Got cash caught up in stock just sitting in your storage facilities? You might have a dead stock problem on your hands. However, you are not alone. It’s a problem that many businesses in the UK struggle with, so below, we’ll explore what deadstock is, what causes it and how to avoid it.
What is dead stock?
Inventory of products that haven’t sold for a long time and don’t look likely to sell any time soon is referred to as dead stock. For retail and e-commerce businesses, seasonal items are the type of product that would end up as dead inventory. For example, if you have 2021 diaries in your warehouse, it is unlikely to sell them after the year has ended.
Dead stock doesn’t include items that have been returned by the buyer for any reason, as those have actually been purchased already. It only covers obsolete inventory that probably will never leave the warehouse where it’s kept. Having excessive amounts of dead stock or a recurring dead stock issue indicates inventory management issues.
You may also come across deadstock as used to describe discounted clothing items for sale. This usually applies to branded items, such as sneakers or trainers, that are longer available to purchase via the usual channels but can be bought for less from warehouses that have excess stock.
Why is dead stock bad for your business?
Deadstock can negatively impact your business and your bottom line in many ways. Here are some of the biggest problems your company could be faced with:
Cash flow problems: When your money is tied up in stock that doesn’t sell, it can’t be invested into anything else and this causes cash flow problems.
Storage costs: Keeping your dead stock in a warehouse is an ongoing cost that your business has to support and since the dead stock isn’t going anywhere, you are most likely to continue paying indefinitely until you find a way to get rid of the obsolete stock.
Time lost: Managing excess inventory is something that takes up time that your staff could have spent elsewhere.
Money lost: The investment you have made in stocking products that don’t sell will never bring any return, causing your business to lose money.
Missed opportunities: With the capital you have put into dead stock, you could have potentially invested in other products or activities that could have been profitable for your business
What causes dead stock?
Dead stock is, unfortunately, a rather common issue amongst businesses as it is caused by three very common problems:
Bad ordering practices – ordering too many items or re-stocking at the wrong time are definitely bad inventory management practices that can lead to unwanted items sitting on your shelves
Bad targeting – if you don’t know what is in demand in your niche market and what your customers are looking to buy, you are bound to miss your sales targets
Bad product quality – if people are not buying your products because they are defective or not as high-quality as other products on the market, your quality checking standards probably need to be reviewed
How to avoid dead stock?
If dead stock is an issue that negatively impacts your business, there are a few things you can do to avoid the unnecessary expenses associated with it:
Go small
The first thing you can do is identify the products that are being overstocked and reduce the ordered quantities. Ordering in bulk may reduce the initial cost per item but the losses caused by dead stock are likely to be higher. Take the same cautious approach when it comes to new products, as well, to test how they perform on the market before committing to bigger orders.
Ask your customers
Customer surveys are a great tool that gives you an insight into the needs and desires of your customer base. There is no better way to find out what products would be successful than to ask the people who you expect to buy them what they are looking for. Once you have this information, you can avoid ordering the products that no one is interested in and reduce your dead stock problem.
Do your research
Doing extensive market research before launching a new product or investing in large stock quantities of an item can save you a lot of money tied up in dead stock. When you see what your competitors are doing well and the buyers that their products attract, you can make better decisions on what to order. Remember that checking out the competition is always a good idea.
Improve your inventory management
Good inventory management is the key to avoiding dead stock and other inventory-related issues. You should consider implementing digital inventory management software to help you get visibility and control stock better. Another good option is to outsource your inventory management to a third-party logistics provider, such as ADP Distribution.
How to get rid of dead stock?
We’ve given you some tips on how to avoid dead stock in the future but what should you do with any dead stock collecting dust in your warehouses right now? Here are three easy ways to manage the excess stock and free up the storage space for more profitable items:
Bundle it up
Kitting or bundling is one of the most common techniques to get rid of unwanted stock. Simply, add the items you don’t need as a gift that you give your customers when they order another product. You won’t make a profit on the dead stock but you’ll stop losing money on storage and you will make your clients happy (everybody loves a freebie!).
Clearance Sale
Yep, that big bold CLEARANCE SALE sign is an oldie but goodie. Customers tend to buy things they otherwise probably wouldn’t when the price is too good to resist. With a low clearance price tag, you may not even break even but you will definitely cut down your losses and you can move on to selling more successful products.
Online shopping
You may be able to resell your unwanted items to an online outlet retailer. It’s a good way to get rid of the dead stock in bulk, rather than spending the time and effort to try to clear it yourself. A minimal payout is better than none, after all.
The good news is that dead stock doesn’t have to be an issue you are always having to deal with. Once you know the true meaning of dead stock and learn how to manage it, you’ll soon enjoy a better cash flow along with improved profit margins.
