For businesses today, keeping the right amount of inventory on hand is a tall order. Supply chain complexity is ever increasing and isn’t as reliable as it once was. It can be tempting to stock up on inventory to avoid running out of products. But, if you miss the mark and buy too much, you run the risk of ending up with dead stock. Neither is a particularly favorable outcome for a business.
Ecommerce businesses often hold 20-30% of dead stock. Since inventory ties up the most cash for any product-based business, dealing with this problem is a must. Solid inventory management is essential for cash flow. Explore how your company can eliminate the hassle of dealing with inventory altogether with print-on-demand.
Dead stock, also called obsolete stock, is made up of products that are unlikely to ever sell. Inventory usually becomes obsolete when it reaches the end of its lifecycle. These are the items that have lost relevancy and are no longer in demand.
Every new collection or limited edition product line has the potential to contribute to a dead stock problem. While it may seem like unsold inventory is not doing any harm, it’s taking up valuable space and tying up finances that could be better put towards the growth of your business.
Stock usually goes through several stages before it becomes unsellable. Most often it starts off as a slow-moving product, then becomes excess inventory, and finally turns into obsolete inventory.
Each business has to define its own timeline and set parameters for when an item will be considered not sellable anymore. This can vary per industry and per company.
Dead stock and excess inventory are sometimes used interchangeably, but there’s a major difference between the two: excess inventory still has the potential to sell out. Dead stock is a product that has lost its relevance and market demand no longer exists for it. An easy example of this could be apparel or accessories with “Happy 2022” printed on them. The demand for this exact item won’t return and these products won’t be sellable beyond the 2022 holiday season.
Excess inventory often tends to become dead stock the longer it lingers in the warehouse. Typically, unsold merchandise is considered dead stock after the item has been shelved for a year or more. Therefore, it’s important to identify these slow-moving stock items and take appropriate action to ensure they are sold, and not taking up valuable warehouse space. As we discussed, seasonal items can easily end up dead stock, but what about other types of inventory that aren’t selling? Let’s have a look at some of the main contributing factors for how excess inventory can (unfortunately) become dead stock.
It’s not always possible to accurately predict trends and product demand. Customer spending patterns can be influenced by internal and external factors. Although reasons for stock to become obsolete vary per industry, there are some common causes of dead stock. We break them down below.
One of the most common reasons for products not selling as quickly as you anticipated is underwhelming quality. Product quality and demand are directly correlated—consumers have high standards and if they’re not convinced, they won’t make the purchase. Negative product reviews can result in poor sales and put a dent in your brand reputation. Even trendy, high-demand products can turn into dead stock if the quality is not up to par. Customers will look for higher quality alternatives, leaving you with declining demand and excess stock that is en route to becoming dead stock.
Inaccurate demand forecasting can quickly lead to excess inventory for your business. Trends can shift and change virtually overnight, and when a newer version of a product is released, it makes the older version obsolete. Imagine you sell phone covers for the iPhone 13, once the newer iPhone model is released, the demand for model 13 phone covers will decrease significantly. Merchandise will become slow-moving, then excess inventory, and ultimately dead, unsellable stock.
Accurate demand forecasting is difficult since it requires a thorough understanding of the market and product demand. But even then some factors are hard to predict and account for. If a product goes viral on social media overnight, there is no way to predict or account for it in your product demand forecast and communicate it with your suppliers. However, overestimating a product’s popularity can leave you with excess product that just won’t sell and eventually turn into dead stock.
Offering an extended range of products to your customers is often effective to attract new customers. Consumers like variety and the option to choose. On the flip side, managing the supply and demand of all these products becomes much harder. Stocking a vast assortment of merchandise increases the overall cost of your operations. The more products you list on your storefront the more you have to manage and sell. Your chances of accumulating slow-moving inventory that will become dead stock go up as you add more products. Regular analysis of your stock is vital to identify any underperforming items and tweak your offering accordingly to keep a healthy, well-selling range of products.
If you’re selling good quality, high-demand products, and your inventory isn’t moving as rapidly as you’d like, it could be due to a lack of marketing and sales activities. Think about: is your strategy thorough enough? Are you targeting the specific needs of your customers? Do you have a clear direction? Poor communication between your sales and marketing teams, incorrect product messaging, a bad website experience, and a lack of customer understanding can also contribute to high-demand products staying unsold. Some little tweaks here and there in your approach can make a big difference in terms of sales—and help you avoid dead stock.
Once inventory remains unsold for more than a year it switches from an asset to a liability. On average, only 60% of all products are sold at full price due to slow-moving or dead stock. This means there is a significant cost involved with dead stock, and that’s just one of the reasons why it’s bad for business.
Business is all about profitability and dead stock gets in the way of that. First, the longer an item sits on the shelf of your warehouse, the larger the holding costs of this item become. When outdated inventory is left on shelves for too long, you also miss out on opportunities for potential sales and profit on newer goods. Product markdowns are another issue: in 2018 alone, retailers reported a $300B loss in revenues due to price reductions. If the product is in high demand, you can get away with higher profit margins. The opposite is true when it comes to slow-moving or dead stock.
Storage space is often paid for per cubic foot or cubic meter and can get pretty pricey. On top of rent, you also have to pay insurance, building maintenance, utilities, and other fees associated with inventory management. If 20–30% of your warehouse is storing slow-moving inventory or dead stock, you might need to rent additional space to make room for the quicker selling and profit-making items. This excess expense can quickly become a burden on your business.
In small quantities dead stock might not seem like much extra weight on your budget but with shelves full of unsold merchandise that takes time to sort through and manage, it can become a real drain on your resources in the long term.
We know that warehousing space is expensive, and even more so when up to one-third of the stock you hold is not going to turn a profit. Keeping dead stock on hand can cause a lack of available space for new product lines or equipment. This may force companies to have to relocate a facility or look elsewhere to store their products, which can stall growth. It’s essential that you’re able to make the best use of the space you do have with well-balanced inventory from the get-go.
Dead stock is difficult to avoid completely. Even with an extremely accurate demand estimation, there’ll always be a few items that didn’t sell. That said, there are several ways to minimize or even eliminate the risk of dead stock. Below we break down what you can do to avoid this problem.
One way to solve a problem is by eliminating the root cause. The print-on-demand business model does just that. It takes the issue of having excess inventory out of the equation, so dead stock will no longer be a problem down the line. With this type of fulfillment method, orders are produced as they come in. Every garment is already sold and paid for before production even begins. Print-on-demand also allows you to test new products and designs without any of the drawbacks or risks—no inventory or upfront investments. If a product is not selling as well as you expected it to, you can simply remove it from your storefront with a few clicks.
Anticipating the demand and analyzing the numbers can be a good way to minimize unsold inventory. That’s what inventory management software does: it forecasts the demand depending on historical data. This type of software is extremely useful and can be an effective way to manage inventory. However, the global pandemic has shown us that some things can’t be predicted. External factors and customer behavior patterns change, and are difficult to account for even with the most advanced inventory management software.
Order fewer stock items from suppliers now to ensure that it sells out later. That’s a surefire way to avoid dead stock altogether. However, this strategy comes with a price. If the product turns out to be in high demand and sells out quickly, customer interest might no longer be there by the time your next shipment comes in. You cap your potential to turn a profit by ordering limited amounts of inventory.
As we’ve established, it’s challenging to avoid dead stock completely if you work with suppliers and receive inventory in batches. So what can you do if you have dead stock lying around? Let’s take a look at some ways of unloading it.
Possibly the easiest way to get rid of dead stock is by offering a discount. It might not provide the kind of profit margins that you’d originally hoped for, but it’ll create cash flow and make more room for products that sell better. When taking the route of selling dead stock, it’s important to create momentum: hype up the sale and create urgency among your customers for the best outcome. This can be done by hosting a limited-time or limited-quantity offer. Flash sales appeal to our sense of urgency and help motivate customers to buy now instead of later. It enhances customers’ fear of missing out and brings in more sales in return.
This is a straightforward way to fix a dead stock situation. Depending on the nature of your product and how long it’s been in your warehouse, the supplier might agree to buy back the unsold stock in exchange for credit or new merchandise. Manufacturers rely on retailers to market and sell their merchandise so in certain situations they might be forthcoming and buy back your stock. You may have to cover the shipping costs and won’t be refunded the shipping that was already paid. But, you’ll be able to get part of the money you invested back and cut your losses to some degree.
Inventory that’s collecting dust on your warehouse shelves only costs you more as time goes by. So why not try and use dead stock to your advantage? Giving products away as freebies to your customers is one of the fastest ways to eliminate dead stock. You can either make it an add-on gift to existing orders or organize a giveaway. Hosting giveaways is a great way to increase sales of your other products while also boosting brand awareness. Make sure the product is something your customers will appreciate and it’ll work to your advantage, strengthening customer satisfaction and loyalty over time.
Since dead stock can hinder your business from growth and become a liability, it’s important to have the right approach in place to avoid it.
When it comes to managing your inventory and avoiding dead stock, your best bet is to produce products on demand and avoid stock management altogether. It’s the only inventory management strategy out there that’s a sure bet.
Have more questions on how on-demand fulfillment works? Let us know in the comments.
Marta is a Content Marketing specialist at Printful. She has a degree in International Communication Management. Her interests lie in human psychology and digital marketing.