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What Does ‘Dead Stock’ Mean?

dead stock

Retailers of all stripes are likely to end up with “dead stock.” This seemingly macabre term refers to the merchandise left on your shelves or in your storage areas that is no longer selling in the current market. It can have detrimental effects on your company’s bottom line, taking up valuable square footage in warehouses or even on store shelves. Understanding dead stock, as well as the inventory reduction techniques that can help you avoid or eliminate it, is a crucial part of the long-term health of almost any retail business.

dead stock

What Is Dead Stock?

Dead stock is merchandise and goods that have not sold and thus are “dead on the shelf.” This includes seasonal items that don’t rotate back in, such as last year’s winter fashions lingering through summer, and items that simply no longer have an appeal to the overall market. That could mean styles that have gone by, gadgets that have been replaced or that never quite caught on, and almost any other selection of goods that simply do not move.

What Is the Difference Between Dead Stock and Deadstock?

Deadstock as a single word is a term often seen in the retail world — but, instead of items that simply don’t sell, these are often items that failed to make traction on store shelves that may have increased or at least retained their value. This makes them highly collectible or a solid pick for reseller markets. As such, businesses tend to hold onto “deadstock” until a buyer is found, while seeking to eliminate “dead stock,” which often does not retain its value and causes losses. The latter, dead stock, is usually caused by overstock and ordering errors.

How Does Dead Stock Hurt Businesses and Warehouses?

The biggest drawback to keeping dead stock around is the opportunity cost. Owners and managers could use those occupied shelves to keep newer, more valuable stock or even expand high demand product inventories. This means that storing dead stock leaves opportunities to move inventory and generate revenue untapped. Dead stock left on the sales floor simply collects dust, regardless of how it ended up losing its appeal. The additional costs of dead stock include having to eliminate this form of waste. The labor costs of managing dead inventory may quickly add up to eclipse the value (or at least the distributor price) of the dead stock itself.

Disadvantages of Holding Too Much Inventory

The ideal supply chain should keep just enough inventory on hand to keep shelves stocked while eliminating overstock that won’t sell before the next shipment arrives. In that ideal world, goods flow like clockwork, and there are never any shortages or overages. Unfortunately, the realities of supply chain logistics dictate that problems may occur. An inventory reduction plan, coupled with “just in time” inventory management practices, is invaluable for eliminating dead stock and avoiding the problem in the future.

How to Create an Inventory Reduction Plan

Before you can implement your new inventory management strategy, you’ll likely need to reduce the amount of dead stock you’re carrying. Here are a few simple steps to help you create and implement your plan.

  1. Keep an accurate count of all dead stock. If you also carry deadstock to resell through other channels, remove that from the actual dead inventory and do not include it as part of this audit.
  2. Determine the best channels for elimination. Not all dead stock is created equal. Some may be returned to suppliers, while others may be eliminated via clearance sales and strategies.
  3. Begin the elimination process. Whichever method you chose to reduce your dead stock, begin as soon as your plan is in place. Other items will also reach the end of their sales cycles, and you need that space as soon as possible.
  4. Re-evaluate counts at the end of each elimination cycle. You may have to change your channels and methods based on the size of the inventory.
  5. Repeat the process until you have little to no dead stock left. If you have accurate counts and effectively pursue the elimination process, you’ll be on your way to eliminating dead inventory.

Inventory Reduction Techniques

The channels and methods you choose for inventory reduction will ultimately determine the success of your dead stock elimination plans. Fortunately, there are a few tried-and-true techniques that savvy retailers use in combination with updating reorder points. Each of these techniques has its own strengths and weaknesses, and a combination may be necessary to overcome particularly complex or large dead stock situations.

  • Clearance sales. Simple methods are often the best. Take your dead stock, reduce its cost and let bargain hunters do the rest. This is likely the first step for most businesses as it doesn’t require outside negotiation.
  • Clearance bundling. Items that simply don’t move on their own may be bundled as accessories to others. You may find that the dead stock inventory makes a wonderful loss leader when paired with more profitable items.
  • Buyback. Items that don’t sell in your store but are still hot in other markets may be sold back to the distributor in many cases. Expect to receive a credit against future purchases instead of a check for these, and restocking fees are common when you attempt a distributor buyback.
  • Charitable donations. If the vendor won’t work with you, and clearance sales aren’t effective, consider donating the goods to local or national charitable organizations. Work with your company’s tax advisors to find the most advantageous donation options for both your business and the recipient.

Risks and Benefits of Holding Inventory

Sometimes inventory is worth the risk of holding. Seasonal items that hold value year over year, but don’t change in style or fashion much, and traditional deadstock collectibles may be worth keeping in long- to mid-term storage. Here are a few time-honored techniques for managing held inventory:

  • Reorganizing inventory in your storage or sales space. Those items you wish to keep may have value beyond their season, but they might not be worth the floor space. Try reorganizing them into new and intuitive homes. For example, skiing isn’t just a winter sport. In some areas, skis and poles can be found in the sports section year-round. Think of your held inventory like this.
  • Using multiple storage spaces for different time periods. If your company has the storage space available, try organizing it by season and time. Short-term storage should be closest to the sales floor and contain backups of items that sell quickly. Mid-term storage should be for restocking items without a seasonal trend or focus, and long-term storage holds your leftover stock for the next few seasons.
  • Clearance sales. “Junk is the stuff you throw away, and stuff is the junk you keep.” Consider if it is worth hanging onto these items and evaluate them closely for their potential to be hidden dead stock. If the cost of storage and labor meets or exceeds the value of the items, move them out in clearance sales or through other inventory management channels.

Your company’s inventory management and reduction practices can dramatically affect profitability. Accurate tracking with a dedicated inventory management application that features accessible tools for understanding the end of a product’s sales cycle and forecasting order levels is crucial. Pairing this with plans to overcome the occasional logistics hiccup or inaccurate forecast can prevent such issues from arising in the future, and keep your company sailing smoothly on its way to profitability.