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Inventory is a critical aspect of any retail business, but it can also be a source of significant financial loss. Deadstock, or unsold products accumulating over time, can harm a retailer’s bottom line. To maintain strong profit margins, it’s crucial to have effective inventory management methods in place. As eCommerce businesses continue to grow, inventory optimisation becomes more complex, and it’s essential to implement strategies to avoid the accumulation of deadstock. By managing inventory effectively, businesses can increase revenue, minimise costs, and maintain customer satisfaction.
Dead stock refers to excess inventory that has not been sold and is unlikely to be sold in the future. This inventory may have been sitting on shelves or in stockrooms for a long time without being worn, used, or sold. It is important to note that deadstock is different from extra inventory that is ordered for a specific purpose, as the expectation of sale plays a crucial role. If a business orders extra inventory of a popular product with the intention of selling it, it is not considered dead stock.
Given its high cost, the dead stock is bad for business. It consumes valuable warehouse or shelf space, ties up cash, affects revenue, raises carrying expenses, and increases costs. Dead stock, for instance, can result in the following:
Lost Finances
Dead stock can cause significant financial losses for businesses since they have already invested in inventory and can only recover their investment costs when the products are sold. When products remain unsold and become dead stock, it can lead to a complete loss of investment, resulting in decreased profitability and a negative impact on the business’s bottom line.
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Increased Holding Expenses
Inventory carrying costs are the expenses associated with holding goods, including personnel, insurance, and storage space. When a company invests in inventories, its cash flow becomes less available for other needs.
Increased Wages for Employees
Managing inventory becomes more challenging as the number of products in stock increases. Dead stock can lead to higher labour costs, as it requires additional work for rearranging, counting, and disposing of products that won’t generate revenue.
Lost Opportunity to Break Even or Generate Profit
Selling dead stock may not recover the full investment cost. The time and labour spent dealing with unsellable goods reduce the time and focus available to sell profitable products. As a result, holding on to the dead stock for an extended period can result in a loss of money and productivity for businesses.
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Less Room for Inventory
Deadstock consumes expensive shelf and warehouse space that may be used for items with a higher sales rate.
Numerous factors, including erroneous forecasting and abrupt shifts in customer demand, can result in dead stock.
Poor Consumer Demand
One of the primary reasons for the dead stock is the lack of customer demand. Despite offering the product, there may not be any buyers. Competition may offer better products or lower prices in the same category, and the market might have shifted, which can occur suddenly and unexpectedly.
Inaccurate Inventory Forecasts
Businesses strive to accurately estimate their product needs before placing orders. While they may often come close to meeting their targets, forecasts can be inaccurate. If you order too few products, you risk losing sales. Conversely, if you order too much, you may end up with dead stock.
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Defective Products
Dead stock can often be attributed to selling low-quality goods. Manufacturing problems, such as inadequate quality control or a bad batch of ingredients, can result in defective products. Poor storage or transportation practices can also contribute to dead stock.
Depending on the nature of the defect, you may be able to return items to the manufacturer for repair, replacement, or refund. In some cases, you can sell them at a discounted price if the defect is merely cosmetic and does not affect the product’s functionality.
No Inventory Management System
Ineffective inventory management systems are one of the main culprits behind the dead stock, but this can be avoided with a robust inventory management system. Relying on spreadsheets or manual tracking of incoming and outgoing goods increases the risk of errors and inaccuracies. Without a reliable system in place, there is a high risk of miscalculating stock levels and over or underestimating orders, leading to the accumulation of dead stock.
Selling Similar Products
If you sell several products that are too similar, one product may end up eating into the sales of another. In these situations, the less popular product can become dead stock.
Avoiding dead stock is possible if you:
Purchase Lesser Quantity
To reduce the risk of dead stock, consider ordering fewer of the newer or less popular products, even though the cost per unit may be higher. Ordering in smaller quantities also allows you to test out more items within the same category, minimising the chances of over-ordering and accumulating excess inventory.
Request Client Feedback
Conducting customer surveys can provide valuable insights into what products your customers want rather than relying solely on instinct. This approach can improve the performance of your offerings and help you avoid promoting items that may not be in demand.
Use Inventory Management Software
Dead stock is often caused by poor inventory control. To avoid this, businesses must have an effective inventory management system in place. By having complete control over your inventory and knowing how your stock is organised, you can avoid mistakes and over-ordering, resulting in a reduction of dead inventory.
Disposing of dead stock can be daunting, but several practical and beneficial options are available. By implementing the following suggestions, you can increase the value of your dead stock and create space for new inventory.
Reduce the Price of Things That are no Longer Useful
Customers are often attracted to dead stock because it offers unique bargains. You can increase the value of your dead stock and make room for new inventory by holding clearance sales or creating a discount section in your store. Another option is to bundle the dead stock with a hot seller and offer a discounted price or free shipping.
Distribute Them as a Freebie
Consider offering dead stock as a bonus to please customers and enhance their shopping experience. This approach can increase customer satisfaction and encourage them to make more purchases from your business in the future. It’s a win-win situation if you can also eliminate unsold goods while making your customers happy.
Give Them to a Good Cause
If other options are not viable, your business can always consider donating unsold goods to take them off its inventory. Giving to charity is a great way to support your community, even though it may not yield the same immediate results as other strategies. Customers also appreciate a company’s charitable endeavours.
You Can Return if Possible
Supplier contracts often have a return policy that allows for items to be returned within a certain timeframe, sometimes up to 365 days. To qualify for a supplier return, the items must be in original packaging and “as new” condition. If the dead stock is still within the return window and in good condition, you can return it to the suppliers for a refund. However, it’s important to note that this option may come with a small cost.
Look into Potential Partnerships
When it comes to dead stock, whatever existing connections you may have with some retail companies or e-commerce businesses can be helpful. Work with them to determine the most effective ways to use a limited-supply item.
Sell Your Products on Online Markets
You can sell unwanted items on platforms like Amazon, eBay, and Flipkart, but it will require some effort. If you haven’t already, you’ll need to create product pages with detailed descriptions and SKUs and take product photos. It’s important to carefully understand the rules and regulations of each marketplace before registering as a seller.
Replenish or Re-Merchandise
Unsold inventory can result from factors beyond the quality of the goods. The presentation and marketing of the products may also be a factor. To remedy the situation, consider new marketing and sales strategies to attract customers. Reorganise your store’s layout and shelving to showcase the products in a new way. You can also update price tags and create new signage to enhance the customer experience. If you have a website or blog, consider rephotographing the products and writing a post highlighting their benefits. While it may require additional investment in time and resources, the outcome can be well worth it.
Consider Liquidation
Selling excess inventory to companies that specialise in buying deadstock can help you liquidate it. However, it’s important to note that you’re unlikely to make a significant profit, as these companies are known for buying items at steep discounts. They may also be selective in the items they choose to purchase. Nonetheless, this approach can help you create more space and generate revenue from dead stock.
Dead stock refers to unsold inventory that a business can no longer sell due to lack of demand, expiration, or obsolescence. The cost of dead stock goes beyond its purchase price. It includes storage costs, depreciation in value, and lost opportunities to invest in other products. Businesses may also face disposal costs if the stock cannot be sold or repurposed. Additionally, excess dead stock ties up capital that could otherwise be used for growth or operations. Understanding these costs is crucial to maintain profitability and ensure efficient inventory management.
To calculate the cost of dead stock, start by determining the purchase price of the unsold inventory. Add any associated storage costs, including rent, utilities, and labor for managing the stock. Factor in depreciation to estimate how much the items have lost in value over time. Include disposal costs if the items need to be removed or destroyed. Finally, account for the lost opportunity costs—money that could have been earned by investing in sellable goods. Adding these components gives the total cost of dead stock, helping businesses understand the financial impact and take corrective measures.
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Dead stock can accumulate due to various factors, such as changing consumer demands, ineffective inventory management, and product spoilage. However, successful businesses strive to minimise dead stock on their warehouse shelves.
There are several strategies to decrease the risk of dead stock, including improving inventory management and paying closer attention to customer demands. If you notice slow-moving product lines, take quick action to avoid accumulating dead stock. You can get rid of unwanted items by giving them as gifts, donating them to charity, or selling them at a discounted price.
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