What is Dead Stock? (+Ways on How to Avoid It)
Retailers face many challenges in their business, but one of the most frustrating is managing a stock that has been deemed “dead.”
It is essential not to let dead stock accumulate in your warehouse because it will increase the cost of storage and decrease cash flow.
The key to preventing dead stock is understanding what sales or purchase processes led to excess inventory. Pinpointing these flaws can be difficult, but brands need to find them.
I’ve found that many retail companies are unprepared to get rid of deadstock, and they end up taking a substantial financial hit. They should be more prepared for the risk to ensure profit is not impacted.
Deadstock can be a tricky problem for any company to deal with. Finished stocks are the products customers purchased but never picked up or used. This could happen because of many reasons, including customer dissatisfaction.
This article will explore the various reashat dead stock can accumulate, how it is bad for business and what you should do if this happens.
What Does Deadstock Mean?
Deadstock is clothing that has not been sold in a long time and likely will never be. Deadstock typically lives in the warehouse or store’s backroom.
Dead Stock & Your Ecommerce Business
Deadstock is a problem for all businesses, not just brick-and-mortar retail. Deadstock takes up space that could be used to make higher profits or more sales in other products. For instance, within an ecommeCommercee, the deadstock might sit on shelves and end up taking valuable real estate away from profitable items.
Dead stock can impact your e-commerce store in a few ways. If you use third-party logistics or Fulfilled by Amazon, the excess inventory will still be on hand and require storage fees.
Classifications of Dead Stock
Another misconception is that dead stock refers to items returned by customers. In reality, it only applies to products never sold.
Deadstock can come from any product that is not selling well. These products are usually the result of poor design, unpopularity, or obsolescence.
What Causes Selling Deadstock?
I have found that a common cause of dead stock is inadequate inventory management.
A sound inventory management system is crucial for tracking your items and ensuring you have the right amount on hand in retail.
When you know how your inventory is organized, and are in control of it, then the risk for over-ordering products that nobody wants to buy goes down. Click To Tweet
4 Reasons Why Your Business Have Dead Stock
Another reason your business may need to dispose of excess stock is if you have more than enough product. You will often find this in smaller companies or start-ups, but it can happen with larger companies as well.
- If you have a flawed inventory forecast, it can be very costly. For example, if I order too many shirts and then there is an increase in sales for that item the next month, my profit margin will suffer because of all those extra shirts.
1. IInaccurate Inventory Forecasts
- You may have been too confident in your forecasts and ordered a product with high demand. Unfortunately, you can’t eliminate the inventory because it’s no longer popular or is being replaced by something newer.
2. Lack of an IMS
- Using a software program to track inventory can prevent errors when you manually keep records of the product. Errors in your replenishment process could lead to losing count on how many units are available, accidentally placing orders for products you don’t need, or forgetting incoming shipments from suppliers.
3. Sales Cannibalization
- Another possible reason for a stock accumulation of goods is that your business has products with overlapping features. When one product becomes more popular than the other, it’s going to take away from some sales and leave you in a position where neither sells well.
- In the summer, you might have a better chance of selling beach supplies than winter clothes. A store that sells both seasons will have higher demand for their products during certain times.
4. Demand is Based only on Seasonality
- It is challenging to sell seasonal items, mainly because customers’ tastes change from year to year. For example, a product in demand at Christmas time may not be desirable by next December.
Why is Dead Stock Bad for Business?
When we purchase products that will not yield the proper return on investment, it also comes with a high inventory cost. This can be seen as an indirect financial loss.
Deadstock happens when inventory doesn’t sell, and it piles up in warehouses. This has to be addressed immediately because the costs of storing deadstock go way up.
To maximize profit, it is essential not to keep dead stock. Dead stocks take up space that could be used for more profitable products.
When you have dead stock on your shelves, it means that a customer is not going to buy something they would like, and then the opportunity for them to buy another product of yours will be lost. This problem becomes even worse if some of your best-selling products are often out of stock because you don’t have enough space in storage.
There are also expenses and holding costs associated with keeping a product that doesn’t sell. If you aren’t selling anything, these extra costs won’t generate any revenue.
A business can incur significant expenses, such as rent for the warehouse and utilities. You may also have to purchase insurance or equipment to run your company correctly. This is not including storage fees if you are using Amazon FBA distribution which will take a chunk out of any profit you make on their platform.
For businesses with a lot of stock or in charge of their logistics, keeping excess inventory on the shelves can be difficult, leading them to hire more staff for maintenance and management.
When you have more staff or ask them to work overtime to compensate for low productivity, it hurts your bottom line.
How to Clear Out List of Dead Stock Items?
If you find that your inventory is not selling and the cost of storing it is becoming a burden, there are some options for clearing out unsold merchandise. There may be ways to make up at least part of what was lost without taking a total loss.
Bundle it with Another Product
Product bundles are a great way to increase the value of an order, but it can also be used as a means for persuading customers into buying something they may not have been interested in.
This is a common tactic to use when selling something sitting on the shelf for a while. By pricing it cheaper than buying both products separately, customers are more likely to take advantage of this deal and purchase it.
If you’re trying to use product bundling as a way of getting rid of deadstock, make sure that the products are similar and not mismatched.
If a product is slow to move, it could hurt the sales of popular products.
Product bundling is attractive to customers because they find what they need in one package. This means that the company will save on logistics, distribution, and marketing costs.
Some customers may not want to buy a bundled product with another they don’t need.
Offer it as a Free Gift
A way to get rid of your inventory is by offering it as a gift with another purchase. This increases the value and order size, which can help increase revenue.
One way to encourage customers to buy a product is by including it with one related top-selling item or giving the customer something extra, such as spending $50.
If you decide to offer a free gith purchase, make sure the value is not too high. This will help customers feel like they are still getting good value for their money.
Giving customers the ability to give back at checkout can be a powerful motivator. It makes it more difficult for people who want to refuse your product or service because they feel like there is no catch.
The only downside to this system is that you will not recoup any losses on your dead stock.
Clearance Sale it is!
Clearance sales are a great way to get rid of old products that have gone out of style or are no longer profitable. Just slash the prices and advertise them for savings.
There are some benefits to liquidating your inventory. You can clear out old stock that is not selling well, or introduce new products with a better chance of being purchased because customers the considerable savings may customer significantificant
Pros: You can sell products at a lower price, which is helpful for new businesses. Cons: It may be difficult to make the profit margin you initially planned.
Sell the company to another one.
It can be challenging to get rid ogetet our old inventory quickly, but you may want to consider other companies specializing in buying or consigning stock.
Consignment shops are great for apparel companies, but the closeout liquidators market is more geared towards goods-based retail businesses.
I could get back some of the money I had spent on their wages, even if it wasn’t much.
The downside of hiring a store’s staff is that you will still take financial losses, and the employees might not be loyal to your brand. You also won’t get any recognition for having helped these stores out.
Donate the Dead Stock
Deadstock is a frustrating thing to deal with because it’s not profitable, but there are some things you can do. One option would be donating your unused inventory to charity where the items will still have value.
When you give away something torth a lot of money, such as stocks or other investments, and get it approved by the charity, who will take ownership for free before donating them to help others in need. Click To Tweet
This way, your taxes can be reduced.
Your customers will feel good about supporting a charity, and they may even remember your company as one that cares.
The other option is to find a charitable partner where you could offer your old products as part of an incentive or promotion.
You could incentivize customers to purchase your product at a discounted price and have the funds go directly towards helping that charity. You can even offer products for free if you want, but they will be donated to this cause in exchange.
You may not make your money back on the dead inventory, but if you do it right and put in a lot of work to maintain brand recognition, any future sales can help turn things around.