Illiquid assets are a financial hole for any business. They do not bring profit, and their cost price is constantly increasing. Shopify development services specialists tell how to eliminate them.
Causes of illiquid assets
The main factor leading to the accumulation of inventory is errors in demand forecasting. The business owner does not take into account the preferences of buyers and the influence of external conditions.
For example, goods of an unknown brand were purchased or no attention was paid to their quality. Seasonality also plays a role. Swimsuits purchased in September for regions with a moderate climate will be stored in a warehouse until May of the following year.
It is important to remember: the period of demand for certain product categories can be only a few months. This applies to clothing, electronics, cosmetics and even food products.
The second most common reason for the appearance of illiquid assets is personnel errors – both in the formation of warehouse stocks and due to insufficient analysis of the external environment and target audience.
Options for getting rid of illiquid goods
The first thing that usually comes to mind when it is necessary to sell off the remaining products is to organize a promotion or discount. This method is really effective. However, in some cases, illiquid goods have to be sold at a price below cost. Yes, this is a loss. But if the products continue to remain in the warehouse, the costs of storing them will only increase.
The second is the return to the supplier. Paradoxically, many of them find it easier to redirect products to regions with higher demand.
Pros of the solution:
- freeing up the warehouse for relevant goods;
- return of part of the funds;
- minimization of costs for maintaining illiquid assets.
The downside is that the goods can only be returned at the purchase price. This is unprofitable.
The third option is the “1+1” promotion – when buying one unit, the customer gets the second one for free or at a discount. This method helps:
- quickly sell off illiquid goods;
- stimulates demand;
- attracts the attention of buyers to the assortment of the online store.
The disadvantages of this method include advertising costs, difficulties in calculating profitability, and losses. But the latter can be greater if the goods remain in the warehouse.
Fourth – selling illiquid goods to other entrepreneurs. What was not in demand in your region may be in demand in another. Pros of the solution:
- additional income;
- freeing up space in the warehouse;
- new business connections, which is always useful;
There is only one minus: it takes time.
Fifth – charity – you get rid of illiquid assets and improve the image of your company. The advantages of such a solution:
- improvement of the company’s reputation;
- PR;
- tax benefits.
The disadvantage is the difficulties in organization and loss of income.
And finally
The last way to get rid of illiquid assets is disposal. This is a difficult decision, it cannot reduce current losses. But at least new ones will not arise due to warehouse downtime and servicing of illiquid assets.