How to Identify Unprofitable Ecommerce Products Retrenchment

Are you pouring resources into products that drain your ecommerce business? Learning how to identify unprofitable ecommerce products retrenchment is a critical step to boost profitability and streamline operations. In the fast-paced world of online retail, especially in markets like India’s booming ecommerce sector, businesses must act swiftly to cut losses and focus on high-performing products. This article equips business leaders with actionable strategies to pinpoint underperforming products, backed by data and expert insights, ensuring your ecommerce venture thrives.

The Costly Challenge of Identify unprofitable ecommerce products retrenchment

Unprofitable products erode margins, inflate operational costs, and tie up valuable resources. In ecommerce, where return rates can soar as high as 16.5% in some markets, identifying unprofitable ecommerce products for retrenchment becomes a priority. High return rates, excessive shipping costs, and low sales velocity often signal products that harm your bottom line. For Mumbai’s D2C brands, where competition is fierce, addressing these issues is crucial to stay competitive. The opportunity lies in using data analytics to make informed decisions and pivot toward sustainable growth.

Step-by-Step Guide to Identifying Unprofitable Products

• Step 1: Leverage Data Analytics for Granular Insights

Data analytics is the backbone of identifying unprofitable ecommerce products for retrenchment. Tools like Google Analytics, Shopify Analytics, or custom dashboards can provide SKU-level insights. For instance, a Mumbai D2C fashion brand might discover that a specific clothing line has a 30% return rate, far above the industry average of 16.5%. By integrating cost data, inventory levels, and sell-through rates, businesses gain a clear picture of profitability.

Expert Insight: “Data-driven decisions are non-negotiable in ecommerce. SKU-level profitability analysis allows retailers to pinpoint products that drain resources,” says Priya Sharma, a Mumbai-based ecommerce consultant.

• Step 2: Analyse Customer Feedback and Returns

Customer reviews and return reasons offer valuable clues. A 2024 study found that natural language processing (NLP) can identify return causes from customer reviews, such as poor fit or quality issues. For example, a D2C electronics brand in India might find that a specific gadget has frequent returns due to unclear product descriptions, signalling a need for retrenchment or improved marketing.

• Step 3: Benchmark Against Industry Standards

Compare your product performance to industry benchmarks. For instance, furniture typically has lower return rates than apparel, which can hit 20-30% in ecommerce. If a product’s metrics deviate significantly from these standards, it’s a candidate for retrenchment.

• Step 4: Conduct a Cost-Benefit Analysis

Evaluate the total cost of maintaining each product, including production, storage, shipping, and marketing. Products with high costs and low returns on investment (ROI) should be flagged. A McKinsey study suggests that retailers focusing on SKU-level profitability analysis can reduce negative-margin sales significantly.

Prioritise and Act

Rank products by profitability and impact. Create a retrenchment plan to phase out or reposition unprofitable items. For example, a Mumbai D2C skincare brand might discontinue a low-margin moisturiser and redirect resources to a high-performing serum.

Real-World Example: Learning from Global Leaders

Consider the case of ASOS, a UK-based ecommerce retailer. In 2020, ASOS reported that 12% of its carbon emissions stemmed from customer returns, prompting a strategic overhaul of its product offerings. By using data analytics to identify unprofitable ecommerce products for retrenchment, ASOS reduced return rates and improved margins. Mumbai D2C brands can adopt similar strategies, leveraging analytics to streamline their catalogues and boost profitability.

Future Trends in Ecommerce Retrenchment

Looking ahead, several trends will shape how businesses identify unprofitable ecommerce products for retrenchment:

• AI and Machine Learning: Advanced algorithms will enhance returns forecasting, enabling proactive retrenchment. A 2024 study highlights machine learning’s role in predicting consumer return behaviour.
• Sustainability Focus: With ecommerce returns producing 15 million metric tonnes of carbon emissions annually in the US alone, sustainable retrenchment strategies will gain traction.
• Hyper-Personalisation: Using AI to customise product recommendations can reduce returns, as seen with companies like Stitch Fix, which leverages consumer feedback to refine offerings.

Actionable Recommendations for Business Leaders

• Invest in Data Analytics Tools: Adopt platforms like Tableau or Power BI to track SKU-level profitability and return rates in real time.
• Enhance Product Descriptions: Clear, detailed listings reduce returns by aligning customer expectations. Include sizing charts, material details, and high-quality images.
• Optimise Shipping Strategies: Offer tiered shipping options to avoid absorbing costs on low-value items.
• Engage Customers Post-Purchase: Use surveys or NLP to gather feedback on returns, identifying patterns for retrenchment.
• Regularly Review Product Portfolios: Conduct quarterly audits to ensure your catalogue aligns with profitability goals.

Conclusion: Seize Control of Your Ecommerce Future

Identifying unprofitable ecommerce products for retrenchment is not just about cutting losses; it’s about building a lean, profitable, and sustainable business. As India’s ecommerce market surges toward $150 billion, Mumbai D2C brands and global players alike must harness data analytics to make bold, informed decisions. The future belongs to those who act decisively will your business lead the charge?

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