What is Dead Stock?
Dead stock is the inventory that retailers and e-commerce merchants fail to sell – stock which also has little likelihood of selling in future. Dead stock items are generally housed in a warehouse or the storeroom of a bricks and mortar store. Dead stock isn’t the same as returned stock, since it’s never actually been sold to a customer.
Examples of dead stock inventory includes seasonal items. Goods that feature the words “New Year 2022”, for example, can only be sold for that occasion – they can’t be used after that date has passed and become dead stock instantaneously.
So, we understand the meaning of dead stock, but how does it affect your business? It’s more of a problem for e-commerce businesses without any effective inventory control or inventory management in place. Companies that use robust inventory management systems or software are far less likely to be left with excess stock on their warehouse shelves.
Dead stock can also be termed ‘dead inventory’, ‘obsolete stock’ and ‘excess inventory/stock’.
The Causes of Dead Stock
1. Sales cannibalization
This can happen when retailers are selling different products that are too similar, and customers prefer one brand over another. The popular item can take away from the sales expected for the less popular item, leaving the retailer with dead stock.
2. Poor sales
This can happen if your target market is unimpressed with your product because of the pricing, or because it’s obsolete or out of fashion. Or perhaps because competing products are more appealing.
3. Defective products
Stock may not be selling because it’s of poor quality. This can happen when quality standards are not checked regularly and product specifications or packaging requirements are not being followed.
4. Lack of an inventory management system
Manually trawling through spreadsheets to track inventory can lead to errors in the replenishment process. It’s easy to lose track of how many units you have and accidentally place orders for products you don’t need – or lose track of incoming inventory shipments. Inventory management software can help you identify a poor selling item, and identify the right reorder point for all products.
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How to Sell Dead Stock – 9 Simple Ways
Dead stock is a big problem for any e-commerce business, since it not only takes up valuable warehouse space but acts as a bad investment for the company. Here are some of the main ways you can lose money on dead stock:
- Money lost: You cannot generate a profit from the merchandise you’ve purchased, so you lose the total landed cost for each item.
- Missed opportunities: Since dead stock products have no chance of showing up in front of customers, there’s no opportunity to make a profit, or break even. So it holds cash that could be invested in profitable best-sellers. There’s a high opportunity cost, therefore, to holding dead stock inventory.
- Storage costs: It’s expensive to store products, especially over longer time periods. This includes warehouse space, utilities, insurance, and so on. It’s estimated that businesses can pay up to 30% more than the stock’s value simply in carrying costs alone.
- Higher employee wages: More items on shelves means more maintenance, since e-commerce companies may have to employ more workers to manage the excess inventory. More staff equals more money on wages – money that isn’t going to improve the bottom line.
How to Turn Dead Stock Into Sales
If you happen to run into a dead stock situation where inventory is taking up far too much space in your warehouse – and affecting your balance sheet negatively – there are some ways to salvage the situation. Let’s find out how to turn slow-moving stock into cash.
1. Offer customers a free gift
Offering purchasers a free gift when you’re selling items increases the order value and gives shoppers a good reason to buy from you. Alternatively, you can surprise (and delight!) buyers with a freebie. This will create a positive customer experience and offer a high chance that they will buy from you again.
Whether you offer giveaways with purchase promotions or go down the surprise route, this can be a great marketing tactic. It offers an added incentive to buy and ultimately should boost your conversion rates.
To illustrate how effective this can be, a recent study found that consumers valued ‘freebies’ above ‘discounted items’. Rather than selecting a 33% discount off the regular price of a brand of coffee, consumers favored the ‘33% free’ offer. (And this was despite the fact that the discount offer was actually the better deal monetary-wise).
2. Bundle products
Like free gifts, you can use product bundles to increase the perceived value of an order. Product bundles involve grouping together multiple products – usually items with a common theme – offering them at a single price. The bundled price is often less than the total price a shopper would pay if they were to purchase each item individually. You can also up the perceived value of a purchase by offering free gift wrapping or a bag or container – e.g., a makeup bag to put items in.
In order to use product bundling to shift dead stock, pair excess items with top sellers. Even if you don’t make a profit on these items, they will no longer be taking up precious space in your warehouse.
3. Clearance sales
If you’re wondering how to get rid of dead stock quickly, you could host a sales event listing all your dead stock on the website and ensuring it’s available in your bricks and mortar store locations. Make sure to advertise the discounts to customers in as many ways as possible, including email.
While you may not increase profit margins by doing this, you will be generating a type of cash flow while freeing up space on those shelves, so you can fill them with more profitable items.
If you’re discounting, start off smaller – e.g., a 20% discount – and if this isn’t working, make the discounts bigger. Flash sales can be a good way to instil urgency in customers, but make sure it’s high-impact. Not only can this help you liquidate excess stock, but it’s also a good way to increase your customer base.
4. Return items to a supplier
This is a straightforward way to rectify a dead stock situation. Reach out to a supplier to see if you can return any dead inventory. They may not offer you a full refund for the consignment, however they may agree to repurchase some stock at a discounted price. While this isn’t an ideal scenario, it at least allows you to cut your losses to some degree.
Bear in a mind that you’ll probably have to pay a restocking fee, as well as shipping costs – and it’s unlikely you’ll get a refund on the shipping costs you’ve already had to pay.
A supplier may offer you a credit instead of a monetary refund, too. In this case, you’ll need to examine whether the reason for the dead stock is a quality or supplier issue. It makes sense to work this out quickly. If they sold you a product that was wrong for your market, make a case for returning it. Your suppliers want to keep you as a customer, so they should try to keep you happy.
You have more chance of rectifying the situation to your advantage if you’ve only been sitting on stock for a shorter time – say, a month rather than a year. Make sure the items are undamaged and in fresh packaging.
5. Donate dead stock items
Consumers are increasingly looking at a brand’s corporate social responsibility (CSR) when they’re deciding whether to purchase from them or not. This is backed up by research, with 52% of consumers believing the future of the planet is the responsibility of manufacturers.
A recent report by Mintel revealed that a company’s charitable giving efforts affects three quarters of American’s purchase decisions.
Charitable initiatives give people the feeling they’re supporting their community and also work to support a brand’s image. As well as giving people a good impression of your brand, donating dead stock can be used as a tax write-off when you’re filing your accounts.
Fashion retailers have an especially good opportunity when it comes to donating dead stock to charity, since brand-new apparel is easy to donate. It’s simply a case of finding a charity to partner with and offloading the excess stock to their worthy cause. Always remember to adhere to the proper documentation procedures – and use a licensed tax professional to help you navigate the tax write-offs processes.
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6. Seek out partnership opportunities
When it comes to dead stock, any existing relationships you have with other retail businesses or e-commerce companies can come in useful. Work with them to discuss the best ways of using a dead stock item.
There are many different types of relationships to consider. For example, you could aim to partner up with another retail business and create a co-branded product bundle. Or organize a co-sponsored ‘garage sale’.
7. Sell items on marketplaces
Amazon, eBay and Etsy can be a good place to sell excess items, although it will involve some work on your behalf. You’ll need to create product pages with a description and SKUs, and photograph items (if you haven’t done so already). Each marketplace has its own rules, so check the fine print before signing up.
8. Refresh or re-merchandise
When it comes to unsold stock, it may not be down to the product itself. It may be down to how the items have been marketed or positioned. In this case it may be worth refreshing items with new merchandising and marketing efforts. One way to do this is in-store if you have a physical presence.
Simply putting items in a different location or switching up their shelving arrangements could give them new impetus. Creating new and bright signage, and replacing worn out price tags can make items more visually appealing and provide a better experience for customers.
Items can also be re-photographed for the website, and if you have a blog, you could include a post describing the product’s advantages. While this may involve extra labor or funds, the pay off could be worth it.
9. Consider liquidation
You can go down the liquidation route and sell excess inventory to organizations that specialize in taking on dead stock items. These companies are known to ‘cherry-pick’ goods, and will offer to buy your items at greatly reduced prices, so it’s unlikely you’ll reap a profit this way. That said, at least you’ll be freeing up space and capital for the business.
What Dead Stock Means in Inventory Management
The best way to avoid having surplus inventory is, of course, to prevent this from happening in the first place via good inventory planning.
Paying regular attention to your sales and inventory data is crucial, so you can see how all your products are moving and make the right purchasing and marketing decisions. Staying on top of inventory enables you to get a grip on your merchandise so you can prevent too much stock building up.
What is dead stock inventory management? Here are some ideas to help you reduce dead stock:
- Before investing heavily in a new product, test it out in small batches. You could launch a limited-edition line on your online store or open a pop-up shop to gauge interest. This may look like you’ll need to shell out money upfront, but it can save you a lot of money further down the line.
- Ask customers if they would be interested in a certain product before you buy. Rather than basing product development on gut instinct, use data and research to validate your product-market fit.
- Improve internal communications. Tightly-knit teams, even if across different departments, will ensure everyone is on the same page and things don’t get missed. Dead stock can be down to lack of internal communications.
- Make sure you’re selling quality products. Check your items are of the proper quality and have the right assurance processes. Check out reviews of people who have bought the items – this could unlock the reason behind your dead stock. Re-evaluate your suppliers if they’re found wanting.
Use inventory management software
Using inventory management software with purchase order functionalities and data-driven demand forecasting can help mitigate the risk of building up excess inventory. This can also help you automate the replenishment process and enable you to determine how many units to order based on previous sales data and the KPIs that matter the most to your business.
If you are still tracking inventory manually, it’s time to upgrade your inventory control management processes so you can make smarter decisions. With the right inventory management software you can set alerts to notify you when stock is ageing. Inventory notifications can also alert you of the amount of stock left before you reach extra low levels (based on what you consider low stock levels). Then you can restock before customers notice.
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The right inventory software solution can help you tackle issues proactively, and help you generate accurate forecasts to help you determine reorder points.
Using an all-in-one advanced inventory management system like Brightpearl also gives you the possibility to automate the entire order-to-cash workflow, including inventory allocation, purchasing, fulfillment and invoicing.This is especially valuable when you have multiple warehouses or sell on multiple channels.
By being able to track inventory movement in real-time, you’ll get accurate and up to date reports – and they will help you carry out investment value calculations.
Chief benefits of automated inventory management include:
- Better visibility of stock movements and slow moving products
- Automatic updates of inventory movements
- Ability to track the value of stock and average cost per unit (these KPIs can help you identify whether a piece of inventory is dead stock or not)
- Manage multi-channel and multi-locations easily (know exactly how much inventory you have, where it is, and whether it’s ready to sell)
- Automate repeatable tasks, saving time on inventory control
- Ability to replenish stock via low inventory reports, fulfill goods, and select carriers
- Instant view of inventory financials, with insights into sales performance and costs across all your channels
How can a Company Decide at What Point Stock Becomes Dead Stock?
Stock becomes “dead” when it’s been sitting on our shelves for a long time, but how do you determine what “a long time” means? The answer is that it depends on your business model, the type of products you sell, and their expected sales cycle.
Deciding what counts as dead stock—and spotting the warning signs before it’s too late—is far easier when you have a good inventory management system like that built into Brightpearl. Here’s what you need to take into consideration:
You want to give your customers a wide choice of products, but the more SKUs you have, the more you’re at risk of ending up with dead stock. If you’re going to keep a large product catalog, it’s vital to keep a close eye on how things are moving.
With a comprehensive Retail Operating System, you can bring in data from across your business to help determine which items are profitable. Look at the data on sales, returns, supplier lead times, storage costs, and customer feedback. You can also use this to decide when to add new products or variations.
You can generate a dead stock report by comparing the time SKUs spend in inventory with their expected life cycle. For example, seasonal items like Christmas decorations have a shorter cycle than staple goods that are sold all year round.
After the past few years, retailers can be forgiven for taking a conservative approach to inventory management. Such as the JIC (Just-in-Case) model, where you deliberately keep large supplies of inventory on hand in order to avoid a stockout.
The advantage is that you’re covered if there are problems with the supply chain or an unexpected run on a particular item, but there’s such a thing as being too careful. If the market stays stable, you’ll be left with more than you need.
The key is not to use this method for every product. If you live in a cold region, there’s no point keeping huge stocks of beachwear just in case there’s a heatwave. You could also try keeping smaller stocks of certain items and marketing them as limited-edition runs, to give customers a sense of urgency.
Accurate demand forecasting is essential if you’re going to predict the likelihood of dead stock and order the right number of products at the right time. This means collecting historic and real-time sales data to show which products are most popular, and researching market trends to forecast the next big thing.
You also need access to supplier data (such as which items have a long lead time), and an awareness of the external factors that can disrupt operations. Some of these (like a global pandemic) are beyond your control, but you can watch out for new competitors or changing customer behaviors.
Understanding customer needs and preferences is made easier if your inventory management software comes as part of a platform with a built-in CRM, while a business intelligence feature gives you advanced analytics and reporting to help you identify trends. (Brightpearl has all of the above.)
As we’ve mentioned throughout this article, good inventory management depends upon visibility. If you don’t know exactly what you have on your shelves, you won’t notice when it’s at risk of becoming dead stock. (You won’t be able to create an accurate demand forecast, either.)
If you’re operating several warehouses and physical stores, you need a system that syncs the data each time any inventory is moved, sold, or returned. Look for a solution that tracks inventory in real-time, and alerts you to low or excess stock.
Barcode scanning technology also makes it easy and quick to do regular cycle counts, helping you spot when there’s a backlog of certain items. A built-in POS shows you real-time availability, while robust returns management is important for full visibility. With all those features and more, Brightpearl gives you a 360-degree view of your inventory.
Accounting for Dead Stock in Your Balance Sheet
What is dead stock inventory in accounting? Well, you know how inventory with a regular turnover disappears from your debit column when it’s sold? Dead stock doesn’t do that. It stays in the debit column, and you have to include it in physical inventory counts every month while it sits on your shelves.
As a general rule, inventory that hasn’t been sold after a year is considered dead stock. At this point, you will have to write it off as a loss on your balance sheet. That’s a real blow when you’ve paid a lot of money for those products. So, as well as reducing your profitability month by month, dead stock has an impact on your overall bottom line.
Reduce Incidences of Dead Stock
Dead stock needn’t be a problem for your business, as long as you invest in a reliable inventory management system. Inventory systems can generate reports and track the performance of your SKUs, so you can quickly see when something isn’t selling well.
You can also say goodbye to unexpected discoveries of dead or ‘dying’ stock, and reduce incidences of those items taking up valuable warehouse space. Inventory management technology will also reduce the margin of error and increase efficiencies across the board.