If you are already working within or planning to enter the ecommerce space, it’s crucial to be aware of one of the most significant obstacles you may encounter: dead stock.
If you haven’t already guessed it, today, we’re dishing out all you need to know about dead stock, its potential causes and what you can do with it.
There’s no time to waste when you’re trying to transform your dead stock into a business that is alive and well, so let’s get started!
What is dead stock?
In retail and ecommerce, dead stock refers to the inventory that doesn’t sell, with a lower to minimal likelihood of selling in the future.
Essentially, manufacturers could use the term dead stock to describe a wide range of scenarios. Most commonly, though, it consists of inventory that has experienced lower demand for an extended period and thus is not selling, and likely will not sell, independently. In this way, the product life cycle is getting increasingly shorter.
Deadstock typically comprises new old stock, meaning that it is in prime, new condition but never sold, causing it to be “dead.” So, it isn’t faulty, and there isn’t necessarily anything wrong with it, but it just isn’t selling.
So, this dead stock will remain in a warehouse, storage room or whatever facility it is kept in, taking up valuable space that could be occupied by other, more popular, revenue-generating products.
Typically, an influx in deadstock should trigger a motivation to implement new inventory management strategies to help clear this excess stock and prevent it from becoming a recurring issue.
A primary example of deadstock would be New Year’s merchandise. Namely, unless the world were to enter a weird Ground Hog Day type time-loop, you could only sell products for New Year’s Eve celebrations for any given year one time.
In this case, once January 2nd comes around, all of those items become dead stock instantaneously.
New Year’s is an extreme example because there are no actual alterations to make it applicable for the following year, unlike Christmas or Halloween decorations, which you can store and use again.
What causes dead Stock?
There is no one reason for deadstock generation. It can happen due to a broad spectrum of internal or external factors, such as the seasonal example we provided above.
Additionally, it can sometimes come down to just plain bad luck or higher expectations that, unfortunately, yielded lower-than-expected results.
That said, some consistent themes do arise that could serve as some of the most commonly seen culprits for dead stock.
Ordering inconsistencies
Ordering inconsistencies are what they sound like, orders that are inconsistent.
Ordering inconsistencies can happen when you order too much of something once or place an order at an inopportune time.
One of the most common outcomes of these decisions is overstocking, which, in turn, leads to a higher likelihood of accumulating dead stock.
In instances like these, it’s crucial to understand simple business calculations such as
to manage and generate a better schedule for ordering inventory.
It’s also essential to remain up to date with various ecommerce shipping cycles to gain further insight into current demands instead of relying on inaccurate data when placing orders.
Poor sales
There are several reasons why your ecommerce business is experiencing a dip or loss in sales.
Examples may include your customers choosing not to purchase your product due to influencing factors such as price, finding it obsolete or outdated, or acquiring better offers from your competitors, such as free or same-day shipping.
Regardless of the reason, if you notice that your store or company is having trouble getting products off the shelves or having excess inventory, you could miss out on sales due to competitors offering a better opportunity.
If this turns out to be the case, it’s time to reevaluate your selling strategy and develop plausible and actionable solutions to get rid of this dead stock.
Defective products
We mentioned earlier in this article that most dead stock items aren’t necessarily faulty. However, sometimes they are, which is when things become complicated.
Selling at a lower standard or retailing genuinely defective items will deter customers from purchasing your products.
This is particularly true if these items are of lower quality while also not meeting the necessary industry standards, such as packaging requirements, product specifications, and the accepted quality limits (AQL).
It won’t come as much of a surprise that tainted products will likely end up as dead stock on your storage shelves or in your warehouse.
After all, would you want to be an item or product that’s defective? Probably not. So, it’s not realistic to expect that your customers would, either.
Why is dead stock bad for your business?
As we said, the primary objective of operating a business is to, of course, generate as much revenue as possible and ensure a healthy cycle of selling and restocking.
For ecommerce retailers, inventory that doesn’t sell will sit in a warehouse or storeroom, thereby taking up space that more sellable, profit-making items could otherwise occupy.
With this in mind, we’ll briefly describe examples of how dead stock could be detrimental to your business.
Opportunity cost
As we’ve mentioned previously, excess inventory in the form of dead stock occupies valuable space that could otherwise be filled by fast-selling and more profitable products.
So, not only are you missing out on the potential opportunities to generate revenue, but you’re also decreasing your chance of breaking even by having to pay to store items that will likely not sell independently.
Labour cost
If your dead stock continues to accumulate within your various warehouse or storage facilities, mainly if you use third-party retailers to store your product, the maintenance and management costs for this excess inventory will continue to increase to the point where it costs more to store these items than they’re actually worth.
In turn, you may have no other option than to hire more workers, therefore paying more money for wages, which serves to minimize rather than improve your bottom line.
Overall loss of money
There’s no sugar-coating it: dead stock can get expensive! Think of it this way. You’ve already invested money in buying, shipping and stocking this now non-selling inventory.
The longer it sits there without moving, the more your initial investment will continue to dwindle.
In other words, you’re losing the total landed cost for each of the units. Total landed cost consists of all of the expenses associated with any given product, from the time it’s made to the dunnage that ensures its safe passage to the last-mile delivery and the moment it arrives in customers’ hands.
So, it’s in your best interest to try and implement management solutions to at least attempt to get rid of it somehow to make space for more profitable, better-selling stock.
Dead stock removal – How do you manage dead stock?
If you find yourself in a situation where you need to offload some excess inventory, don’t worry! It’s not all over yet.
You can implement several dead stock management strategies to help free up storage and recover at least a portion of your initial product investment.
Clearance sales
Who doesn’t love a good bargain?
For many, the joy of shopping is to save money and check out the best deals to ensure that you are getting the most bang for your buck.
Hosting a clearance sale is one of the best methods for enticing the penny-pinching market by providing discounts that make your customers happy while helping regenerate some of the cash flow you lost from this dead stock, which, in turn, will make you happy as well.
It might even attract a new pool of customers that will appreciate your lower price point for particular items.
Bundle it
Bundling is another fantastic example of how to gain back some of the money from items that haven’t successfully sold on their own.
With this strategy, you can pair these less successful products with more relevant, top-selling items and offer customers the opportunity to purchase both at a discounted price that would cost them less than if they were to buy each item separately.
Gift with purchase
Along the same line as customers loving bargain products, you can never go wrong with offering something for free!
While this may not be the most effective for getting a return on your initial investment, offering your dead stock as giveaways, incentives or as a customer loyalty program gift with purchase is an excellent way to free up room for more popular inventory.
A gift with purchase, in particular, is a beneficial approach to encourage customers to buy other, more appealing items to receive a free gift by spending up to a certain amount, for example, $50 or $100.
Get rid of dead weight by eliminating your dead stock
Dead stock is an unpleasant reality that many businesses will face at least once. However, there are strategies to help negate the potential for it to become a recurring issue.
Conducting appropriate market research and ensuring that you understand simple business calculations are crucial for ensuring that you are purchasing popular and more likely to sell products.
It also helps make your orders remain consistent, well-informed and allows you to avoid overstocking.
Suppose you are faced with the scenario of having excess inventory. In that case, there are actionable solutions you can take to rectify the issue and hopefully regain some of your investment back, including clearance sales, bundling and offering gifts with purchases.
Additionally, one of the most effective methods for ensuring that your stock is on par with market trends is to implement inventory management software that helps you generate reports concerning what items are top-sellers and which you should reorder.
Finally, even if you think a product will be incredibly successful, it’s best to order a smaller amount and test it out before investing too heavily and losing money.
After all, you’re better safe than sorry!
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