What is Dead Stock?
Dead stock as its name implies refers to the inventory items that are no longer saleable and are not going to be sold in the foreseeable future. As stated earlier these items take up a vast space in warehouses which could be otherwise filled with by-products that have their own customers and can be sold in a fraction of time. Dead stock which is also known as dead inventory or obsolete inventory usually is stored in warehouses or stockrooms of brick-and-mortar stores though this problem is not limited to brick-and-mortar stores and sometimes even affects e-commerce stores.
Why does Dead Stock compile in the warehouses?
Retailers fail to sell their inventories for various reasons and as a result, incur considerable costs due to the existence of dead stock in their warehouses. Following are some of the common reasons for dead stock.
- Inferior Quality of Goods: Customers’ satisfaction usually can be realized through various factors and the quality of the products is one of the main ones. When the product’ quality is in line with or higher than the expectations of buyers, retailers will no longer need to be worried about their inventories but when the quality is lower than expected, the products accumulate in the warehouses and cost a fortune. To avoid the situation they should always monitor the market and be aware of the counterpart products that are provided by their customers.
- Incorrect forecasting about the market: retailers must always keep an eye on the market trends and analyse customers’ behaviour to predict their needs. Failing to do so, retailers could end up with obsolete inventory that is not even at the bottom of the list of demands by customers.
- Out-of-season products: Items including clothing, accessories and shoes have to get out of warehouses before the end of each season and wholesalers usually have their own strategies to free the space of stockrooms for the next season’s items. Not implementing an effective strategy would lead to warehouses full of unsaleable inventory.
- Poor communication with customers: The one and the only way to learn about customers’ needs is through communication. Poor communication with customers results in the stockpiling of inventory that customers have no interest in
- Obsolete products: Due to exponential technological progress, some products become obsolete in a blink of an eye and if the retailers do not get updated about recent development in these areas they end up with warehouses full of outdated inventory which is exorbitant.
- Lack of an inventory management system: Thanks to technology there are lots of inventory management systems that help businesses and retailers to keep track of the inventory and prevent possible errors in the replenishment process.
Why is deadstock bad for your businesses?
As stated earlier, retailers incur considerable costs due to the accumulation of dead stock in their warehouses. First, piles of unsaleable items in the stockroom take up the space that could otherwise be occupied by top-selling products and missing this opportunity has its own costs. Second, holding expenses related to keeping unsalable items in the warehouses are considerable. Costs including rental of stockrooms or warehouses, utility bills, insurance of goods and providing security for the warehouse and inventory have to be covered by retailers. To manage warehouses which are full of dead stocks retailers need to employ staff and pay them and as the scale of the stock increases, they need more staff to maintain the inventory and this, in turn, will pose extra expenses to the retailers.
How to Avoid Dead Stock?
There is an old saying that goes “prevention is better than cure” which in this context means that retailers better prevent stockpiling inventory in the warehouses than searching for solutions to get rid of them. The following measures can help you to overcome the issue of dead stocks:
- Automate inventory management workflow
Using automation platforms such as Oderhive, inFlow, Lightspeed Retail, Upserve, Megaventory, etc. wholesalers will be able to generate intelligent reports about their inventory and keep track of sales, expiry dates, allowable return dates and finished goods. This software allows you to forecast inventory trends and accurately estimate customers’ needs. Automating purchase order and reorder points, quantity and dates are among other capabilities of the aforementioned systems. In this way, you can make data-driven decisions about your inventory and control it proactively.
- Carefully Source the Products
Retailers must take into account important precautions before procurement and only after they are reassured about customers’ demands should they take steps for procurement and stockpiling items in their warehouses. It is also recommended that companies keep in touch with their customers to become aware of their demands and accordingly source the required items.
- Define worst-case scenarios
Sometimes, despite having automated inventory management systems and analysing customers’ demands before sourcing stock, things will not go as planned and retailers end up with piles of dead stock in their warehouses. As such, it is recommended that they define worst-case scenarios to get rid of obsolete inventory. They can either return the slow-selling merchandise or take other useful measures.
- Handling Dead Stock
Based on what was said before, despite implementing strategies to avoid dead stock and carefully sourcing the inventory, accumulating dead stock to some extent is inevitable and usually, a certain amount of inventory remains unsalable. Following you can find the best strategies for managing dead stock:
- Sell them in bundles
Retailers can sell dead stock together with best-selling products as bundles and offer them at a price which is lower than the sum of the price for both items. In this way, they can get rid of slow-selling items and at the same time, customers can have the popular item that they need together with an item at a lower price.
- Donate them
Retailers can make up for lost profit in ways other than selling them. Of course, this option is not related to money-making and businesses choose to donate their dead stock for goodwill. Businesses can get a tax write-off for the donated goods and save a lot of money.
- Inventory clearance sale
Retailers can make special offers to sell their dead stock. It is advised that they specify a limited time frame and even offer free delivery or other bonuses for them to avoid bigger losses and to make sure that the items will not get back to their warehouses, retailers can remind the customers that return or exchange is not allowed.