What is dead stock? Everything you should know
If you’ve ever ordered merchandise that has sat in your stockroom taking up space for longer than expected, you’ve experienced dead stock.
This inventory puts a strain on retailers and eCommerce stores, eating up valuable space in the warehouse, on the sales floor, and in your budget.
Fortunately, there are a number of ways to combat dead stock. In this guide, we’ll cover everything you need to know about solving this issue.
What is dead stock?
Simply put, dead stock is surplus inventory that hasn’t been (and most likely can’t be) sold. This inventory has never been worn, used, or sold before, and has been on shelves or in the stockroom for an extended period of time.
Dead stock is not the same as excess inventory ordered for a specific purpose. The difference lies in the expectation for sale. If you know a certain product is hot right now, and you buy extra, that isn’t dead stock.
However, if the product is no longer sought after and it becomes apparent that it will never sell completely, then it becomes dead stock.
It’s also worth noting that “dead stock” should not be confused with “deadstock”. The latter is a term used to refer to discontinued or vintage items, such as a pair of sneakers that is no longer available but still has the original tags and packaging attached. Unlike “dead stock”, “deadstock” is often more valuable.
Why is dead stock a problem for businesses?
Dead stock can be a major problem for retailers for several reasons relating to sales performance as listed below.
Every item in your inventory has a cost associated with it. If you can’t sell the item, you can’t recoup the cost. Ultimately this results in both the loss of the item’s cost and any potential revenues you might have made from it.
Increased holding costs
Storing and maintaining merchandise is expensive. Warehouse space, insurance, and other costs can quickly add up, and this is even more true of dead stock, which is likely to remain in storage indefinitely.
Reduce inventory space
Dead stock takes up space that you could be using for more profitable items. This applies both on your sales floor (as you attempt to sell it) and in the stock room.
Increased opportunity costs
Dead stock doesn’t just eat up its own cost — it also puts a lock on cash and inventory space that could be used on a better-selling item.
Higher overhead expenses
When considering the cost of keeping dead stock, you also have to consider the secondary and tertiary expenses associated with maintaining excess inventory. These include payroll expenses for time spent maintaining the stock, as well as the previously-mentioned storage and holding costs.
What are the main causes of dead stock inventory?
Dead stock can have a number of causes, from inaccurate forecasting to sudden changes in consumer demand. Let’s explore some of these causes in detail.
Low consumer demand
One of the most common causes of dead stock is a lack of customer demand. You’re providing the product, but for whatever reason, people just aren’t buying it.
There can be several reasons why this happens. If you know the category is hot, it could be that competitors are offering either a superior version of the product or a better price. It’s also possible that the market has simply moved on — this can happen suddenly and unexpectedly.
Inaccurate inventory forecasts
When ordering products, most businesses try to forecast their needs as accurately as possible. And often, you can get quite close to your expected target.
Unfortunately, sometimes forecasts go wrong. If you order too little product, you lose sales. However, if you end up ordering too much, the result is dead stock.
Poor-quality merchandise is a common way to end up with dead stock. Defective products can arise from manufacturing issues, such as poor quality control or a bad batch of ingredients. They can also be a result of improper shipping or storage.
Depending on the defect and the product’s manufacturer, you may be able to return these for repair, replacement, or reimbursement. If the defect is only cosmetic and doesn’t impact the use of the product in any way, you might also be able to sell them at a reduced price.
No inventory management system
One of the leading causes of dead stock also happens to be entirely preventable — a lack of a proper inventory management system. If you’re managing inventory in spreadsheets, or manually keeping track of incoming and outgoing items, you’re exposing your business to unnecessary risk.
A lack of an inventory management system means you risk over or underestimating your orders, with the added potential to miscount what stock you have on hand. This can lead to wastage and dead stock.
Selling similar products
If you sell multiple products that are too similar to one another, you can end up in a situation where a product can cannibalise the sales of another. The less-popular product in these cases can end up as dead stock.
How to avoid dead stock
It’s hard to completely avoid dead stock, but there are a number of things you can do to minimise the problem.
Invest in inventory management software
One of the best ways to avoid dead stock is to invest in an advanced inventory system. By automatically tracking receipts, sales, returns, and other metrics, these applications can help avoid errors that can lead to dead stock.
Additionally, many inventory management programs feature smart forecasting that estimates how much inventory you’ll need over a given period, making your job easier in other ways.
Identify slow-moving products
It’s important to keep an eye on items that you notice are selling slower than expected. In particular, look for items that are selling below forecast levels — these are the products that eventually end up gathering dust in the back of your stockroom.
Again, inventory management software can help identify these products. A lower-tech method is to use colour-coded stickers on items in the stockroom — this gives a quick visual indicator of what’s been hanging around a while and might need some extra attention.
Confirm product quality before bulk purchasing
Do a test run before ordering large quantities of any new item, even if you have experience with the supplier. This helps ensure you don’t get stuck with excess inventory that’s cheap, defective, or otherwise unsaleable.
It’s also not a bad idea to have strict policies in place to vet new vendors. Unfortunately, some companies are less reliable and trustworthy than others — having a process in place to ensure quality can help avoid major headaches down the line.
Automate purchases and reorder points
Automating your ordering process is an excellent way to ensure that you always have what you need in stock. It can also help eliminate human error from the process. If you’ve ever ordered 1000 of something instead of 100, you know exactly what we mean. This is yet another powerful reason to invest in inventory management software.
Analyse customer needs and seasonal trends
Finally, make sure you’re actually ordering products people will buy. Look over historical data and trends for products and even entire categories and use this analysis to inform your purchasing decisions.
How to get rid of dead stock
Identify the sources of dead stock inventory
The first step in formulating a plan for dead stock is to identify the sources.
Sometimes smaller dead products can hide on crowded shelves and in dark corners of stockrooms. This is where your inventory management system can come to the rescue. The best software will provide tools or alerts for slow-moving items.
Ask suppliers for a buyback
Once you’ve identified your dead stock, the first step you should take is to reach out to vendors and suppliers to ask about options.
The ideal scenario is a full refund on the items, though that might be a stretch. Still, you might be able to get something back, even if it’s a credit or partial refund.
Run sales promotions
One of the quickest ways to clear out dead stock is to heavily discount it. If you know stock isn’t likely to move, and you need to clear it out to make room for other products, you can discount it as much as you need.
Donate dead stock and get a write-off
If you’d rather try a more charitable tactic, you can also consider donating your dead stock. Not only is this a great way to help out the community, if you donate to a charity you may be eligible for a tax write-off.
Sell dead stock on large marketplaces
A creative way to liquidate a large amount of stock is to list it on a marketplace like Amazon or eBay.
If you’ve never sold on one of these marketplaces before, it can take a little work up front to get set up, but it’s a solid way to move a lot of stock. It also has the advantage of being able to reach customers outside your local retail area.
Bundle dead stock with other products
Everybody loves a deal, and a clever way to move both dead stock and some additional products is to offer a bundled deal.
For example, let’s say your dead stock is toothpaste. You could bundle that with toothbrushes or other hygiene items at a slight discount and potentially push sales of both products.
Re-merchandise dead stock
Finally, it’s entirely possible that the product itself isn’t the problem — it could simply be the merchandising strategy you’re using.
Perhaps the pictures need to be refreshed on your website, or the item needs to be in a different part of your store that better suits the target market. Don’t be afraid to try new things in order to make the products look more appealing.
Reduce dead stock with inventory management software
Dead stock is a major problem for every retailer. Whether you sell online, operate a brick-and-mortar store, or both, maintaining enough inventory without getting stuck with it can be a challenge.
Inventory management software is one of the best ways to mitigate this problem.
This type of software offers a number of benefits:
visibility into what’s selling — and what’s not selling
automatic stock updates as items sell to keep inventory accurate
automated ordering of merchandise helps to eliminate data entry errors
powerful analytics provide insight into sales and inventory figures, as well as projections for future sales.
Don’t let dead stock drag your inventory down. Get all these features and more with MYOB's inventory management software.
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