For a retailer, the ghosts and ghouls of Halloween are nothing compared to the nightmare of dealing with dead stock. Dead stock covers any product that hasn't had any sales over the past twelve months, and as the seasons change, an ever increasing amount of products are condemned to their graveyards in depths of your storage facilities, unlikely to ever leave the shelves on which they rest. Like the undead, dead stock lurks in the dark corners of your warehouse, forgotten, but still draining the valuable finances that’s the lifeblood of your business. So why do retailers continue holding on to dead stock?
Ultimately, they hope that it’ll eventually be purchased by a customer, but the problem is that these products are taking up precious space in your storage facility, leaving you less room to store more popular items.
On top of the opportunity cost of choosing to keep dead stock over replacing them with fast-moving products, there are still inventory costs to consider.
Money spent on inventory doesn’t just end with purchasing the product; there’s still holding costs you’ll have to bear from renting a warehouse, utilities, staff wages... just think how much you’re wasting every month on dead stock that can’t pay for itself!
To save yourself from the financial strain of continually storing dead stock, you’ll have to figure out how to cut these products from your warehouse. So today, we’ve got three tricks to help you get started on clearing out your dead stock as holiday season dawns, so you’ll have a healthy inventory next year!
With the holiday season coming, this is your chance to clear dead stock through bundle deals. Doing this will allow you to move a high volume of items easily, and while your profit margins may take a hit, just think about all the money you’ve already spent on holding costs.
There are a couple of ways to do this; the first is to echo the Japanese shopping tradition of the “lucky bag”. This allows retailers to sell slow-moving or dead stock by bundling these with more current products, or by simply selling past seasons’ products. The bag is sold for a fraction of the market value of the contents, but the catch for customers is that they have no idea of what they’re going to get. On New Year’s Day 2015, Apple released their lucky bag, announcing that they’d thrown a few 11-inch MacBook Airs into the mix… and the hope of getting one was enough to attract 900 people before the store opened.
Another option is to bundle relevant products together and sell these at a discounted price. For example, a clothing retailer could do a buy-one, get-one offer on separates. Offering good value for money is a surefire way to get customers spending; maybe they’re not too keen to pay full price for items they don’t like enough, but a free gift and/or a hefty discount will get them spending.
Let’s say you’re a clothing retailer in the United States, and you’ve just found out that you’ve got a pile of dead stock from three years ago sitting in a dusty corner of your warehouse. It’s already become obsolete, and no one would be willing to pay for it because it’s totally out of date. However, everything’s still brand new, so it’s a bit of a waste to throw it all away in a bid to get rid of the dead stock dragging down your business.
Sure, you may not be able to sell it any longer… but in the United States, charities will be glad to take the load off you. By donating it to charity, you’re doing a good deed. Better yet, doing so lets you claim a tax write-off.
How this works is: You make an agreement with the charity, stating that the items were donated at no cost to the charity. Following that, receipts signed by the charity of your choice and your business will document the transaction, and you get to deduct the market value for the inventory from your taxes after the donation. And if your donated products are used directly to care for the ill, the needy, or infants, you get additional tax breaks from the IRS.
As the saying goes, “prevention is better than cure”.
It’s unavoidable for items to lose favor with customers as new and better products appear on the market. So how do you know when products are on the verge of “death” and to eliminate them from your inventory before they can turn into dead stock?
Inventory management software allows you to generate intelligence reports on the performance of different products. That way, you’ll always know when something isn’t selling well, and take measures to phase out the product from your store’s offerings. Watch out for products that have sold only a few times in the past year - maybe only one every three months - proof that the product is losing favor with customers. Once products are selling this poorly, it’s time to stop ordering even if the quantity falls below the reorder point. Even if a customer purchases an item off your dead stock list, that one sale doesn’t negate months of slow sales or no sales, so don’t place a new order.
Running and checking these reports regularly will save you from the horrors of a sudden discovery of a pile of obsolete (or, worse yet, expired) stock and the ensuing panic of dealing with these. As soon as you discover “dead” and “dying” stock, it’s time to mark these out. Put these in a separate corner of your warehouse, and seeing how much space they’re taking up can provide the much needed motivation to get these items out as quickly as possible.