What does dead stock mean? (And 3 tips to fix it!)
Imagine carrying a really heavy backpack around day in, day out. Sure, you can still move, but lugging it up a mountain will leave you exhausted. Imagine the sensation of dragging that extra weight around… and now imagine your business feeling the same way. Now you’re wondering: What could that additional weight be that’s dragging my business down?
It may seem that your products are selling well, your revenue is increasing, and customers are returning to your store – but somewhere in your inventory, there’s a high chance that with every change of the season, there’s an ever-increasing amount of products that simply won’t sell. That’s what we’re talking about when we refer to dead stock.
Dead stock meaning: How do we define it?
Your dead stock are the products unlikely to ever move from the shelves, and while it may seem that they’re not doing any harm, they’re surely taking up valuable space and finances which can be better put towards growth.
Cost of dead stock examples: What is the true price of holding onto it?
Just think about how much you’re losing through carrying costs by choosing (inadvertently or otherwise) to continue holding onto dead stock. First, there’s the opportunity cost of using precious space to store these products. For every shelf dedicated to dead stock, that’s a lost opportunity to stock up on more of your top selling products. Are the benefits of choosing to hold onto dead stock enough to outweigh the potential of freeing up that space to increase revenue? Probably not.
On top of the opportunity cost, there’s also storage costs to think about. These can take the form of rental costs for warehouses, the money spent on utilities, insurance, security, and equipment… the list goes on. All these inventory costs are supposed to be covered by your revenue from selling your products, but your dead stock isn’t pulling its weight in helping you cover these expenses. Instead, you’re spending money on storing them.
Here are three ideas for dead stock management:
Dead stock clearance tip 1: Bundle it
Bundle your dead stock with more current products, and sell the combination at a discount. You’ll be able to move a high volume of items quickly and get these freeloading dead stock items out of your inventory ASAP. Sure, your profit margins may appear to take a beating, but it’s better to sell-off as much as you can - at the very least you’ll be able to recoup the cost price, and no longer have to manage the hidden cost of carrying these items.
Another way to clear dead stock inventory is to use it as giveaways, gifts with purchase or incentives – for example, creating an offer to get a free gift with every purchase of $100. Everyone likes free things, AND you’re encouraging them to spend more to qualify. Offering good value for money is the best incentive to get customers spending, since not everyone wants to pay full price for items they don’t like enough, but a free gift and/or a big discount will get them spending.
Here’s an idea on how you can do this - Japanese retailers offer customers a “Lucky Bag”, where retailers essentially bundle off all their past-season collections into a mystery bag - sometimes with new stuff thrown in to trigger more spending - and consumers will queue overnight for it!
Dead stock clearance tip 2: Return it to your supplier
You’ve tried to sell your dead stock off at a discount, but customers aren’t really biting. It may be that this stock only arrived recently, and you quickly figured out the products weren’t quite your usual customers’ cup of tea. You’re sure there’s a market out there, somewhere, for purple-sequin trucker-caps, but it doesn’t seem to overlap with yours.
The best option then would be to try to sell it back to your supplier. If it’s still current and there’s enough room in the return policy, you may be able to convince your supplier into taking back the slow moving products. But do prepare yourself for the prospect of making a small loss on returning dead stock to your supplier; what’s likely to happen is they will offer you credit (eg. $5,000 worth of credit for stock valued at $5,000) instead of receiving cash. There’s also a high likelihood you’ll be charged a restocking fee of about 10% to cover any repacking needed.
If that’s the case, then you need to weigh up the ongoing cost (including the opportunity cost) of holding onto the stock if it’s not moving fast, and whether taking a slightly disadvantageous deal is worth the lesson in finding out what your customers won’t buy.
Dead stock clearance tip 3: Donate it
This option is a little more country-specific than the others. Let’s say you’re a clothing retailer in the United States and you’ve just found a carton of dead stock from four years ago lying forgotten in a corner of your warehouse. You’ve got a slim chance of selling it to your customers (if it didn’t sell then, it’s not likely to sell now…) but the contents are untouched. It seems wasteful to throw everything away in the name of spring cleaning your business, but what other options do you have?
The great thing is there are many charities around the world who would be more than willing to accept the stock as a donation. You get to do a good deed by donating to charity, and depending on your tax jurisdiction, you may get to claim a tax write-off!
To enjoy this benefit, you have to make an agreement with the charity, stating that the items were donated at no cost to the charity. Signed receipts by your charity of choice and your business will document the transaction, and you get to deduct the market value of the inventory from your taxes after donation. And if your donations are used directly to care for the ill, needy, or infants, it’s possible that you get even more tax breaks from the tax department. Check with your tax advisor to find out what tax deductions apply in your region.
Moving forward with dead stock inventory management
After you’ve successfully cleared out all the dead stock from your warehouse, it’s time to reduce the possibility of being stuck with dead stock again. To solve this problem, you need reliable inventory system software to know when products are on the verge of “death” so you’ll be able to eliminate them from your inventory before they become dead stock.
Inventory management software allows you better visibility of stock movements. You’ll be able to generate intelligence reports, tracking the performance of all your different SKUs. Through these systems, you’ll be able to find out when something isn’t selling well, and make plans to phase out “dying” products from your store. Running these reports regularly will keep you in the loop when a product is falling out of favor with customers so you can stop reordering immediately.
Inventory and order management software using Intelligence reports can also save you from the panic of dealing with unexpected discoveries of forgotten dead stock. Once you’ve marked out products as “dead” and “dying”, set them aside in a separate section of your warehouse, and you’ll see immediately how much space they’re taking up – space that could definitely be put to better use.