How to Identify Obsolete Inventory in Your Shopify Store

Want to keep track of your Shopify store inventory with ease? Learn how to identify obsolete inventory and make sure your stock is always up to date.

Jaques Cilliers - Writer for Egnition
By Jaques Cilliers
Nevena Radulović - Editor for Egnition
Edited by Nevena Radulović

Updated July 6, 2023.

Obsolete inventory in a Shopify store refers to any leftover products that are no longer in demand or have become outdated and aren't expected to sell in the future.

When your stock becomes obsolete but still features in your store, it can negatively impact your profit margin and harm your bottom line. So, it's important to monitor your store's inventory to find unsold items that may have become obsolete. Let's look into ways to do so and minimize the negative impacts of deadstock inventory in your Shopify store.

3 Ways to Identify Obsolete Inventory

The best way to identify obsolete inventory in your Shopify store and save space and capital is by having an efficient inventory management system for tracking your products' lifecycle and performance. You can avoid holding onto obsolete inventory by monitoring these crucial factors:

1. Calculate Inventory Turnover

Inventory turnover quantifies the speed at which you sell, use, or replace your Shopify store's inventory. The higher your inventory turnover ratio, the better. You can calculate your inventory turnover ratio using this formula:

[Inventory Turnover Ratio] = COGS / [Average Inventory Level]

COGS = Cost of Goods Sold

Tracking your inventory turnover can help you avoid stockouts, inventory obsolescence, and overstocking. You'll be able to easily identify low-turnover products you may need to discount or remove, as well as high-turnover products you can feature more of to suit customer demand.

2. Determine Inventory Days on Hand

Inventory days on hand is a key inventory tracking metric that measures how many days you can expect your Shopify store's inventory to last based on current inventory levels and average daily sales rates. You can determine the number of days using this formula:

[Inventory Days on Hand] = [Ending Inventory Balance] / [Average Daily COGS]

This information will help you determine how quickly your Shopify store's inventory sells. If your inventory levels are low for a number of days, this can mean your products are selling quickly, while high inventory levels can indicate some items have become obsolete. You can use this data to better manage your Shopify inventory and adjust your store's strategy accordingly.

3. Use Lot Tracking

Lot tracking is a powerful inventory management technique that can help you identify your Shopify store's obsolete inventory by dividing your items into groups or "lots" and tracking the sales of each lot separately.

A lot is a group of products that share a common characteristic, such as a production batch, purchase order, or expiration date.

By implementing lot tracking in your Shopify store, you can group inventory by production or expiration date to easily identify the items that haven't sold when expected and have become obsolete instead. This approach can also help you more easily check whether the items in each lot are in compliance with regulatory requirements.

» Want to monitor inventory levels by lot? Track them in Shopify

Keep Track of Your Shopify Inventory With Ease

Identifying obsolete inventory is crucial for maintaining your Shopify store's financial health because holding onto obsolete inventory ties up valuable resources, takes up storage space, and can lead to reduced profitability.

To identify obsolete inventory in your Shopify store, you should monitor several key indicators, including inventory turnover, inventory days on hand, and lot tracking. In case you didn't manage to prevent obsolete inventory, this will help you flag down slow-moving or stagnant inventory and decide on ways to get rid of it, minimizing financial losses.

» Discover how to get rid of obsolete inventory quickly and efficiently

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