Deadstock – Meaning, Causes, Prevention & Methods to Handle Deadstock
The path of retailing has many ups and downs, and deadstock is the extra load that weighs you down on the road to success.
It is a common misconception that stockpile cannot go waste.
Every retailer or distributor has a deadstock graveyard in their warehouse.
Deadstock is the inventory product that never gets sold and now occupies the store shelves way longer than expected. Uh oh!
Products may not reach the customer’s end due to several reasons and leave a dent in the expected sale estimates. It usually has the original packaging and tags intact.
Jennifer Rosenberg, president of Indianapolis based Acorn Distributors Inc. says about Deadstock, “It’s a cash flow killer. We make money by moving boxes, not by storing boxes.”
The company takes a hit if the quantity of deadstock is huge and revenues are slowly drained.
Deadstock affects your business in the following ways:
- Drop in the sales of a particular product affects the complete sales record sheet.
- Excess inventory invades the space of the new products and thus the opportunity to fill in more of your top sellers is lost.
- Storage and maintenance costs are wasted on the stuff that is not valuable anymore.
Causes of Deadstock
There are various reasons why your company is facing issues in selling a particular product.
But they all result in deadstock or excess inventory which reduces the overall performance of the market.
Some of these reasons are mentioned below.
1. Customers are not Convinced
This is the most common type of deadstock.
You stock it, but your customers are not responding to the product.
They’re not taking the bait!
There can be many reasons for this to happen.
For instance, your competitors are providing a similar product at a better price.
Another reason is duplication. Your products are similar to that in other stores, and customers like the other options and not the one you’re offering.
2. Decay in Quality
If customers don’t feel that they’re getting value for money, then they will stop buying from you.
In this case, the main concern is the sloppiness of the product.
Customers try a product, if it does not serve their purpose effectively or disappoints them, there is no reason they are going to invest in it again.
In this era of stiff competition, customers have infinite choices for the same category of product.
So if your product is inferior to your rivals, they dump your product and move to a new brand immediately.
Thus, your rejected product sits on the back shelves of your store taking up unnecessary space.
3. Inaccurate Forecasting
In today’s Internet age, market trends change in a blink of an eye. Precise prediction of the tendency of the customers to buy a product is extremely important.
Otherwise, you stock up a product in bulk and it goes obsolete as it is no longer in demand.
Let’s assume that a unique kind of sneakers are in fashion for a while and you decide it is the time your stores sell them too.
You fill your inventory with those shoes.
And after a month or so, those shoes go out of fashion because they’re too common or there are cheaper copycats in the market.
Impulsive decisions cause errors and thus a strategic purchase of inventory according to the mood of buyers must be made in advance.
This will prevent your stores from accumulating dead inventory.
4. Drop the Ego
This one is for retailers who are just too stubborn.
They find a product promising, store it in bulk and when it fails to sell itself they just do not admit the fact that they were wrong.
They keep spending on the marketing and storage of that commodity because they believe in it way too much.
Detach your ego from business decision-making.
This is an unprofessional approach to the business and always results in overstocking of goods which fail to perform in the market.
5. Lack of Communication
The best way to know what your customer wants is to be in touch with them.
A genuine seller-buyer relationship makes the business mutually beneficial.
In turn, if there is a void between the two ends then the sellers have a hard time figuring out their customer’s needs.
Thus retailers end up piling inventory that customers have no interest in.
Thus there should be enough interaction between the customer and store owners to avoid deadstock.
Prevention of Deadstock
With the right moves, you can lessen the deadstock in your stores.
The following measures help you overcome this hurdle of overstocking.
1. Efficient Inventory Management Software
Prevention is better than cure.
Use Inventory Management software to generate intelligent reports about products which generated no sales in the past 12 months.
But don’t measure seasonal products on that basis.
This is your best shot at avoiding the excess stock syndrome. Inventory management software keeps track of sales and other information like date of expiry, allowable return dates, etc.
2. Watch Slow-moving Products or Products about to Expire
Identify these products using inventory management software.
- Provide good promotions and discounts in this category of products.
- Make sure the products, whose expiry dates are near, are sold first or returned to the supplier.
- Also, ensure that this quality or type of product is never ordered again.
Thus you have a clearer overview of your inventory status.
You have access to records that help you identify the goods which are selling at a slow rate and thus you can prevent them from turning into dead inventory.
Automation in your business reduces the margin of error and management is more competent.
3. Be Sensible When Buying New Products
Some wholesalers give additional discounts on purchasing a large quantity of a specific freight.
If you get tricked into buying a new product, that too in bulk, then you are done for life.
So a fresh product with no customer loyalty in the market should be bought in a limited amount.
Even if this means a high comparative cost per unit. It is better to spend here rather than bear the headache of deadstock at your store.
Thus only after being sure about the demand for a product, long-term stocking should be considered.
4. Survey Your Customers
Always be acquainted with your customer needs.
Survey your consumer base at regular intervals of time, to update your stores according to their demands.
This allows your store to be up to date and fulfill the basic requirements of buyers.
Also, it helps to maintain a smooth commodity-flow in your inventory and rule out the probability of stock going dead. Do not invest in products out of intuition or self-interest.
Take into account the latest trends and make your decisions based on it.
Methods to Handle Deadstock
A certain amount of dead-stock is inevitable despite taking measures.
So for that, you need some strategies to get rid of your excess inventory with minimal losses.
Anyway, you have to pay the price for your carelessness, and you will not get the expected profit.
But there are ways you can try to minimize losses with the following smart tricks.
1. Return It Before it Piles Up.
Every product has its legitimate return period after its purchase.
If you have a decisive inventory management software, you should be able to figure out the product which is going to be a burden on your store in the near future.
Thus, react in time to avoid the obsolete stock.
This is the initial step that can be taken to unload goods before they occupy your store’s precious space and doesn’t generate any revenues.
2. Cater a customer-oriented deal.
You can create scenarios to build up the illusion that you are offering a great deal on these products. Now you’ve got to take a hit profit-wise because some cash is better than no cash.
So you need to come up with enormous discounts and create an urgency. You can apply this with following tricks.
3. Clearance sale
Sell all excess freight at a slashed price (not basic discounts but great deals like 50-60% off).
Tips to have a great clearance sale:
- Put up a time limit and make it seem like the best discount offer.
- Offer free delivery and bear the transport charges yourself to avoid bigger losses.
4. Make a Tempting Combination.
Bundling up your deadstock with other related products at an effective price can help you get rid of the excess load.
You need to pair up your deadstock to relevant products and offer a discount on the combination.
For example, you have a consignment of speakers which are not selling themselves;
You can combine them with a laptop and mobile purchases at a discount to lure customers.
This method is persuasive enough and is practiced widely by online retailers.
5. Make a Charity.
This option is more of a goodwill gesture and less business-oriented.
This works for retailers who sell clothes, food, etc.
You can always donate the stock that has been dead for some time and you get a tax write-off on those goods.
Thus, you save a lot of money and the excess burden is lifted off your shoulders to serve a good cause.
All it takes is one receipt from the charity organiSation and you get a deduction of the market value of donated stuff from your taxes.
So to sum up, deadstock is the obstacle every retailer has to overcome. The key to minimising excess inventory is to play it smart.
That includes being up to date with the latest craze since outdated things often result in obsolete stock. Thus to prevent unsaleable products crowding your stores you need to take the above measures.
The lesser the deadstock you have, the more opportunities of filling your stores with the promising goods are present.