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Aug 30, 2022

Dead Stock Inventory Management: How to avoid it

Inventory purchasing is an investment that sometimes may not generate profit. For any business, it’s crucial to ensure to stock profitable products in inventory and reduce what is not selling. We have discussed the ways of dead stock inventory management that can help you prevent such losses.

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What is Dead Stock?

Inventory that is unsellable and has been held for a long time is known as dead stock. Products turn into a dead stock because of poor quality, excessive quantity, or lack of market demand. This can greatly affect the profit margin of a business and therefore effective dead stock inventory management is required to manage this situation.

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What are the Common Reasons for Dead Stock?

Retailers often fail to recognize the main reasons behind the dead stock. We have enlisted the major causes behind dead stock that you must address timely.

Common Reasons for Dead Stock

Inconsistency in Ordering

Ordering inconsistency causes dead stock when products are ordered at the wrong time or in large quantities. You can easily avoid this by following an effective ordering schedule. Inventory Turnover Ratio, Economic Order Quantity (EOQ), and Reorder Point (ROP) can help you in this regard. By using these calculations, you can effectively manage different areas of your order management strategy.

Sales Cannibalization

Cannibalization happens when retailers sell two or more items that are too similar. And when consumers prefer a specific product over the other, retailers may end up having dead stock. This is a situation that arises due to consumer behavior and product popularity. The popular item may affect the sales of a similar item and leaves retailers with dead stock.

Poor Sales

This is a no-brainer as poor sales will ultimately leave dead stock in your inventory. The pricing or quality of a product can greatly impact its sales. Also, if products are outdated or old-fashioned, they may fail to attract customers. Similarly, an item may not perform well and end up in dead stock if its competing items are more tempting.

Defective products

Poor quality is one of the major causes of dead stock. Consumers don’t buy items which lack quality packaging and do not match their product specifications. A defective product which fails to match market standards often ends up in dead stock.

Manual Inventory Management

Retail businesses which manage inventory manually or are always at risk. Manual tracking leads to human errors which can cause inventory issues. You may lose track of stock including the total number of units present and incoming inventory shipments. 

This is where an inventory management system can help you out. It can assist you in identifying poor-selling products and inform you about the right time to reorder a certain item.

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Impact of Dead Stock on Revenue Streams 

Dead stock greatly impacts the revenue streams of retailers. This is a bad investment that hurts businesses in a number of ways. Below are some ways how dead stock affects the overall business cost.

Monetary Loss

When you have dead stock in inventory, there’s a great chance that you’ll end up losing the total landed cost. This includes the purchasing cost as well as the investment made in terms of insurance, taxes, and duties. Then there are transportation, handling, and crating fees. Since the merchandise cannot earn profit for you, you’ll have to bear this monetary loss.

Storage Cost

Storing products is expensive, let alone keeping them there for a long time. Retailers often have to pay more than their stock value (up to 30%). So, any product which has a higher carrying cost is an expense for retailers.

Opportunity Cost

This is the cost that retailers have to bear for choosing a product at the loss of its alternatives. When you have dead stock, you cannot make a profit by putting them in your store. As a result, your investment is withheld which you may have invested in other profitable products.

Higher Employee Expense

Retail businesses employ staff to manage and monitor their inventory. Having dead stock means excess inventory which requires more maintenance. This means a higher employee expense on managing items which aren’t going to make a profit for you.

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How to Avoid Dead Stock

Knowing the common causes of dead stock and its impact on the revenue stream is essential. But it is crucial to know how you can avoid dead stock as a retailer. Taking care of the problem beforehand is always better than solving it.

Below are some effective dead stock inventory management ways that you should consider to avoid such a situation.

Survey Customer Needs

Understanding your customer’s needs is the key to the retail business. You will be in a much better position to avoid dead stock if you know what consumers are purchasing. For this, you need to follow market research and conduct surveys. We recommend you get feedback from your customers about your retail items.

A customer survey can help you meet the requirements of your customers. You can identify potential issues and know what type of products your consumers are more interested in.

Test Products

If you are starting a new store or purchasing a new product, we recommend you do testing. Display products in small batches and see how your customers respond. This will provide you with useful data that you need to invest in the right items before you go large-scale. 

Ensure Product Quality

One of the major causes of dead stock is product quality issues. People don’t like and buy items which they find dissatisfied. So, if you are ordering products in bulk, make sure there are no damaged items. By maintaining quality, you’ll be building trust and your consumers are more likely to buy those products.

Monitor Slow-Moving Products

Regular monitoring of stock can help you avoid dead stock. An early sign of dead stock is the slow movement of inventory. So, try to keep an eye on such SKUs in your inventory. Your first goal should be to get rid of these items and then identify the causes. This practice will help you make an effective inventory management strategy for the future.

Invest in Inventory Management System

Managing the stock and monitoring SKUs is a tedious task. Especially, if you are handling the inventory manually, you may lose track of information. An inventory management system can help you avoid dead stock at early stages. Not only you’ll get information about the slow-moving stock but the system also helps you make informed decisions. 

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How to Reduce Dead Stock Inventory 

Avoiding dead stock requires a proactive approach but what if you have dead stock on your hand?

In such a situation, you’ll surely want to know how to reduce dead stock. The good news is that it’s possible to reduce dead stock inventory. However, you have to put in an effort and come up with an effective inventory strategy.

You can get rid of dead stock and recover some of your investment by:

  • Bundling it with other products offered collectively
  • Donating dead stock to charity for a tax write-off
  • Selling it to consignment stores
  • Giving dead stock away as gifts with purchases
  • Selling dead stock to close out and liquidate retailers

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9 Ways to Turn Your Dead Stock Inventory into Sales

With effective stock management, you can evade dead stock but there is no guarantee that you’ll never face such a situation. This is something that can happen to any retail business. Fortunately, there are some ways to clear dead stock from an inventory.

In case you are unaware of how to sell the dead stock, the below approaches will help you do so.

Sell as Bundle Products

You can improve the perceived value of orders by bundling products. You can position dead stock as valuable items by bundling them with popular products. Customers will be happy to buy more items at a low collective cost. This means you have to make a sacrifice on profit margins. But on the bright side, you’ll be able to clear your dead stock.

When bundling dead stock, try to group products that have a common theme. This will improve the perceived value of bundled items and consumers will be able to sell quickly.

Clearance Sales

Another easy way to sell a dead stock is through clearance sales. This involves hosting a sales event on unsold items only to get rid of the dead stock. The best way to sell quickly is to let consumers know that you are selling at lower prices. This can be done through advertisements (outdoors, in newspapers, and online). The trick here is to advertise your clearance sales in as many ways as possible.

Of course, you’ll not be getting much profit margins but you may sell dead stock at purchasing price. We recommend you start by offering a smaller discount e.g. a 15% discount. Make the discount bigger with time on your dead stock in case the clearance sales offer isn’t working. You may not end up earning any profit after clearance but will have the space to place profitable products in inventory.

Sell on Marketplaces

A part of dead stock inventory management is to find ways to clear dead stock without bearing the loss. You can try selling such products on other marketplaces to a new audience. Selling slow-moving or dead stock inventory on platforms like Etsy, eBay, and Amazon is a good idea.

Sell on Marketplaces

This way not only you’ll have the chance to sell dead stock but can also expand your customer base. However, the practice requires effort if you don’t have a website or technical expertise. This is where a quick commerce solution can come to your rescue. You can utilize such a platform to establish an online presence for your retail business online and keep track of sales.

Refresh or Re-Merchandise

Sometimes the reason why your items are not selling isn’t the stock itself but its presentation. The way you position stock in your multi-store chain business can have an impact on sales. So, you must try to reposition items to ensure whether it’s the stock or poor marketing.

You should try switching shelve arrangements or the location of stock within your store. Another way of remerchandising is to use creative price tags. You can also put bright signage or display the product’s advantages to make it appealing to the customers.

Offer as Free Gift

Offering gifts is a great way to provide customers with a pleasant buying experience. With a freebie item, you can surprise them and increase their order value. But this is also an effective approach to get rid of your dead stock. You can offer dead stock as a free gift to your new or loyal customers.

Search for Partnership Opportunities

Another way to turn dead stock inventory into sales is through partnership. If you are unable to sell the dead stock, work with other retail businesses. This is where you can take advantage of your existing relationship with other retailers. You can work with them to formulate a strategy to move dead stock and make a profit together.

Retailers can turn dead stock into profitable inventory by partnering up. You can do so by organizing a co-sponsored seasonal sale or creating a co-branded product bundle.

Consider Liquidation

Liquidation is a dead stock inventory management strategy that many businesses follow. Retailers sell their dead stock to organizations who are specialized in selling such items. They will buy products from you at lower prices than your purchasing cost. So, you are unlikely to earn profits but this will allow you to free up inventory space.

Return Items to Suppliers

Another way to rectify your dead stock is to return products to the supplier. This is somewhat like liquidation where instead of contacting an organization you reach out to the supplier. They may be interested in taking back the dead stock but may not agree on a full refund. Also, suppliers often don’t take back the whole stock from retailers.

This is not an ideal way to reduce dead stock but you can cover some loss. However, bear in mind that suppliers won’t return what you’ve already paid them. Moreover, you’ll have to bear the shipment cost as well as the restocking fee.

Many suppliers don’t offer monetary refunds and purpose retailers to take credit instead. We recommend you consider the cause of dead stock before accepting credit from the supplier. If it’s the supplier issue behind the dead stock, accepting credit is not a suitable option. You should ask for a refund because you may again face a dead stock situation due to supplier issues

It’s wise to make a case before you contact the supplier to return the products. Make sure the stock is not damaged, its packaging is fresh, and it’s been sitting in your inventory for a long time. Suppliers don’t take back items that you have purchased a few months ago unless they’ve sold you the wrong products.

Donate Dead Stock Products

This may surprise you but donating is an effective dead stock inventory management approach for large enterprises. This not only helps you get rid of the stock and make space for profitable items but also strengthens your brand’s corporate social responsibility (CSR).

Today’s customers tend to buy from businesses that are into charitable work. According to futerra, 88% of consumers in the US and UK are of the opinion that brands should play their part in making the world a better place.

According to futerra

Donating your dead stock is a good approach to building relationships with customers. Moreover, you can use the donation as a tax write-off to cover your loss. So, it’s a win-win situation which will also earn you a good reputation. 

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Manage your Inventory with XStak

Retailers need modern solutions to manage their multi-store business and keep track of inventory. That’s exactly what XStak’s inventory management system offers to medium businesses and large enterprises. Our all-in-one, omnichannel inventory system lets you track inventory in real-time across multiple platforms.

With XStak’s inventory management system, you can keep an eye on the slow-moving stock. It lets you identify potential dead stock early so you can develop an inventory management strategy accordingly. You can sync inventory between multiple physical locations and online stores and display your offline inventory online thus reducing your inventory carrying costs. You can generate reports to monitor stock. Thus, you get to make informed decisions based on product performance and can avoid dead stock.

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FAQs

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What is the difference between dead stock and obsolete stock?

Obsolete stock and dead stock are similar terms used to refer to inventory products that are unsellable. These items are called dead or obsolete because they aren’t in demand now. Since the stock is no longer used in the supply chain, they aren't expected to sell.

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How do you deal with dead stock?

To deal with dead stock, you have to implement an effective strategy. You can:

  • Bundle dead stock products
  • Offer them to customers as free gift
  • Use clearance sales
  • Return items to a supplier
  • Sell products on marketplaces
  • Donate dead stock items

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Why is dead stock bad for business?

Dead stock ties up your investment and increases storage costs. In addition, it raises the carrying costs and thus, impacts the revenue streams and profitability.

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How do you account for the dead stock?

If dead stock is present, you must account for it in physical counts. You should count it each month until the dead stock is offloaded. This usually lowers the monthly profitability which indicates why it’s crucial to eliminate dead stock.

Final Note

Dead stock takes a toll on the overall performance of a business by holding investment and taking space. Holding onto such items for a longer time decreases the profit margin. If you don’t know how to reduce dead stock, invest in an inventory tracking technology. This way you can keep track of stock, identify slow-moving items, and can get rid of the dead stock early.

XStak's inventory management system allows retailers to conveniently manage their inventory and optimize stock levels across multiple locations. Get A Free Demo to experience the all-in-one inventory management system.

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