Dead stock is a term used to describe inventory that has not been sold and has remained in a company’s warehouse for an extended period. This unsold inventory becomes a burden for businesses, as it takes up valuable storage space and can tie up a considerable amount of funds. In this article, we’ll cover what precisely dead stock is, and how to handle it to minimise its impact on your business.
What is dead stock?
Dead stock, also known as slow-moving inventory, refers to items that have not been sold for an extended period. This could be due to factors such as changing customer demand, a product becoming outdated or obsolete, or through the introduction of a newer version.
Having dead stock in your inventory can be detrimental to your business in several ways. Not only does it take up valuable storage space, but it can also tie up a lot of valuable capital that could be used elsewhere. The carrying costs for storing dead stock can cause businesses to pay a staggering 30% more than the original value of the stock. Additionally, dead stock can decrease your brand’s perceived value.
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Identifying dead stock
The first step in handling dead stock is identifying which items in your inventory are in fact, dead stock. The easiest way to do this is by doing a dead stock analysis and examining your sales records and determining which items have not sold within a particular period.
It’s important to distinguish between slow-moving inventory and dead stock. Slow-moving inventory may still have some value and could be sold through the use of smart marketing and sales tactics. However, dead stock represents a significant risk to profit, and should be dealt with promptly to minimise its impact.
To accurately distinguish between slow-moving inventory and dead stock, businesses should examine their sales records to identify how many days, on average, it takes to sell a particular product. An item that sells slowly but consistently is likely to be classified as slow-moving inventory, while items that have not sold within a particular period, such as 90 days or more, are likely to be dead stock.
It is also important to consider external factors such as seasonal demand, changes in customer preferences or market trends, and the impact of marketing campaigns and promotions.
What causes dead stock?
Dead stock can be caused by a variety of factors, including:
- Overestimating demand: One of the most common causes of dead stock is overestimating customer demand. This can happen when businesses assume a particular product will sell well but fails to meet expectations.
- Changing trends: Another cause of dead stock is changing trends. Suppose your business sells trendy or fashionable products that have a short lifespan. In that case, keeping an eye on the market and being ready to pivot quickly when necessary is essential.
- Outdated products: Products can become obsolete over time. This can happen if newer versions are introduced or if the products become outdated due to changes in technology or customer preferences.
- Poor sales forecasting: Dead stock can also result from poor sales forecasting. Businesses need to understand their customer base and market trends to accurately forecast sales and avoid overstocking.
In summary, dead stock can be caused by various factors related to inaccurate demand forecasting, trend changes, outdated products or overstocking. Businesses can minimise the risk of dead stock by implementing efficient inventory management processes that involve accurate forecasting, prompt identification and handling of slow-moving or dead stock items, and a focus on efficient and flexible marketing and sales strategies to respond quickly to market changes.
How to handle dead stock
Once you have identified your dead stock, there are several ways to handle it:
Promotions / Discounts
Running a promotion, such as a buy-one-get-one-free offer, can also be an effective way to sell the dead stock while keeping customers engaged. Promotions can be used to generate interest in a product that is difficult to sell. For example, businesses might offer a free gift with the purchase of a dead stock item or create a special bundle deal that includes the dead stock item along with other popular products. These strategies can help to entice customers who may not have considered purchasing the item otherwise.
Sell to outlets
Another way to handle dead stock is to sell it to other retailers. This strategy involves identifying retailers specialising in selling lower-priced items and that are willing to accept dead stock at a discounted price. These retailers may have a different customer base than the original retailer, meaning that the dead stock could still appeal to a different set of consumers looking for a good deal.
Selling dead stock to cheaper retailers can effectively recover some of the costs associated with holding unsold inventory. While the return on investment may not be as high as selling the items at full price, it can still result in the generation of revenue, and help businesses to free up valuable warehouse space for products that are likely to sell. An example of an outlet include Reduced to Clear.
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Donating your dead stock to a charitable organisation can be a way to put those unsold items to good use while also earning your business some goodwill. Many charities accept donations of brand-new items, such as clothing, toys, and household items. Examples of charitable organisations include Dove Hospice, Salvation Army, and Dress for Success.
Dead stock can significantly impact your business’s bottom line, but, it’s not the end of the world. By promptly identifying and handling dead stock, you can minimise its impact and free up valuable storage space and capital. Whether through discounting, promotions, liquidation, or donation, there are ways to handle dead stock that can benefit your business while also minimising its impact.