Every business will have to deal with dead stock at some point. It’s an unfortunate truth, but knowing this means you can prepare beforehand. That doesn’t mean you have to plan out every little detail ahead of time, but having a rough idea will go a long way in minimizing your losses.
But we’re getting ahead of ourselves here. First things first, what is dead stock? What does it mean for your business? Is there anything that you can do to avoid it?
What is dead stock?
In simple terms, dead stock is inventory that is not currently selling and will likely never sell. A variety of reasons can cause this to happen. The products could be low quality, expired, out of season, or just no longer “trendy.” Something important to note about dead stock is that it only refers to products that have never sold. This means that it excludes returns.
What does dead stock mean for your business?
Dead stock has a lot of implications for your business. The most important of these implications, however, is that it means your business will be taking a loss. While that’s never fun, it’s something that you’ll have to accept, both now and in the future. It’s an inherent risk of doing business, and there’s not a single company out there that’s never taken a loss. If they say otherwise, they’re lying!
While stocking up on a product that doesn’t sell is already bad, it’s not something you can afford to dwell on. Keeping dead stock will cost your business more the longer you hold onto it. Outside of the upfront cost of purchasing the inventory, there’s a variety of other costs associated with it.
Warehouse space isn’t free, and many will charge extra for inventory that doesn’t sell or move within a certain time period. Not only that, holding onto dead stock means that it takes up a portion of your inventory space. Space that you could fill with products that are actually selling. This might not cause significant loss in the short term, but it can generate tens or even hundreds of thousands in losses in the long term. As a result, you really, really want to get rid of dead stock as quickly as possible. But how are you supposed to do that when it’s not selling?
Common ways of dealing with dead stock
Fortunately, there’s plenty of ways to deal with dead stock. Some of them are more appealing than others, but they all focus on one thing. Recouping as much of the loss as possible. This can show in various ways: tax deductibles, making other items more appealing, and so on. Again, it’s important to remember that once stock stops selling for an extended period, you’re already incurring a loss. All you can do after that is minimize that loss wherever possible. With that in mind, here are some common ways of dealing with dead stock.
Believe it or not, this may be the most attractive option. That may seem at odds with the idea of recouping as much as possible, but donating to charity has quite a few benefits. Depending on the organization you donate to, the donation may be tax-deductible. You may not see the effects until the end of the tax year, but this can easily save you more than any other method. Unfortunately, you can’t donate every type of product.
Bundle it with other products
There’s a couple of ways you can go about this. You can include dead stock as a free gift with a fast-selling product. This can give you an edge over other retailers who are selling the same product and increase overall sales. Everyone loves free stuff, right? You can also include it with other products that would complement it. For example, say you sell external thumb drives and also try selling thumb drive organizers, but the organizers stop selling after a few months. You could buddle the organizers with a few thumb drives, and viola! You have a whole new product offering.
Sell it at a heavy discount
Just because dead stock is, well, dead, doesn’t mean it’s completely worthless. Selling it at a discount can push potential buyers to make that purchase. You can also start at a low discount and slowly increase it until you find a price that sells. This can prove effective but don’t sell your products for more than it’ll cost you to ship. Otherwise, you’re better off recycling or repurposing your dead stock in other ways.
Can you avoid dead stock?
Unfortunately, at some point or another, you’re going to have dead stock. At the same time, there are steps and precautions you can take to minimize that risk. Some will help you reduce the risk of purchasing dead stock, while others will minimize the total loss.
- Using inventory management software can help in more ways than one. On top of providing easy access to your warehouse information, inventory software collects a wide variety of data. Using this data, you’ll be able to automatically compile a number of different reports, ranging from financial to sales numbers. Software like inFlow also includes sales and invoices, creating an all-inclusive basis for businesses to work off of. You can also set reorder points for all your products, ensuring you have enough inventory without over-ordering.
- Avoiding excessively large purchases is the most surefire way to prevent significant losses, but it has drawbacks. Playing it safe is never an outright bad idea, but doing so caps your profits. If a product starts selling quickly, you may find yourself unable to stock back up as the market adjusts.
- Making use of sales forecasts usually involves talking to market experts. Ultimately, predicting market trends perfectly every time is impossible, but having an idea helps avoid dead stock. Sales forecasts also help predict possible market trends, which could help you choose future product offerings to avoid future items from not selling.
- Testing products ahead of time helps avoid ineffective or flat-out defective products. Building close business relationships with your suppliers is essential, but exercise caution when working with new ones. It sucks, but there are suppliers out there who try to dump unsellable products onto unsuspecting retailers.
Every industry is different
Dead stock may be a universal fear, but every industry is different. Some industries are infamous for creating dead stock, like the fashion industry, while industries that focus on high individual-value items tend to keep their inventory low in order to avoid dead stock. New retail strategies like drop shipping also aim to eliminate the risk of dead stock altogether. There are many ways of dealing with or avoiding dead stock, but they may be impractical for your business. It may seem straightforward, but figuring out a method that works for you may require trial and error.