Deadstock – Meaning, Causes, Prevention and Remedies
Any business that deals with physical goods will encounter something called deadstock. It happens when your inventory doesn’t move for various reasons. Basically, these goods are not saleable and they’re taking up valuable warehouse space. And they’re adding to the holding cost of inventory.
What can you do about deadstock? How do I prevent deadstock? What measures can I take to get rid of deadstock? We’ll explore all these and more in this blog post.
What is 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.
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.
Products may not reach the customer’s end due to several reasons and thus leave a dent in the expected sale estimates. They usually have 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.”
Why Should You Care About Deadstock?
Your company takes a hit if the quantity of deadstock is huge and revenues are slowly drained.
Thus, 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 new products and thus the opportunity to purchase more of your top sellers is lost.
- Storage and maintenance costs are wasted on the stuff that is not valuable or attractive anymore.
Causes of Deadstock
There are various reasons why your company is facing issues in selling a particular product.
They all result in excess inventory which reduces the overall performance of your company.
Some of these reasons are mentioned below.
1. Customers Are Not Biting
This is probably the most common type of deadstock.
You stock it, but your customers are not buying the product. Zilch. Nada.
They’re not taking the bait!
There can be many reasons for this to happen:
- Your competitors are providing a similar product at a better price. This is a price war.
- Your products are similar to other stores, and customers like the other options and not the one you’re offering.
2. Drop 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 quality of the product.
In this era of stiff online competition, customers have many 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 in 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 behaviour of customers to buy a product is extremely important but yet difficult.
Otherwise, you stock up a product in bulk and it goes obsolete as it is no longer in demand.
Seasonal factors also play a part. This is especially so for products that follow the spring/summer and autumn/winter seasons. These include clothing, accessories and shoes. Oftentimes, wholesalers and retailers want to get rid of past season’s stock so that they can make space for the next season!
For example, 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, they go out of fashion because they’re too common, there are cheaper copycats in the market, or the fad has moved on.
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. Ego Gets In the Way
This one is for retailers who are just too stubborn.
They find a product promising, buy 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 marketing and storage of that product because they believe in it way too much.
Detach your ego from business decision-making.
This is an unprofessional approach to business and it 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 stockpiling inventory that customers have no interest in.
Hence there should be enough interaction between the customer and store owners to avoid deadstock.
6. Excessive SKU count
When purchasing products, do you really need all the possible variants of a product? This is particularly so for consumer goods that come in different sizes and colours.
It may be tempting to offer everything under the sun so that you don’t lose any potential sales. But this also means increasing your inventory carrying costs and inflating your SKU count.
How Do I Prevent Deadstock?
With the right moves, you can lessen the deadstock in your stores.
The following measures can help you overcome this hurdle of overstocking.
1. Efficient Inventory Management Software
As the saying goes, prevention is better than the cure!
Use inventory management software to generate intelligent reports about products which had 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 the date of expiry, allowable return dates, and so on.
2. Watch Slow-moving Products or Products About to Expire
Again, identify these products using inventory management software.
- Provide good promotions and discounts for these category of goods.
- Make sure the products, whose expiry dates are near, are sold first or returned to the supplier.
- Ensure that this quality or type of product is never ordered again.
- Rationalize and reduce your SKU count.
Thus, you have a clearer overview of your inventory status.
You have ready 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 thus management is more competent.
3. Be Sensible When Buying New Products
Some wholesalers give additional discounts for purchasing a large quantity of a specific good.
If you get tricked into buying a new product, that too in bulk, then you are simply done for.
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 later on.
Only after being sure about the demand for a product should long-term stocking should be considered.
4. Survey Your Customers
Always be acquainted with your customer needs.
Survey your consumers at regular intervals of time to update your stores according to their demands.
This allows your store to be up-to-date and fulfil 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! Remember to detach yourself and your ego from your purchasing decisions.
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.
Let us go through the 5 strategies to handle excess inventory with minimal losses.
We covered more methods in another blog post about reducing your inventory the right way.
Anyway, you have to pay the price for your carelessness, and you will not get the expected profit.
1. Return It Before It Piles Up
Every product has its legitimate return period after its purchase.
If you have competent 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 obsolete stock.
This is the initial step that can be taken to unload goods before they occupy your store’s precious space and don’t generate any revenues.
2. Make An Offer that Customers Can’t Refuse
You can create scenarios to build up the illusion that you are offering a great deal of these products. Now you got to take a profit hit because some cash is better than no cash.
So you have come up with great discounts and create an urgency. Buy Two And Get One Free. Sounds familiar?
3. Clearance Sale
Sell all deadstock 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.
- Remember to add that returns and exchanges are not allowed!
4. Make a Tempting Combination
Bundling your deadstock with other related products at an effective price can help you get rid of the deadstock.
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 an amplifier at a discount to lure customers.
This method is persuasive enough and is practised widely by online retailers.
5. Make a Charity Donation
This option is more of a goodwill gesture and less business-oriented.
This works for retailers who sell basic necessities such as clothes, shoes and food.
You can always donate the stock that has been dead for some time and you should 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 organization and you get a deduction of the market value of donated stuff from your taxes.
So to sum up, deadstock is one obstacle that every retailer has to overcome. The key to minimising excess inventory is to play it smart from the start.
This includes being up-to-date with the latest trends since outdated things often result in obsolete stock.
The lesser the deadstock you have, the more opportunities for filling your stores with promising goods.
Now, go get rid of that deadstock!