slow moving is a tough job. It is almost impossible without a state-of-the-art multichannel inventory management system that integrates all the channels together. Read on to find out what fast-moving stocks and slow-moving stocks are, how to identify such stocks, and how stock movement impacts the business.
What are fast-moving and slow-moving stocks?
Fast-moving stock is merchandise that sells within a couple of days and does not hold inventory storage space for long. On the other hand, slow-moving stock is that merchandise which simply stays locked up in the store’s space and has a low sales rate. It generally includes inventories which are greater than three months old.
For instance, in a retail outlet of apparels, sundresses would be fast-moving stock, whereas woolen pullovers would be slow-moving stock during summer months. On the flip side, woolen garments would be a hit during the winter months and get sold out within a few days.
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How to identify slow-moving inventory in multichannel retail?
Below are three common ways to identify slow-moving products:
1. Average days to sell the inventory
The time that a retailer takes to buy inventory and turn it into a sale is known as the average days to sell the inventory. This metric is important for every retailer to understand which products are fast-moving, and which are slow-moving. With this stock analysis knowledge, retailers can make better decisions such as placing purchase orders, merchandising, stock optimization, finalizing items that need to be restocked, and the like.
A product that has a lower number of average days to sell the inventory is a fast-moving stock, whereas a product that has a high number of average days is a slow-moving stock.
For optimizing the use of this metric, retailers must fix a particular date before which the inventory should be sold, which may also be based on the market trends, quality, and quantity of the products.
One particular caveat for multichannel retail is that we need to look at this data channel-wise as well. For example merchandise might be selling well online but not offline. In this case it is a trigger to retain the SKU in your catalog but promote it more online. We also need to check if the offline sales team has the knowledge to sell the product in the physical stores where customers might be expecting a demo or trial.
2. Holding costs
The costs incurred for storing and maintaining an inventory are known as holding costs. These include real estate costs such as rents and bills, storage costs, insurance premiums, maintenance charges, staffing and equipment costs, and the like. For instance, a forklift truck used to move the stock in a warehouse is a holding cost.
These costs seem to be negligible at first, and thus, are overlooked often. However, these costs could have a negative impact on a retail business in the long run. Thus, these costs need to be considered while deciding on a suitable business model for efficient retail inventory management.
It is well-known that physcial stores have a higher per square foot rental cost than offline warehouses and dark stores. For multichannel brands, it is an advantage as they can always keep a high percentage of their inventory in their warehouses and keep only a limited stock in the physical stores. In this case the replenishment of the store inventory at a frequent rate and an efficient manner becomes important.
Products that have high holding costs are generally slow-moving stocks, and those that have low holding costs belong to the fast-moving inventory. We can also look at the holding cost for the inventory in terms of rental per piece sold. I.e. Rent paid til a piece is sold. In this case the relevant per unit rent has to be multiplied by the average days till sales to arrive at this metric.
In the case of marketplace warehouses and 3PL warehouses, you get the storage cost easily as you get a monthly bill that includes various charges that includes the inventory holding cost. But normally this is not expressed as per piece. If your items have significant volumetric weight differences, then it might be a good idea to check the allocation of large items vs small items in the warehouse or store.
3. Inventory Turnover
The number of times an inventory is sold and replaced in a fixed time is known as the inventory turnover or stock turnover. Evaluating stock turnover helps retailers in understanding the rate at which a product gets sold out.
A high inventory turnover rate indicates that the product is sold out as quickly as it is acquired. On the contrary, a low turnover rate indicates that the particular product is much slower to move off the shelves.
With the help of this metric, retail businesses can identify the merchandise that is resulting in low profits and operational inefficiencies.
For multichannel businesses, they should look at channel-wise inventory turnover for each product as well as overall inventory turnover. This again provides an insight into which product is doing well overall for the business and which one is doing well in certain channels only.
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How does the movement of the stock impact the business?
Cash flow is essential for any retail business to run smoothly. A large sum of the capital, resources, and manpower are required for maintaining slow-moving stocks. Moreover, these stocks occupy a huge storage space, until they are sold out. Consequently, retailers are unable to reinvesting these valuable resources in other aspects of the business for further growth. This is how the movement of stocks profoundly impacts the business.
For multichannel retail, inventory optimization by using a pooled inventory as far as possible for online retail as well as for offline retail is of utmost importance. This is where an integrated multichannel ready inventory management system, warehousing solutions and ecommerce order management for multichannel ecommerce plays a very crucial role.
Retailers need to focus on identifying slow-moving and fast-moving stocks. Using a multichannel inventory management, warehousing, POS and ecommerce retail software solution like Ginesys One would help retailers in tracking inventory movement in real-time and tracking these metrics to ensure that they can make informed decisions in acquiring products that help in the growth of the business.