You might be good at inventory management and sometimes, there would have been instances of you ordering more.
Perhaps, you anticipated more demand, or simply thought that the prices of wholesale products are going to rise. But that extra inventory ends up being a reason for your worry, and hence, it becomes a deadstock.
Excess inventory lies in your store and you least expect it to sell – maybe it has expired, or people don’t prefer that brand anywhere.
In some cases, identifying dead stock can be very simple. For example, if a grocery store has a crate of rotting apples, they can’t expect to sell them, effectively turning those apples into dead stock.
In other cases, distinguishing between dead stock and slow-moving inventory can be difficult. Most items should not become completely unsellable. In this case, inventory that remains unsold for a year should be considered dead stock for accounting purposes.
Why dead stock at your store is a problem
The most obvious reason for the dead stock is that it costs money to invest in inventory that is never sold. Whatever you spent on that inventory is now gone, and your bottom line suffers as a result.
However, there are costs associated with having dead-stock items that take up valuable warehouse space and consume storage costs. It implies that you have less cash flow and physical space to invest in profitable inventory. And you still have to pay for the cost of keeping dead stock on your shelves.
Finally, dead stock means a loss in both opportunity cost and, probably everything else.
What factors contribute to dead stock?
A variety of factors contribute to dead stock. Identifying them and ensuring that your company is doing everything possible to improve each one will help reduce the likelihood of having dead stock inventory and save up costs.
1. Improper forecasting
Forecasting means predicting according to demand and deciding what quantity of a product will be suitable for your store. It is an important part of managing inventory, and if you do it right, you will be less likely to have too much inventory.
So, it is impossible to purchase the appropriate quantities of inventory unless you have a clear understanding of the demand for your products as well as all other relevant business data required to make an informed decision.
Retailers need to forecast in multiple ways to improve forecasting accuracy. Forecasting should be done at both the total level (referred to as “tops-down planning”) and the SKU level (referred to as “bottoms-up planning”).
Total-level planning frequently understates demand, whereas SKU level planning frequently overestimates it. By running both analyses, you can compare the results of each forecast and adjust your goals to be more realistic.
2. Inadequate ordering procedures
Regardless of how accurate your prediction is, the dead stock will still continue to pester you if you don’t use good ordering practices. For example, no matter how tempting it is to make a large purchase of an item that is currently selling like hotcakes, you must seriously consider whether the demand will still be there when the order arrives on shelves in order to avoid overstocking.
3. Low sales
Even if you forecasted correctly and ordered the wholesale products, the product may still fail to sell due to other factors. A product’s success is heavily influenced by its price point and marketing. If your product is hidden in the back of the store, for example, it is unlikely to sell well no matter what it is.
How Can You Prevent Dead Stock
You must focus on Inventory management – and it is not necessary that you invest in inventory management software. But buying a suitable one will substantially reduce your effort and time.
Always remember that keeping track of your inventory will solve many of the problems that lead to dead stock. Here are some tips to ensure regular check –
- Identify slow-moving inventory quickly and change your marketing and sales strategies in real time.
- Locate your dead stock.
- Make precise forecasts.
- Enhance your ordering procedures.
While an inventory management system is unquestionably the best way to avoid dead stock, there are some other options too –
1. Test small batches of new products before making large investments. Before restocking with a large order quantity, try running it only in your store.
2. Run a quality control check on your products. Examine products carefully when they arrive and ensure that they meet your standards before they hit the shelves.
3. Enhance your strategies for slow-moving products. Inventory management software can only identify slow movers; you must figure out how to get them moving. Check out these expert tips from Christine Guillot.
How to Dispose of Dead Stock
Entirely getting rid of dead stock might not be possible, however, you can dispose them of easily with these simple strategies –
1. Make bundles
Product bundles are a retailer’s best-kept secret. They’re useful for achieving a variety of objectives, including increasing AOV. They’re especially useful for moving slow or dead stock. You can move less desirable items much faster if you pair them with fast movers.
Consider pairing bulk lollies with bulk chocolate. Or maybe you can do that with beauty products. Cleaning supplies sound nice too – the opportunities to make bundles are endless and you can certainly benefit from that.
2. Experiment with heavy promotions.
It is hard to say that selling dead stock will recover your losses. Yet, getting it off your shelves as soon as possible is the best option. Your aisle deserves more fresh products, so having a clearance sale and selling them at discounts can help you get the dead stock off of your shelves.
This strategy is very common for seasonal items after the holidays. Consider the best holidays, days of observance, or festivals to attract customers.
Similarly, you could simply give the product away. Use it as a promotional free gift with purchase. Your dead stock can be used to motivate full-price purchases by using giveaways.
3. Donate it
Do neither of those options suits you? Instead, you can donate your dead stock. Donating to a good cause does three things – it helps you get rid of dead stock; it prevents it from turning into waste and also leverages your image as a retailer. Your contribution to the betterment of society helps you gain an edge over your competitors!
Taylor Daniel, a long-time sustainable fashion advocate, suggests the following organizations for dead stock donations:
- Orphanages and foster care programmes
- Domestic violence shelters
- LGBTQ+ facilities
- Organizations for Refugees
- Clothing donation centres
- Shelters for the homeless
- Programs for Transitional Living
- Youth crisis shelters
- Sober living facilities
- Nursing homes and hospitals
Also, make sure donated items are clean and in the best condition possible so that they are actually used.
Finishing up
It’s natural to encounter dead stock at some point in business. But with the strategies mentioned above, you can prevent and deal with dead stock in a great way. What you can do is use the data at your disposal to reduce the chance of inventory turning into dead stock and disposing of the extra one when it is lying in your shelves. Offering discounts and bundling the wholesale lollies or other products together can help you get a fair value for the dead stock.
