What is Dead Stock? How Does It Affect Businesses & How to Get Rid of Dead Stock Lying in Warehouses in 2022?

The goal of the inventory is to be sold. However, unsold goods may accumulate over time and become “dead stock.” Dead stock is money that isn’t being used and may seriously affect a retailer’s bottom line.

High-profit margins must be maintained through offloading dead stock, but as eCommerce businesses grow, challenges with inventory optimization occur. Dead stock builds up over time due to a lack of inventory management methods and procedures.

A healthy firm typically has 15% dead stock (or less) in its active inventory. However, for direct-to-consumer (DTC) brands, that figure often rises to over 33%. This locks up cash and significantly raises operational costs.

This post will go through what causes dead stock, how to get rid of it, and how to keep earnings up. We’ll also discuss how to avoid dead stockpiles with proper inventory management.

What is Dead Stock?

Inventory that a business believes will be hard to sell is known as dead stock or dead inventory. Items that do not sell as well as anticipated are out of stock. Dead stock can also refer to faulty, out-of-date, out-of-season, or damaged products.

The most frequent types of dead stock are seasonal items that are no longer in demand. In some circumstances, they are unlikely to be sold before their expiration date and are wasted. In addition, they only occupy valuable warehouse space that might be utilized for goods that sell quickly as a consequence. Slow-moving inventory thus has some high hidden costs.

Types Of Dead Stocks

There are several types of dead stocks that a corporation may encounter. Each of them may be traced back to specific events and may necessitate a different method of dealing with them.

Outdated Inventory

Obsolete inventory is products that have not been utilized or sold in a long time owing to a lack of demand. In many respects, inventory may become outdated. For example, in the clothing and electronics sectors, new trends and models frequently replace old ones. When the holiday season is over, a firm may find an abundance of unsold holiday-themed products. A manufacturing corporation may employ other materials or components in a product, leaving the replacement items on the stockroom shelves to accumulate dust. Poor sales due to bad marketing may force a corporation to discontinue a product line entirely.

Damaged Products

Damaged goods are materials or items that have become useless due to irresponsible inventory handling, production errors, or horrible warehousing conditions. For example, a pallet with an imbalanced load may tumble off a forklift, the malfunctioning gear may render some materials worthless, or a leak may spoil a batch of items that must be kept dry.

Expired goods

The food business is the most vulnerable to product expiry. However, some industries, such as medicines and chemicals, require makers and distributors to keep track of expiration dates. Rigid restrictions in businesses that deal with expiring items necessitate organizations meticulously track the expiry dates of their inventory, which may be accomplished with tracking software.

Defective Products

Items that have not been explicitly damaged at your facility but are flawed in some way are considered defective products. These flaws can occasionally be traced back to the supplier, but they might also result from engineering or design flaws at your factory.

Unused Inventory

Inadequate inventory management techniques may result in items being stocked and forgotten. For example, if inventory is not adequately accounted for, a corporation may order more stock without realizing that useable products remain in the stockroom. Forgotten inventory is frequently still usable, although it can also become outdated in specific instances.

How Does Dead Stock Affect Your Business?

Dead stock costs money and depletes essential resources in your firm. This should be self-evident to you and your staff. Aside from replenishing your discount department, there is little benefit to keeping merchandise hanging around your store or warehouse (not a good thing).

Here’s a closer look at dead stock inventory’s three immediate adverse effects on your business.

Dead Stock Has a Multiplier Effect on Your Business Finances

Dead inventory strains your budget and additional resources exponentially. Not only do you lose the initial investment in the unsaleable goods, but you also lose the margin you were expecting to gain from selling them.

If finished goods remain on your shelves across your business, you’re also losing out on prospective sales of other products. This is less critical for online stores, but it might significantly impact your inventory, or the eCommerce platform charges you per SKU.

Having outdated, undesired, out-of-season things polluting your physical and online store is a poor reflection of your business. 

Dead Stock Limits Future Growth Prospects

From the previous point, slow-moving stock can be detrimental to future development prospects. We’ve demonstrated that it’s a drain on your already-thin margins and scarce resources. The harmful consequences extend not just into the present but also to the future.

Your investment in dead stock represents additional funds that could have been used to test another product, replenish a proven product, or increase your marketing efforts. Unfortunately, these wasted chances are keeping you from reaching your full potential.

Dead Stocks Takes Up Warehouse Space

Another critically limited resource that slow-moving stock influences are your warehouse or general inventory space. Dead stock incurs carrying expenses on top of eating into your valuable and limited space, whether you have proper storage, a vast closet at the rear of your business, or just your storeroom floor.

Depending on the nature of the items, the amount left over, and your warehouse storage plan, your slow-moving stock may necessitate additional insurance coverage.

These actual retail wastes of space can also accumulate over time and increase your labour costs. With little room and too much dead stock, retailers drive staff to get inventive to navigate inventory counts and order pulls correctly.

What Causes Dead Stock?

Understanding what causes dead stock to accumulate in the first place is essential for avoiding it. If you can find out what’s causing the dead stock to pile up, you’ll be in a better position to move it out and prevent it from piling up in the future. The following are some of the most common causes of dead stock.

Over Ordering

Ordering excess inventory without knowing how much you’ll sell at a particular time is the quickest way to accumulate dead stock and increase carrying expenses.

It might be challenging to determine how much inventory you will require to satisfy future demands. There is a delicate line between having too much and too little stock. Still, by devoting effort to setting up an inventory management system and tracking important distribution indicators such as turnover percentage, you may make better decisions regarding inventory replenishing, how much inventory to buy, and when to acquire it.

Another way businesses can reduce over-ordering is to purchase fewer items more frequently. For example, you may reduce the danger of gathering dead stock by purchasing inventory to meet a month’s need rather than a year’s demand.

Erroneous Demand Forecasting

Future demand is underestimated when the relevant data is not tracked. As a result, eCommerce firms are in the dark about which goods are popular and how quickly they will sell. Rather than acquiring slow-moving items that take up warehouse space and affect your bottom line, you may need better forecast demand by getting precise prior order data. Furthermore, if you have accurate inventory forecasting, you may decide how much inventory to purchase to meet future needs.

Ineffective Marketing and Sales Efforts

If you offer a high-demand product and your inventory isn’t moving as quickly as you’d like, it’s probably due to a lack of marketing and sales activity; this is a significant potential expense. Furthermore, poor communication between you and your sales and marketing teams on selling goods, incorrect product messaging, a poor online experience, and a lack of consumer comprehension can lead to high-demand products being unsold.

Inadequate Quality Control

Even though the inventory is brand new, it does not mean high quality. To maintain proper quality control, it is critical to establish a solid working relationship with a recognized manufacturer or supplier. This guarantees that adequate quality control standards are in place before acquiring other items.

How To Avoid Dead Stock?

Dead stock is an inescapable part of the retail industry, especially if you’ve been in business for a few years or more. A few additional Christmas items here and there aren’t going to bankrupt your company. However, you are harmed by big over-orders and under-sells.

There are several techniques for reducing this risk. There are also a few efficient methods for relocating unsaleable objects, such as just giving them away.

Strengthen Your Inventory Management System 

Inventory management software levels the playing field when preventing dead stock. Your inventory management system offers the same fundamental automated, measurable, and analytical features used by major retailers to avoid dead stock. The underlying inventory control technologies are the same, but the feature set and specialized employees are much different.

On-hand inventory throughout your business and warehouse sites, sales monitoring and forecasting, supplier management, and accurate, automated reordering capabilities are essential inventory management tools that assist reduce the risk of dead stock.

Aim Low, Miss Low

You may minimize dead stock by placing fewer orders with your suppliers or producing fewer products if you are in charge of manufacturing. This is particularly vital for those annoying seasonal things, and it’s also crucial if you want to test a new product on your clients.

Aim low and miss low by having a modest stock on hand in case the product fails or a small number of missed sales while you’re waiting to restock in case the product succeeds.

This tactic is priced because you’ll miss out on manufacturer savings for purchasing bulk. However, it’s a minor, temporary cost to bear to demonstrate the feasibility of a new product.

Examine Your Purchasing Procedures

Maintaining a minimal inventory is a specific strategy to guarantee that the risk of amassing finished goods is as low as possible. You can do this by introducing just-in-time inventory policies or placing more frequent orders for smaller volumes. Effective communication with your suppliers is crucial regardless of your approach.

Utilize Precise Forecasting

To maintain ideal inventory levels and prevent dead stock, distributors and make-to-stock manufacturers must do accurate forecasting. Forecasting gathers data from all organization sectors to identify demand patterns and provide information about when to purchase extra stock. Therefore, it is advised to employ software, such as an ERP/MRP system that gathers substantial volumes of data throughout your company to provide precise projections.

Examine Incoming Products

You have the opportunity to find any non-conformance early on by inspecting arriving products, at which point you may ask your suppliers for a refund or a replacement shipment. However, it is challenging to demonstrate to your suppliers that the issue was on their end if you do not discover that the supplies or goods are defective till they are on the factory floor or, worse yet, in the hands of a consumer.

Utilize Inventory Management Methods

Most inventory situations need tried-and-true inventory control procedures like ABC analysis, safety stock, reorder point, First-in-First-out, etc. These techniques allow you to manage your inventory operations by offering a clear framework for inventory management, replenishment, and consumption.

By classifying your inventory goods according to their consumption value or frequency, ABC analysis enables you to deploy resources or arrange your stockroom physically more effectively.

A mathematical method of keeping buffer stock is called safety stock. It gives you the ideal amounts of excess stock to keep on hand.

Calculating the inventory levels at which you should restock your products is called the reorder point. When an SKU’s quantity reaches the reorder point, it is time to order or make more. Reorder point and safety stock work well together.

First-in-First-out (FIFO) is a strategy for consuming inventories. You will drink stock lots in the order they were brought into inventory if you stick to it. This is an excellent method for managing goods that have an expiration date.

Utilize ERP/MRP Software to Organize Your Inventories

ERP/MRP systems with integrated buying modules and inventory management software have quickly become necessary in manufacturing and distribution companies. Companies that manage their inventories, process orders, plan production, schedule jobs, handle accounting, and other functions using spreadsheets or several isolated systems recognize that these antiquated systems and procedures impede their ability to expand. Instead, companies may design efficient communication methods, produce precise timetables, and quickly maintain their inventory using a single piece of software for everything, including expiration date tracking.

Spend on Marketing

You run the danger of poor demand for your items when you are not visible to your target market, which increases the likelihood that your inventory may go out of stock. While word-of-mouth advertising is excellent for gaining customers, employing other media to spread the word may considerably boost sales, enhance inventory turnover, and improve cash flow. The secret is to be visible where your target audience congregates, such as gatherings, print and online periodicals, internet forums, social media platforms, etc.

How To Get Rid Of Dead Stock in 9 Easy Ways?

There are various strategies to save the situation if you find yourself in a dead stock position where inventory occupies an excessive amount of space in your warehouse and badly impacts your balance sheet. Also one can sell the dead stock in order to get rid of dead stock and free the spaces in the warehouse.

Offer Customers a Free Gift

When you offer products, increasing the order value by giving customers a free present encourages them to buy from you. As an alternative, you might please customers by surprising them with a gift. This will improve the customer experience and increase the likelihood that they will make another purchase from you.

This may be an excellent marketing strategy, whether you use surprise elements or gifts with purchase promotions. It provides an additional incentive to purchase, which should ultimately increase your conversion rates.

Recent research indicated that shoppers preferred “freebies” over “discounted merchandise,” which shows how useful this may be. For example, customers chose the “33% free” offer over the one that offered a 33% reduction off the usual cost of a particular brand.

Combine Products

Like free presents, you may utilize product bundles to boost an order’s perceived value. Multiple things are bundled together and sold at a discounted rate. These are often goods with a common theme. The combined cost is frequently less than what a customer would have to pay if they had bought each item separately. Offering complimentary gift wrapping or a bag or container, such as a cosmetics bag, to put products in can also increase the perceived value of a transaction.

Pair surplus products with best-selling items to employ product bundling to remove dead inventory. Even if you don’t profit from these things, they will no longer take up valuable storage space.

Promotional Sales

You might hold a sales event advertising all of your finished goods on the website and making sure it’s accessible in your physical and mortar shop locations to shift finished products swiftly. Please make sure you use email wherever feasible to inform them about the offers.

Even while you won’t necessarily raise your profit margins by doing this, you will create some cash flow and free up space on those shelves so you may stock them with more lucrative products.

Start modestly when discounting, such as with a 20% discount, and increase the values if it doesn’t work. Customers might feel a sense of urgency from flash deals, but make sure it has a significant impact. This will help you sell off different products and expand your clientele.

Send Goods Back to The Provider

This is a simple solution to the problem of deadstock. To discover if you may return any dead merchandise, contact a supplier. They might not fully reimburse you for the consignment, but they could agree to repurchase specific inventory at a reduced cost. While not ideal, at least you may somewhat mitigate your losses in this situation.

Remember that you’ll likely have to pay both postage and a restocking charge, and it’s doubtful you’ll be reimbursed for the shipping fees you previously paid.

In addition, a vendor could give you credit rather than a cash return. In this situation, you must determine if a supplier or quality fault is to blame for the deadstock. It seems logical to resolve this right away. Make a case for returning it if they offered you a product that wasn’t appropriate for your market. Your providers should work to maintain your satisfaction since they want to keep you as a client.

If you have only had the stock for a short period—say, let’s a month as opposed to a year—you have a better opportunity to improve the situation. But, first, verify that the products are in brand-new packaging and are not damaged.

Dead Stock Donations

Growing numbers of customers consider a brand’s corporate social responsibility (CSR) when determining whether or not to buy from them. Research supports this, showing that 52% of customers think producers are responsible for the planet’s future.

According to a recent Mintel research, three-quarters of American consumers are influenced by a company’s philanthropic giving activities.

People feel as if they are helping their community when they participate in charitable endeavours, and they also help a company’s reputation. In addition, giving away finished goods enhances consumer perception of your business and qualifies as a tax deduction when you file your accounting.

Given how simple it is to donate brand-new clothing, fashion stores have a solid chance to give dead stock to charities. Finding a charity to work with and donating the extra merchandise to their worthwhile cause are the only two steps required. Always follow the correct documentation requirements, and if you need assistance navigating the tax write-off procedures, contact a registered tax professional.

Look For Collaboration Possibilities

Any connections you may already have with other brick-and-mortar stores or e-commerce enterprises might be helpful regarding dead stock. Discuss the most significant applications for a dead stock item with them.

Relationships may take many various forms, so be aware of that. For instance, you may try to collaborate with another retailer to develop a co-branded product package. Or plan a jointly funded “garage sale.”

Sell Products on Online Stores

Although it will take some effort on your part, selling extra stuff on Amazon, eBay, and Etsy might be a wise option. If you haven’t already, you’ll need to take product photos, create product pages with descriptions and SKUs, and upload your products. Make sure to read the instructions before registering because each marketplace has its restrictions.

Resell Your Products

Unsold inventory may not always be a result of the product itself. Instead, it could have something to do with how the products were positioned or advertised. Updating products with fresh merchandising and marketing initiatives might be worthwhile in this situation. When you have a physical presence, one method to achieve this is in-store.

It can be enough to move some things about or rearrange the shelf to give them a new life. Items may be made more aesthetically pleasing and offer a better shopping experience for customers by installing fresh, bright signage and changing worn-out price tags.

Rephotographing items for the website is another option, and if you run a blog, you could write a post outlining the product’s benefits. The reward might be worthwhile even if it requires additional time or resources.

Consider Liquidation

You can choose to liquidate your surplus inventory by offering it to businesses that buy only dead stock products. It’s doubtful that you will make money this way as these firms are known to “cherry-pick” products and offer to buy your stuff for a significant discount. Nevertheless, at least you’ll be giving the company more room and money.

Conclusion

Several things, including shifting consumer expectations, ineffective inventory management, and straightforward spoilage, can result in dead stock. On your warehouse shelves, though, the product lines are accumulating dust. As a result, the most potent businesses put forth a lot of effort to keep dead stock to a minimum.

Several tactics may be used to reduce the danger of dead stock. Two include enhancing inventory control and paying greater attention to consumer expectations. However, if you come across lines that are moving glacially slowly, act right away. Dead stock can be eliminated by giving it as presents, donating it to a good cause, or selling it for less than it is worth.

Dead Stock Management With Inventory LogIQ

By regularly monitoring and controlling inventory levels to ensure you have just enough inventory to satisfy demand, InventoryLogIQ helps avoid reduce dead stock.

By monitoring usage and demand, and automatically determining the best time to restock inventory goods, advanced inventory management software at Inventory LogIQ may enhance forecasting skills—this aids businesses in avoiding retaining surplus inventory that can remain on shelves permanently. In addition, leading software solutions enable organizations to track things through their complete life cycles to identify product quality concerns and facilitate inventory management across different locations.

It can be challenging for firms of any size to avoid dead stock. For various reasons, including uneven ordering patterns, economic downturns, and quality related issues, businesses may end up with dead stock. However, strict product-quality standards, keeping track of client demand, and inventory management software can help firms reduce the danger of dead stock with Inventory LogIQ.

what is dead stock_inventorylogiq offerings

Dead Stock: FAQs