The New Year Inventory Detox
Table of Contents
January inventory is brutally honest because all those guesses made in October and November, all those forecasts about what customers would want during the holiday season, are now history. You see exactly what sold and what didn't. Most companies are going to do what they do every year: hope that March brings demand and hold on to slower items "just in case." The successful businesses ask themselves a harder question: What if this stuff was never worth stocking in the first place?
This is the real power of a January assortment review: not panic-clearing overstock from the holidays but realizing your assortment choices were incomplete and taking that realization to make a better decision on the go-forward. In-season, you made educated guesses on which products belonged in your range. Some guesses were right, some catastrophically wrong. January gives you the data to tell the difference, and more importantly, it allows you to stop wasting capital on items that never should have been in your assortment.
Dead stock costs you roughly 20-30% per year in carrying costs. When that inventory carries tariff-inflated costs of 10-35% above pre-duty prices, the capital destruction accelerates. Every day a non-moving SKU sits in your warehouse ties up capital that could be deployed toward items that actually generate profit. In a tariff-inflated environment, this isn't a nice-to-have cleanup; it's a financial imperative.
The fundamental reality of assortment management is stark and well-documented: roughly 80% of revenue comes from 20% of products. But the profit picture is even more extreme. While that 20% of bestsellers might generate 80% of revenue, the remaining 80% of your assortment often generates only 5-10% of profit, or worse, negative profit after accounting for handling costs, markdowns, and obsolescence.
This is not a theoretical observation. Companies find time and again that ABC classification reveals that C-category items, those that move the slowest, represent 50-60% of total SKUs, but only 5-10% of total value. These are the items that take up disproportionate warehouse space, tie up capital, and spawn endless handling transactions, require management attention, and move so slowly that by the time they sell, carrying costs have eaten away or wiped out any margin. Large retailers like Walmart use ABC analysis to determine which products deserve shelf space and investment, making the practice standard for assortment decisions.
First and foremost, the assortment decisions constitute a separate layer from the inventory management decisions. The assortment management would answer, "Which products should we carry?" whereas the inventory management would answer, "How much of each product should we stock?" You cannot optimize inventory levels for those products that shouldn't be in your assortment at all.
If something sold zero in peak season, the one time of the year it could have moved, it most definitely should not be in your product assortment. If something only sold a few units in an entire season where it was available and exposed to customers, it's not earning its shelf space, catalog space, and capital being devoted to it.
Therefore, Q1 (first quarter of the year) is the optimal time to make assortment changes before spring buying picks up, and you are committed to another season with the same flawed product mix.
The Pareto problem
That makes all the difference for both your decision on whether to clean up in January and your future assortment strategy. If a product really doesn't fit your customer base, wrong price point, wrong category, wrong positioning, then you made an assortment mistake when you decided to carry it. You should take it out of your assortment altogether and never make that mistake again.
If the product belongs in your assortment, but you over-ordered quantities of it, you felt demand was going to be 500 and ordered that many when demand was only 50, the mistake is one of forecasting and inventory management, not assortment planning. The product stays in your range but with revised order quantities to meet actual demand.
In 2025, recognizing and correcting these assortment errors has real financial consequences. When tariffs increased the landed costs by 10-35%, every SKU in your range that does not pull its weight today costs more to maintain. The product, which costs $10 per unit pre-tariff and $13.40 with tariffs, generates a 34% higher carrying cost for every unit that remains unsold. If you are carrying 100 units of a product that shouldn't be in your range at all, that is not $1,000 in wasted capital; that's $1,340 in wasted capital, all tied up in an assortment choice that was wrong from the start.
Why this assortment failure matters more now than before?
Cleaning up the assortment in January requires discipline and clear methodology. Three steps serve a different purpose.
The three-step detox
ABC classification will help you segment your product range into value and movement:
A items are high-value, fast-moving products that justify their place in your assortment in general; 20% of SKUs generate 80% of value.
B items are moderate performers that may deserve to continue inclusion.
C items are the slow movers and low-value products. Within the C category, during a January review, you're looking for products that don't justify their position in your range.
Define your assortment elimination criteria clearly:
Zero sales over the last 60-90 days;
Turnover ratio far below category average (which could indicate that the product does not resonate with your customers);
Too low a contribution margin to justify the product's shelf space, catalog position, and handling effort;
Consistent underperformance even in peak season, when demand was very high.
All this analysis is straightforward with a modern assortment management system. Product performance analytics at the SKU level will tell you which items don't justify their place in your range. Similarly, fluentSTOCK Top/Non movers assortment classification supports you in systematically identifying which products belong in your core range and which ones are candidates for elimination.
The task is to find out those products that evidently do not belong to your assortment. Do not trust intuition or assumptions. Trust the numbers.
Step 1: Identify which products don't belong in your range
Once you have identified the underperformers, take the time to understand why each product didn't work in your range. This step separates mechanical cleanup from strategic assortment optimization. The distinction matters because it changes your future product selection process.
For products whose peak season sales are zero or near zero:
Was this an attempt to expand the category? If the category didn't resonate with your customers in peak season, it won't do any better in off-season.
Has this product been positioned poorly for your customer base: wrong price point, wrong features, wrong brand perception?
Did customers constantly opt for competitor alternatives? If so, you chose the wrong product for your range.
For products that had sales, but very slow movement:
Should this product be in your assortment, but at much lower stock levels? This is an inventory management fix, not an assortment fix.
Does this product cater to a very small customer segment, which is not large enough to justify its place in your core range?
Are you over-assorted in this category, with too many similar products competing for the same customer need?
The analysis process also teaches you about the effectiveness of your assortment strategy. If you find that a large percentage of the products added during the past year are non-performers, it tells you that your product selection criteria are too loose or your category expansion strategy is flawed. If some suppliers consistently produce products that don't work in your range while others consistently deliver winners, that's valuable feedback for future assortment decisions.
Understanding the 'why' saves you from the same assortment mistake twice. If the product failed because it doesn't fit your customer base, tagging it as eliminated stops you from re-adding it next year when the same supplier pitches it again. For instance, if the whole product category underperforms, it may be time to exit that category rather than try different products within that category.
Step 2: Know why they failed and what this means for future assortment decisions
Not all dead products are created equal. You have options depending on remaining inventory, customer relationships, and strategic considerations:
Clearance and exit. For those products that you will be removing from your assortment, clearance pricing accelerates the exit. Flash sales, bundling with products staying in your range, or dynamic repricing can move remaining stock quickly. The goal is to free up shelf space and warehouse capacity for products that belong in your range.
Liquidation and bulk sale. On products that have substantial remaining stock, liquidation channels can recover partial value. You won't get the full margin back, but recovering 20-40% of cost clears the product from your range quicker than slow individual sales.
Strategic phase-out. For products with an existing customer base, even if small, phase out gradually, rather than with an abrupt discontinuation. Communicate the change, suggest alternatives from products remaining in your range, and manage the transition deliberately.
Most importantly, formalize the removal from your assortment. Mark the eliminated products with "X" status or "Not in Active Assortment" to avoid incidents where they may still get reordered upon replenishing other products. With fluentSTOCK’s assortment management, you keep a systematic track of which products are within your active range and which have been eliminated. This makes sure that products removed will remain removed unless you deliberately decide to reinstate them.
The "zombie SKU" problem happens when products get removed from active selling but remain in your system as "available to order"; they consume purchasing attention, trigger occasional small orders, and waste effort. Clean elimination means the product exits your range completely and stays out unless strategic conditions change.
Step 3: Proceed with the elimination, take products out of your portfolio
The mechanics of assortment rationalization are no different than in years past, but the financial urgency is magnified by tariff costs. When products were imported at 1.5% tariff rates, carrying underperforming items in your range was expensive but not catastrophic. The same products now carry 10-35% tariff duties, and maintaining bloated assortments accelerates capital destruction.
For example, suppose a wholesaler has 500 SKUs in his assortment. Assume, through analysis, it has been determined that 150 of those SKUs account for less than 3% of the total profit. Before tariffs, each unit of these underperformers cost $20. With today's 25% tariffs, each one costs $25. The assortment carries an average of 50 units per underperforming SKU.
Pre-Tariff carrying cost for these 150 underperforming products: 150 SKUs × 50 units × $20 × 25% annual carrying cost ÷ 4 quarters = $9,375 per quarter.
With-tariff carrying cost: 150 SKUs × 50 units × $25 × 25% annual carrying cost ÷ 4 quarters = $11,719 per quarter.
That adds up to an extra $2,344 per quarter-nearly $ nearly 10,000 annually, just in carrying costs for products that generate nearly zero profit. And this calculation assumes the products eventually sell; if they become dead stock requiring liquidation, the losses multiply.
This financial pressure makes assortment discipline an operational necessity. Every product that stays in your range without justifying its position is costing more to maintain than it did two or three years ago. The ROI on aggressive assortment rationalization is higher because the cost of carrying weak products is higher.
The tariff amplification
Week 1: identify
Run ABC classification on all the SKUs in your product range.
Flag products having no sales in 60+ days.
Flag all products with a contribution margin below your threshold.
Segment the results by category and supplier to identify patterns.
Week 2: understand
Review each flagged product to understand why it failed in your range.
Recognize the difference between "wrong product for our customers" and "right product, wrong quantity."
Observe patterns. Certain categories are always performing worse, while others' suppliers deliver a product that does not fit.
Document findings for future assortment decisions.
Week 3-4: implement
Assign each poor performer to a divestiture path: clearance, liquidation, or phase-out.
Mark products eliminated as "Not in Active Assortment" or "X" status.
Clear the remaining stock through appropriate channels.
Refresh the range documentation to reflect the cleaned assortment.
Ongoing: maintain
Review assortment performance quarterly.
Flag products 30 days in for review; phase out at 60-90 days of underperformance.
Establish clear criteria for the entry of new products into your range.
Track eliminated products to ensure they don't accidentally reenter.
January execution checklist
The January assortment detox is a reset that allows you to enter Q1 with a focused product range, available capital, and warehouse space allocated to products that actually generate profit. More importantly, it's the discipline that will make you more selective about which products enter your range going forward.
When 80% of your SKUs generate only 5-10% of profit, every underperformer in your range consumes resources that should be utilized better toward winners. And when carrying costs are a whopping 20-30% annually, while tariff-bloated products cost 10-35% more per unit, the math for maintaining bloated assortments becomes indefensible.
So use January to cut the tail from your product range. Use quarterly reviews to maintain discipline. Use both to become more selective about which products deserve a position in your assortment. The capital you save can flow toward spring merchandise that actually sells, better supplier relationships with proven performers, and the products that drive profit.
Entering 2026: leaner, more profitable product range
Start 2026 with a lean, focused product range, and maintain that discipline through the year. The difference between that business and one still carrying 30% underperforming SKUs in June is the difference between a healthy, profitable operation and one whose capital is slowly bleeding away into products nobody wants.
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