Inventory is meant to be sold. Unsold inventory can pile up over time and it can lead to what’s known as ‘dead stock.’ Accumulating dead stock is money left on the table, and it can significantly impact a retailer’s bottom line.
Offloading dead stock is essential to maintaining healthy profit margins, but ecommerce brands are often challenged with inventory optimization as they grow their business. It’s often due to a lack of inventory management systems and processes that cause dead stock to accumulate over time.
In this article, we’ll go over what causes dead stock, how to get rid of it and maintain profits. More importantly, we will discuss how to avoid dead stock inventory with proper inventory management.
What is dead stock?
Dead stock is ecommerce inventory, usually stored in a warehouse, that is no longer sellable and will likely never sell in the future, oftentimes because it’s expired, obsolete, low quality, or out of season. Dead stock only refers to inventory that has never been sold, which excludes returns.
What causes dead stock?
To avoid dead stock, it’s important to understand what causes it to accumulate in the first place. By figuring out what’s contributing to dead stock pile-ups, you’ll be better equipped to move it out and prevent it from piling up in the future. Here are some of the most common causes of dead stock.
Ordering excess inventory without understanding how much you’ll sell in a given period is the quickest way to accumulate dead stock and increase carrying costs.
It can be a challenge to understand just how much stock you need to fulfill future orders. There is a fine line in having excess stock, but by taking the time to implement an inventory control system and tracking important distribution metrics, such as inventory turnover ratio, you can make better decisions on inventory restocking, on what is a good order quantity number before making a purchase, and when to purchase it.
Another way retail businesses can avoid over-ordering is by buying less stock more often. For instance, you can reduce the risk of accumulating dead stock by purchasing inventory to meet a month’s demand, rather than the whole year’s.
Inaccurate demand forecasting
Miscalculating future demand happens when the right data isn’t being tracked. This causes ecommerce businesses to be misinformed on what products are in demand and how quickly they will sell. By pulling accurate historical order data, you can better forecast demand instead of buying slow-moving products that consume valuable warehouse space and your bottom line. With accurate demand forecasting, you can make informed decisions on how much inventory to purchase to fulfill future orders.
Poor sales or marketing efforts
If you’re selling a high-demand product, yet inventory isn’t moving out as quickly as you’d hope, there’s a high chance that it could be a lack of marketing and sales efforts; this is a big opportunity cost. Poor communication between you and your marketing and sales team on how to sell products, product messaging that misses the mark, poor web experience, and low customer awareness can all lead to high-quality, high-demand products to be left unsold.
Lack of quality control = defective products
Even if inventory is new, it doesn’t mean it’s of high quality. To ensure proper quality control, it’s important to have a good relationship with a manufacturer or supplier you can trust. This helps to ensure that proper quality control standards are put in place before you purchase more inventory.
Dead stock = dead weight for your business
Just by sitting on a warehouse rack, dead stock sucks your business’s profit and hurts your bottom line. Here are three subtle ways that dead stock costs companies money.
Dead stock was initially inventory purchased with the intent to sell it. So if a business is not selling products it’s already invested in, it’s failing to make a profit on that investment — or, at the very least, failing to recoup the cost.
Higher inventory storage fees
While inventory storage costs come in many forms, the outcome is always the same: the more inventory you have, the more it will cost to store it. Dead stock takes up valuable space that could house more popular, newer products. It’s always important to do an inventory audit and act quickly to remove inventory that is unsellable or unlikely to sell.
Lower profit margins
Dead stock chips away at profit and can make a sizable impact if it sticks around long enough. The increased time and effort it takes to market dead stock, the sunk cost of purchasing stock from the manufacturer, and higher inventory costs all shrink a business’s profit margin.
Don’t get stuck with dead stock: 3 ways to profitably get rid of deadstock
Offloading dead stock can seem challenging, but there are plenty of ways to get rid of dead stock that are both practical and lucrative. Resurrect the value of your dead stock and make room for new inventory using the following best practices.
Put dead items on sale
Dead stock presents a unique opportunity to appeal to bargain shoppers. Hold clearance sales or create a discount section of your store where you offer dead stock for a lower price. Alternatively, you can try product bundling dead stock with a fast-selling item (and even offer free shipping).
Offer them as a free gift
Delight customers and enhance the unboxing experience by offering dead stock as a freebie. It’s a great way to boost customer satisfaction and incentivize them to purchase from your business in the future. The gesture means everything, and if you can move out dead stock while doing it, it’s a win-win.
If all else fails, your business can always donate unsellable inventory and use it as an inventory write-off. While it doesn’t offer the immediate payout that other strategies do, charitable donations are an excellent way to give back to communities, and customers often appreciate a business’s humanitarian efforts.
How to stop dead stock before it starts
The best way to deal with dead stock is to prevent it from piling up in the first place. Here are a few of the best practices for preventing dead stock accumulation.
Accurately forecast demand
Demand forecasting helps to predict future sales so you can make better decisions on how much inventory to purchase, as well as future warehousing needs, when to run a flash sale, and creating an effective pricing strategy. If you store your inventory with a third-party logistics (3PL) company like ShipBob, you can get insights into future demand with ShipBob’s analytics and reporting tool that provides answers to questions such as:
- How quickly products are selling
- Which items are slow-moving
- How many days of inventory you have until you are expected to run out (based on SKU velocity)
- Daily order status and performance
- How your current demand compares to previous time periods
- How your sales are affected by different seasons and months
- And much more
“Between shipping new collections for wholesale earlier in the year and Q4 madness for direct-to-consumer sales, we’ve been able to get through our heaviest seasons while staying ahead of production using ShipBob’s inventory forecasting tools — even as our order volume more than quadrupled in less than a year.”
Ryan Casas, COO of iloveplum
Set reorder points and safety stock
Reorder quantity refers to the total number of product units you request from a manufacturer or supplier on an inventory replenishment purchase order. The exact amount should not be so high that you have too much capital tied up in inventory and risk accumulating dead stock. But you also want to make sure that you have enough safety stock and you’re not at risk of selling out before you can get the next batch of inventory.
“ShipBob’s analytics tool is also really cool. It helps us a lot with planning inventory reorders, seeing when SKUs are going to run out, and we can even set up email notifications so that we’re alerted when a SKU has less than a certain quantity left. There is a lot of value in their technology.”
Oded Harth, CEO & Co-Founder of MDacne
Upgrade your inventory management software
Choosing an inventory management software that’s intuitive and easy to use is absolutely crucial. ShipBob’s order fulfillment solution offers built-in inventory management tools, data, and reporting that offers insights into demand forecasting, order management, and more to help you make better decisions on how to manage your inventory.
“We have access to live inventory management, knowing exactly how many units we have in Texas vs. Chicago vs. New York. It not only helps with our overall process in managing and making sure our inventory levels are balanced but also for tax purposes at the end of the year. ShipBob made that entire process very simplified for our accountants and us.”
Matt Dryfhout, Founder & CEO of BAKblade
Offloading dead stock quickly and finding ways to avoid it is critical to the long-term profitability of your business. To prevent dead stock, proactivity is key — taking time now to put an inventory management process in place will help your business save money, meet customer demand, and optimize your supply chain.
ShipBob offers a robust, international fulfillment network combined with cutting-edge fulfilment technology, so you can easily track inventory and orders all from one dashboard. To learn more about ShipBob, click the button below to request pricing and learn more about what we offer.
Dead stock FAQs
Dead stock is a surefire way to cut into profit margins. Here are answers to some of the most frequently asked questions about dead stock so you know how to manage it and prevent it from piling up.
Why is it called dead stock?
Dead stock refers to ecommerce inventory that isn’t selling now and likely won’t sell in the future. Because demand for these products has dwindled (e.g., low quality, a dip in demand, seasonality), they have no more vitality in the market and therefore cuts into profit margins.
What happens to dead stock?
Dead stock usually sits unsold in a warehouse or a 3PL’s fulfillment center until it is moved out. While there, it quickly increases carrying costs and can occupy warehousing space needed for new, sellable inventory. When dead stock fails to sell, it can cut into profit margins and impact a company’s bottom line. Dead stock is often due to a change in market demand and it can be considered as an inventory write off.
How do I get rid of dead stock?
In offloading dead stock, some options are more profitable than others. There are a few ways to get rid of dead stock, such as bundling a dead stock item with a high-demand product for free, returning it to the manufacturer or supplier, or donating it to a non-profit organization. It’s important to have a plan in place to remove dead stock from storage as it can quickly increase warehousing costs.