Retail Dogma

Aging Inventory

What is Aging Inventory?

Aging inventory is the inventory that has been received and trading for a long period of time (typically 6 months & above for fashion). The reason age is tracked is because once the threshold of that period is reached (e.g 6 months) this merchandise needs to start being marked down at higher rates, in order to be able to clear it and bring fresh merchandise in place.Aging Inventory Report

Aging inventory report is one of the most important reports to keep track of when it comes to inventory management. The report lists your total stock on hand and segregates it by age into “age buckets“. These buckets can be every 30 days, but typically they are listed every 90 days and would look like this:

  • 0-90 days (i.e below 3 months)
  • 91-180 days (3-6 months)
  • 181-270 days (6-9 months)
  • 271-360 days (9 months to 1 year)
  • 361-540 days (1 yr to 1.5 yr)
  • >540 days (above 1.5 yrs)

The stock on hand is measured at cost value of the stocks. Then another field would reveal the percentage of each bucket to the total stock on hand. 

Why Is It Important To Track Aging Stock ?

Keeping track of aging inventory is important for the following reasons:

1. It Affects Cash Flow

Managing your cash flow is very important, because this is what pays your bills and what keeps your business alive. Also this is the cash you use to buy new merchandise, so when you have too much cash tied up to your old merchandise and not being turned over this is a problem.

2. It Affects Profit Margins

The more inventory you have at higher age, the more discounts you have to apply on this merchandise to sell. This of course will reduce your gross profit margins and consequently your business profitability as a whole.

3. It Incurs Warehousing Costs

Holding stocks actually costs money. The more stock you have, the more warehousing fees you will incur. This is something you need to take into consideration while deciding on the discounts you have to give on aged stocks or when selling this stock at loss. That’s because keeping this stock idle is actually losing you money as well, so it might be better to just get rid of it at any price.

4. It Affects Product Freshness & Newness

Product freshness is what drives both, sales and profitability. The more newness you introduce into your stores, the more traffic you will get from customers who are interested in buying latest trends at full price, rather than bargain hunters.

As mentioned before, having a lot of cash tied to old stock automatically means less cash available to buy fresh merchandise. Basically your OTB will be locked until you clear the old ones and have more money available for buying.

Read more: Open To Buy: The Complete Guide

5. It Affects The Balance Sheet

Your inventory is an asset, and it could be even your biggest asset. When stock gets aged its value on the balance sheet needs to be adjusted to reflect its real value. This is called stock obsolescence provision.

It basically means that a product that costs 10$, but has been there for 2 years is no longer worth 10$. That’s because if we try to liquidate it right now, chances are we have to sell it at loss, e.g 6 $ or even write it off at 0$. In this case its value on your balance sheet has to be reduced (according to provision norms) from 10$ to 6$ or 0$ respectively ,and hence the value of your entire business will also be affected.

Read more: Retailer’s Balance Sheet Explained

How To Improve Aging Contribution ?

Your aging stock contribution can be reduced in the future by applying the following practices:

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More Resources

Thank you for reading this article on Aging Inventory. We recommend the below free resources as well:

Read more articles on Merchandising or join the academy and take our in-depth course on Merchandising & Inventory Management, which shows you the best practices and the different reports to generate and use to manage inventory.

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