If you run a retail or ecommerce business, you’ll have to keep a careful eye on your stock to make sure you can meet all your orders on time. But what happens when products just won’t sell? This is known as dead stock – find out how to manage this issue with our guide.
What is dead stock?
Dead stock is inventory from a retail business that has never been sold. This doesn’t include returns. Dead stock is also very unlikely to sell in the future without a considerable and costly push – it might be defective or have hardly any demand.
A very simple example is a dated or seasonal product – anything marked ‘Christmas 2024’ is not going to sell come January 2025, and festive foods will probably have expired by the following year.
Winter coats won’t be in demand in the spring, and styles may have changed by the time it grows cold again. Tech products purchased because you expect to sell more items over the festive period will depreciate in value as the next big thing hits shelves. If you do manage to sell them next year, you’ll probably have to cut prices considerably to move them on.
Why is dead stock a problem?
Dead stock is a problem because it costs a retail business a lot of money and unexpectedly affects your cash flow. Firstly, you’ve invested in inventory that isn’t going to deliver d the returns you expected, and is just sitting in a warehouse or store.
This means you can’t use the money tied up in dead stock to purchase products that might sell better, meaning you miss out on profits from future sales. Your bottom line may have even been higher if you’d chosen other products that were easier to sell.
Smaller businesses might struggle to pay employees, manage utilities, or invest in marketing activities if considerable capital is stuck in dead stock. Actually storing these products also comes at a cost too. The time spent managing the stock could have been spent on something more profitable and productive.
Dead stock can cause a vicious cycle for business owners, stalling inventory turnover rates and making sales forecasting more difficult. This can even lead to more dead stock piling up in the future.
What causes dead stock?
To prevent this problem from happening to your business, it’s important to understand what causes it. The main causes for dead stock are:
Over buying or producing
Buying or producing more of a product than you end up selling can leave you with lots of leftover stock.
Then there’s the issue of backorders. It might be that you actually run out of a product before all your orders are filled, meaning you’ll put some items on backorder. The temptation here can be to order or produce too many products that aren’t needed, leaving you with excess inventory.
It can be a challenge to accurately forecast customer demand and find out how many orders you’ll need to fulfil – we’ll look at solutions for this later.
Poor sales and marketing
Even potentially high demand products can go unsold if your sales and marketing efforts aren’t up to scratch. Your product messaging might be wrong, or your web experience might be poor.
Bad quality control
If your product is defective or customers aren’t happy with it (potentially leaving negative reviews for new customers to see before they buy), you might struggle to clear your inventory. Cancelled orders can leave you with excess inventory too.
Long lead times
Long lead times can mean that it takes a while for inventory from your supplier to arrive at your warehouse – with products arriving after demand for them has dipped or ended altogether.
How to prevent dead stock: three top tips
Now we know why dead stock happens, we can take a look at how to prevent it.
Accurately forecast demand
This is an essential part of preventing excess inventory, helping you to predict future sales so you can make informed decisions on how much of a product to create or purchase from your supplier. The best way to do this is using an inventory management system. You’ll want to keep track of things like:
- how quickly products are selling now
- which products are slow moving
- how current demand compares to previous time periods
- wow many days worth of inventory you have left
Read more about inventory management in our guide.
Order products carefully
Using this information, you should be able to set more accurate reorder points to make sure you have enough safety stock to replenish inventory and meet future orders without ending up with lots of excess.
You might also want to purposefully order or create less of a new product to test customer demand, even if this creates a higher unit cost.
Manage your supply chain
Ensuring your supply chain runs smoothly will prevent delays to production and shipping. These can lead to cancelled orders leaving you with excess inventory. It can also reduce lead times, meaning products are ready to sell when demand is still high.
How to get rid of dead stock (profitably)
While ideally you wouldn’t end up with dead stock in the first place, there are ways to get rid of it with some benefit to your bottom line.
- run a flash sale – cutting prices and promoting products via a flash or clearance sale may move some of your dead stock
- send out free gifts – you could add dead stock products to other relevant orders. This will likely boost customer satisfaction – everyone loves a free gift
- make donations – donate your dead stock to charity and help others. This has the added benefit of being tax deductible.
- create brand partnerships – selling or donating your dead stock to another brand is a great way to build brand partnerships. Your products will reach a new audience and you may get reduced or free products back at a late date
- try other channels – this is a great time to double check that there aren’t any new audiences that might appreciate your products. Stock that isn’t selling online might catch a customer’s eye if displayed in store. Or you might find it moves more quickly nowadays on a social media store than on Etsy or Amazon
Ultimately, the aim of good inventory management is to make sure that you have the right amount of stock to meet customer demand. This can help prevent dead stock from happening. However if you do end up with unsold products, there are a few ways to get rid of them without just throwing them away. And you can use your learnings to prevent the problem from happening in the future.
Have you had problems with dead stock? How did you tackle them? Let us know in the comments.
Image: Adobe Stock/Gorodenkoff
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