Having surplus inventory for a product means you can fulfill every order without worry. But if that surplus becomes unsellable, it turns into dead stock.
This stock, also known as dead inventory, is a constant reminder of missed sales opportunities and lost revenue. Although incurring dead stock is a cost of doing business, you can minimize the impacts of useless merchandise with some savvy inventory management strategies. Here’s everything you need to know about dead stock, including how to get rid of it.
What’s dead stock?
Dead stock is inventory that retailers have failed to sell and probably can’t sell in the future. There are numerous types of dead stock, including:
- Outdated clothing or items
- Obsolete technology (like older models of products)
- Festive decorations for a specific holiday
- Perishable goods that expired before being sold
Not all items that are out of season constitute dead stock. For instance, a company could sell generic New Year’s decorations the following year. But if your products specifically say “New Year’s 2024,” they’re useless once the holiday passes.
6 common causes of dead stock
Most dead stock issues trace back to subpar inventory control strategies that lead to over-buying or poor sales forecasting. If you don’t have strong inventory visibility and control, you could have some of the root causes of most recurring dead stock issues.
1. Over-ordering
Low stock is bad for the everyday business owner, but dead stock is worse. Although it seems like running out of product is the worst-case scenario, it’s actually investing in product that you can’t turn over. You’ll have a lot of capital tied up in inventory that isn’t selling — or isn’t sellable at all. Remember that anytime you’re tempted to over-order for a bulk discount.
Plus, purchasing too much inventory will push your warehouse toward a 100% utilization rate, meaning you’ll likely overtax your warehouse resources. If customer demand suddenly shifts and you need to increase your inventory of a different item, you’ll lack the flexibility to do so.
A robust inventory tracking and forecasting tool that takes the guesswork out of ordering ensures you’re buying the optimal amount of product, even accounting for seasonal changes in demand.
2. Inaccurate demand forecasting
Inaccurate forecasts can cause you to overestimate demand and over-order. Remember, your forecasts will only be as good as the data you use to create them. Make sure your data quality and forecasting processes are sound.
First, gather as much good-quality data as possible. Check your records and inventory wherever it’s stored, whether that’s a physical stock log, internal database, or a spreadsheet. Then, store that information in a centralized platform equipped with analytics tools to track how your actual sales compare to your forecasts. The more accurate you can be before purchasing inventory, the better.
3. Long lead times
Lead time refers to how much time passes between starting and completing a process. A good lead time for an online retailer to process an order and ship a product to a customer might be one week.
If your lead times exceed your target threshold, your customers are waiting too long to receive their orders. Apart from customer dissatisfaction from lengthy waits, long lead times can contribute to order-processing delays that cause your products to expire, resulting in dead inventory. In other scenarios, long lead times might cause customers to cancel orders, leaving you with extra inventory.
When examining your lead times, compare them to your efficiency goals and industry standards to figure out how to get products to customers faster.
4. Poor sales
When sales don’t align with your projections, dead inventory is often the result. The question is: What happened? You’ll have to research to see if a marketing misstep, poor pricing, or another issue led to over-projected sales.
5. Defective products
Damaged inventory or defective products are a sign of poor quality control. In some cases, you can return defective products to your supplier. If not, you’ll have to get creative to offload your extra inventory and recoup some of your lost profits.
6. Order cancellations
Canceled orders can create a logjam that holds up your picking, packing, and delivery processes. This means you’ll have to remove the canceled orders from the workflow and might need to spend time restocking or reorganizing. Regardless of what led to a canceled order, your company must manage inventory that you can’t sell, creating waste.
Why dead stock is bad for your business
Once you’ve purchased products and written off your losses, dead inventory will no longer impact your business, right? Unfortunately, that’s not always the case. The longer dead stock sits in your warehouse, the greater your losses. Here are a few ways that unsellable inventory hurts your bottom line.
Storage costs
Whether you own your warehouse or lease one, you pay good money for your storage space. Dead inventory eats away at your total capacity, preventing you from bringing in useful products that you can actually sell.
Increased employee wages
Dead stock can’t sit there forever. Eventually, your staff will have to move it. And if you plan on holding onto it for a while, they’ll probably move it more than once. Every time they have to sort through dead inventory, you’ll owe your workers more billable hours. And that takes away from time they could have spent more productively fulfilling orders, cycle counting, etc.
Negative impact on cash flow
You purchased dead stock in hopes of selling it for a profit. Once it dies, however, your cash gets stuck in limbo. Throwing out the inventory likely means accepting defeat and absorbing losses, hurting your cashflow.
Damage risks
The longer inventory sits in your warehouse, the higher the likelihood it gets damaged or otherwise degraded. One of your employees could bump into it, moisture may damage the packaging, or it could deteriorate on its own.
Lost opportunities
Dead stock is a constant reminder of a lost opportunity to make a profit or at least break even. Although your original sales window might have closed, offloading most dead inventory could minimize your losses. That’s why it’s important to be proactive when you have extra stock lying around.
Depreciation of products
While most merchandise won’t lose much value in a few weeks, it’ll depreciate if you hold onto it for months. This is especially true of products that see constant tweaks or modifications. Consumer electronics are a good example, as manufacturers tend to release new models once or twice a year.
The real cost of dead stock
Calculating the true cost of dead stock can be tricky, but it’s important to understand how much money you have tied up in unusable inventory.
First, you’ll need to multiply the total units of stock by the per-unit price to reveal your initial dead stock value. Next, determine all other expenses related to creating or obtaining that stock, such as labor, raw materials, transportation, and storage costs. These calculations will help you better understand how much money is at stake and how best to address your dead stock.
If you only have a few thousand dollars in dead stock, using the items as a gift on orders or donating them might be your best approach. The perks you’ll unlock from these strategies offset most of your losses, appeal to customers, and help you get rid of dead stock quickly.
Giving the items away may be too detrimental to your bottom line if you have tens of thousands of dollars of dead stock, so you’ll need to choose another strategy that offers you any profit while getting rid of it.
7 ways to get rid of dead stock and make profit
Offloading dead stock is challenging but far from impossible. If you only have a small amount, you can probably offload all or most of it using just one of the strategies outlined below. However, if you have hundreds of units of dead inventory, you’ll probably need to leverage several different approaches to recoup some of your money and ditch your unsellable stock.
With that in mind, here are seven of the best strategies for eliminating dead stock.
1. Run a sale
Running a flash sale is a great option if your initial sales volume needs to catch up to your projections. Hold a clearance event or add dead stock to the discount section of your website. Just make sure you act fast — the longer you wait, the harder it is to sell excess items.
2. Offer dead stock as free gifts
Offering dead stock as free gifts can encourage your customers to buy more of your other products. When running a gift offering, set a minimum order value that customers need to reach to be eligible for the gift to maximize your profits and offset your losses.
3. Donate unused goods
As a business owner, you can use donated goods as an inventory write-off. While you won’t achieve an immediate payout, you’ll have an opportunity to give back to your community and reduce your end-of-year tax liability.
4. Offer bundles
Sell dead stock as a bundle with one of your most popular products. This approach can help you recoup some lost revenue, especially if you offer it with a minimum spend, modest discount, or free shipping.
5. Arrange a return
If your dead stock is defective, check with your supplier to see if you can return it. Even if there’s nothing wrong with the inventory, it’s worth asking if they’ll take the goods back. It’s a long shot, but some suppliers will offer a partial refund, saving you the headache of offloading the products yourself.
6. Use partnerships
Consider selling dead stock to another company within your vertical. Who knows? Selling unused inventory to another business that has a use for it could set the stage for a long-term partnership.
7. Get creative
Sometimes, there are no obvious answers for turning over this inventory. In these scenarios, you’ll need to get creative. You might open a new sales channel, market to a niche audience, or consider running a contest and giving away the dead stock units as a prize. Whatever helps you purge the inventory is worth trying.
How to avoid dead stock
To avoid dead stock, you need sound inventory control strategies in place. Optimizing every detail makes your ordering and delivery processes as frictionless as possible to limit wasted merchandise. To do this, you’ll need a robust inventory management solution that provides real-time visibility into your current stock levels.
It’s also important to keep a close eye on consumer trends. When you monitor buyer preferences, you can better adapt to shifting demand. For instance, if a once-hot item is fading in popularity, scale back your order volume while you reassess the market to minimize the likelihood of being left with dead stock.
Additionally, you’ll need well-trained staff and smooth workflows. Even if you’ve got great inventory tracker technology and a sound inventory plan, diligence is key to optimizing inventory control. Staying focused on strengthening your inventory management strategies limits your chances of accumulating dead stock and losing revenue.
Say goodbye to dead stock with Fishbowl
To avoid investing in a product you can’t sell, you need a precise inventory management system. Luckily, Fishbowl’s cloud-based software can help you stay nimble and adapt to ever-changing demands while keeping a close eye on your inventory, warehousing, and manufacturing solutions.
Plus, you can take advantage of Fishbowl Warehousing, our all-in-one vendor management and purchasing optimization platform to oversee warehouse operations with ease.
Ready to experience Fishbowl for yourself and stop dealing with dead stock? Book a demo today.