Avoiding dead stock is a perpetual inventory management quest of in-store retailers and e-commerce operations. It’s a mission that runs from the first time inventory is ordered until the last. Unsaleable, dead inventory hurts your bottom line, takes up space, and leaves you with another task that you don’t have time to deal with.
There are plenty of tools and tactics that modern retailers employ to limit their dead stock while hitting optimal safety stock quantities. Adopting an adequate inventory management system is crucial for maintaining an organized and accurate snapshot of your inventory count.
Implementing effective inventory control measures will empower you and your staff to use stock management best practices to further mitigate against dead stock.
Continue reading to understand why it’s so critical to eliminate dead stock at your business and learn more about strategies to achieve this goal. You’ll also see a few ideas for how to manage and get the most value out of the dead stock inventory that you’re bound to be stuck with. Because even with the utmost discipline, a little dead stock here and there is inevitable.
Overview: What is dead stock?
Dead stock isn’t a wild and loud festival in the woods with a bunch of people that smell like your aunt and uncle before Thanksgiving dinner. The retail slang term refers to inventory that is unsaleable for any number of reasons.
Dead stock is most common in seasonal items. For example, a clothing store that sells holiday sweaters for end-of-year festivities may end up with a ton of dead stock if it orders more than it is able to sell. The same is true for Cupid-themed chocolates, shamrock pint glasses, and any inventory that’s exclusively tied to a particular span of the year.
But dead stock can be much more nefarious than simply overstocking your basic holiday items. Seasonality also extends to bikinis vs parkas, sandals vs snow boots, and so on.
And then there’s dead stock that exists outside of seasonality entirely. Trends come and go, especially in the consumer retail space. There’s probably a store somewhere in the US that’s still working to sell dusty boxes of iPods.
And I know for a fact that liquor stores across the world are still trying to offload their Game of Thrones-themed Scotch whiskies. This is proving especially difficult ever since the disappointing final season took the wind out of the sails/sales of the booming franchise.
What effect does dead stock have on your business?
The reason for mitigating and avoiding dead stock is that it costs you money and depletes valuable resources from your business. This is hopefully intuitive to you and your employees. There is no upside to having dead stock inventory laying around your store or warehouse, aside from stocking your clearance section of course (not actually a good thing).
Here’s a deeper dive into the three main negative impacts that dead stock inventory has on your business.
1. Dead stock negatively impacts your finances multiple times over
Dead stock inventory puts an exponential strain on your finances and additional resources. Not only do you lose the initial investment in the leftover, unsaleable inventory, but you also incur a loss from the margin you were projecting to receive from selling that inventory.
You’re also losing out on potential sales of other products in the case of dead stock that’s left on your shelves throughout your store. This isn’t as important for online storefronts, but it can be impactful if your inventory or e-commerce platform is charging you per SKU.
It’s also a negative reflection of your brand to have old, unwanted, out-of-season items littering your physical and online store. Be sure to always keep your brand image in mind!
2. Dead stock prohibits future growth potential
Building off of the points above, dead stock can be particularly damaging to future growth potential. We’ve established that it’s an anchor dragging down your already thin margins and limited resources. The negative impacts of this aren’t contained just in the present but also the future.
Your investment in dead stock represents extra cash that you could have invested in testing another product, resupplying a proven product, or expanding your marketing efforts. It’s these missed opportunities that are preventing you from optimizing your growth potential.
3. Dead stock merchandise wastes warehousing space
Your warehouse or general inventory space is another critically limited resource that dead stock negatively impacts. Whether you have formal warehousing, a large closet at the back of your store, or just your storeroom floor, dead stock incurs carrying costs on top of eating into your valuable and limited space.
Your dead stock may require additional insurance coverage depending on the nature of the products, the quantity you have left over, and your warehousing storage arrangement.
These literal retail wastes-of-spaces can also stack up over time and drag on your labor costs. Retailers with limited space and too much dead stock are forcing employees to get creative in efficiently navigating inventory counts and order pulls.
How to avoid dead stock (and what to do with your current dead stock)
Dead stock is an unavoidable component of the retail game, especially if your store has been around for a few years or more. A few extra holiday trinkets here or there aren’t going to crash your business. It’s the massive over-orders and under-sells that hurt you.
There are plenty of strategies for mitigating this risk. There are also a few effective strategies for moving your unsaleable items — including simply giving them away.
1. Surrender to your inventory management system
Inventory management software is the great leveler when it comes to avoiding dead stock. Your inventory management system provides the same basic quantifiable, automated, and analytic capabilities that large retailers use to avoid dead stock. The extent of the feature set and dedicated staff are vastly different, but the core inventory control tools remain the same.
Key inventory management features helping to mitigate against dead stock include on-hand inventory across your business and warehouse locations, sales monitoring and forecasting, supplier management, and precise, automated reordering capabilities.
2. “Aim small, miss small”
Who knew that the sage advice of Mel Gibson’s character from The Patriot, the epic 2000 film chronicling one father’s journey navigating the American Revolution, would be so applicable to your inventory management strategy? But alas, here we are.
A key tactic for avoiding dead stock all together is to order smaller quantities from your suppliers or to manufacture less product if you own the production. This is especially true for those pesky seasonal items, and it’s equally important when you have a new product that you want to test on your customers.
Aim small now and miss small later, with a limited quantity on hand if the product fails or few missed sales while you’re waiting to resupply if the product succeeds.
This strategy does come at a cost as you’ll be missing out on bulk-pricing discounts from manufacturers. But it’s a small, short-term price to pay to prove a new product’s viability.
3. Seek more informed decision-making
Easily the best thing you can do across your entire business (and life, for that matter) is to seek more informed decision-making. This is especially true for your inventory decisions and for mitigating dead stock.
Your inventory management platform is the central pillar of this tactic. Don’t decide this year’s Frosty the Snowman frosted mugs order based on your level of holiday cheer. Year-over-year trends for seasonal sales must inform your decisions for whichever holiday is upcoming next.
And it doesn’t stop there. Maybe an analysis of your inventory highlights that your store in the city consistently sells plenty of green and orange dresses, while sales of green and orange dresses at your suburban shop are minimal.
That hypothetical example is extremely nuanced and particular and exactly the level of detail from which you need to operate to optimize your inventory allocation, maximize sales, and achieve your targeted business growth.
4. Offer dead stock in bundles or as a GWP
Dead stock is inevitable, and when the inevitable happens, you need to be ready to act. Agility is a key component of many successful retailers and a key advantage that you have over larger enterprise stores. You can change in seconds what a Target or Walmart may need months to do. That’s especially true for your pile of dead stock.
Bundling dead stock items into a lower-cost, packaged item is a great way to move them out of your store while still recouping some value. It’s important not to get greedy here. It may seem like you’re surrendering margin, but keep in mind that the alternative to selling your dead stock is that the investment turns into a total loss. But even a total loss doesn’t have to be a total loss.
Another strategy for extracting some value from dead stock is to strategically give it away as a fabled GWP. Most consumers are familiar with the GWP, or Gift-with-Purchase, concept. Purchase a nice bottle of perfume and receive an accompanying bath bomb and essential oils kit. Spend over $100 at a designer retailer and take home your goods in a branded, exclusive tote bag.
What’s not to like about getting something unexpected for free, right? There is plenty not to like. If you take the GWP route, you have to make sure your dead stock giveaway is relevant to the purchased product. No one wants a turkey-shaped crystal plate as a GWP for purchasing a set of nonstick skillets.
It’s also critical that you don’t force the GWP or the bundle approach. These are two viable strategies for extracting some sort of value from your dead stock, but you must weigh that value against potential damage to your brand image and reputation.
5. Donate it
When all else fails, or when you’re not willing to risk hurting your brand, donate it: Turn today’s dead stock into next year’s charitable write-off. There are numerous local and national charities around the country that would be delighted to accept your dead stock as a donation. Take the time to do right by your recipient and find the most applicable charity that matches the nature of your products and make it happen. They may even be able to pick it up from you.
Dead stock is avoidable and inevitable and that’s fine
Dead stock is the cost of doing business in the retail industry. You’re bound to over-order or get caught overstocked on the tail end of a trend. It’s going to happen, and it’s fine. What’s critical is that you keep it small enough that you can laugh about it. Use your inventory management and other tools at your disposal to make more informed decisions about purchase orders.
Ease into new and seasonal items. And don’t be afraid to wave the white flag with a bundle, GWP, or donation. Tomorrow is a new day, and there are always more purchase orders to optimize.
View more information: https://www.fool.com/the-blueprint/dead-stock/