Dealing with Dead Stock (2024)

When it comes to inventory management, knowing exactly how much to order requires a mix ofpredictive data analysis, business experience and customer insight. But even the mostclairvoyant operations are likely to overorder or overproduce from time to time, leaving thecompany with inventory that can’t be sold — otherwise known as dead stock.

Dead stock impacts revenue and cash flow, takes up valuable warehouse space and may eventhreaten a business’s viability. Here’s how to reduce the risk of accumulatingdead stockand smart ways to manage or repurpose excess stock that’s already in your warehouse.

What Is Dead Stock?

Dead stock, also known as dead inventory or obsolete inventory,refers to items that aren’t expected to sell. Dead stock can negatively affect abusiness’sbottom line.

Don’t confuse “dead stock” with “deadstock,” a niche term usedby some consumers, such assneaker enthusiasts. Deadstock usually refers to discontinued lines of unworn sneakers, orvintage items like clothing and fabric that are no longer available on the market but stillhave their original tags. Unlike dead stock, deadstock items often sell at a premium price.

Key Takeaways

Dead stock can be a major expense that reduces profitability by stalling revenue,increasing carrying costs and taking up valuable warehouse space.
Businesses can accumulate dead stock for many reasons, including poor inventorymanagement, falling customer demand and changing economic conditions.
Strategies to manage or repurpose dead stock include discounting, bundling and usingalternative sales channels.
Inventory management software can help businesses prevent dead stock by better matchinginventory levels to demand.

Dead Stock Explained

Dead stock is inventory that is unsellable. Abusiness may find itself with dead stock because it ordered or manufactured too many itemsand then found they didn’t sell as anticipated. Dead stock can also include damageditems,incorrect deliveries, leftover seasonal products or expired raw materials. Perishable items, likefood or medicine, can quickly become dead stock because they usually must be discarded aftera specific time. However, the definition of dead stock doesn’t include merchandisereturnedby customers.

But products usually aren’t deemed unsellable overnight, so at what point does stockbecomedead? It’s often a lengthy process. First, items might be considered slow-movinginventory.If they remain unsold, they become excess inventory and eventually are categorized as deadstock. For accounting purposes, any inventory that doesn’t turn over after a year istypically considered dead stock and becomes a liability.

Why Is Dead Stock Bad for Business?

Dead stock is bad for business because it’s expensive. It ties up capital, impactsrevenue,increases carrying costs and takes up valuable warehouse or shelf space.

For example, dead stock can lead to:

Lost money. The biggest reason dead stock is bad for business isbecause it results in lost money. Companies recoup their investments in inventory onlywhen they sell products. With dead stock, that investment is lost.
Increased holding costs. Also known as inventory carryingcosts, these are the expenses associated with storing inventory. Carrying coststypically include storage space, labor and insurance. The more cash a company has tiedup in inventory, the less it has available for other priorities.
Increased employee wages. The more stock on the shelves, the moreeffort is required to manage inventory. Between reshuffling and counting items and,ultimately, disposal, dead stock can mean higher staffing costs — for items thatultimately won’t bring in revenue.
Lost opportunity to break even or generate profit. Even if you manageto sell dead stock, it’s likely to be at a loss. Plus, the more time spent dealingwithunsellable products, the more you spend on labor and the less time you have to focus onprofitable items.
Less inventory space. Dead stock takes up valuable shelf and warehousespace that could otherwise be used for faster-selling products.

Cost of Dead Stock

The most obvious cost of dead stock is lost revenue. For example, if a business can’tsell200 units of a product, each with a $100 retail price, the company theoretically will lose$20,000 in anticipated revenue.

Other costs can be significant but harder to quantify. A company’s total carrying costscantie up much as 20% to 30% of its capital at any given time, but it may be difficult todetermine how much of that is due to dead stock. The longer an item is stored before sellingit, the higher the item’s carrying costs become, so dead stock is the worst possiblescenario for carrying costs.

Because dead stock monopolizes shelf space, there can also be an opportunity cost. Resourcestied up in dead inventory are not available to invest in inventory that could bring in moreprofits.

As a real-world example, consider that inventory typically represents 35% of arestaurant’sexpenses, but some waste up to 10% of the money they spend on food — you could say abin ofwilted produce is the epitome of dead stock.

What Causes Dead Stock? And How to Avoid?

While poor inventory managementpractices often lead to dead stock, it’s important to note that any businesscanfind itself with shelves of unwanted goods. It’s not always possible to predict trendsindemand, and unexpected economic factors can take a toll on consumer spending.

Here are seven common reasons companies end up with dead stock:

Inaccurate forecasting. Forecasting can’t always be perfect.Flaweddata, unrealistic expectations or factors beyond the company’s control cancause inaccurateforecasting, where businesses incorrectly predict demand and order too muchinventory. It happens to all retailers from time to time.
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How to avoid: Companies can use a variety of strategies toimprove forecasting accuracy, including analyzing order history to get a better ideaof demand, incorporating data about economic conditions and trackingcompetitors’activities. Inventory management software that uses machine learning to identifypatterns in data can help improve forecasting.
Inconsistent ordering practices. Whether buying items at the wrongtime — when demand is low — or ordering too many at once, a company canfind itselfstuck with excess inventory.
How to avoid: One way to avoid the problem of inconsistentpurchasing is by regularly tracking any of the 30-plusinventory management KPIs that are relevant to your business, to help ensurethe company orders the right amount to replenish inventory at the right time.Important KPIs include:
- Inventory turnover ratio: This KPI measures how long it takesto sell inventory and is calculated as the number of times inventory is sold andreplaced over a given period.
- Reorder point formula: The reorder point is an item’sminimuminventory quantity before it must be ordered. It’s calculated bymultiplying theitem’s average daily use rate by the order lead time and adding anyrequiredsafety stock.
Excessive SKU count. Finding the right balance between too many andtwo few product offerings can be a challenge. Stocking a wide variety of productsmay seem like a good way to widen your customer base, but the more SKUs you offer,the more you have to manage — and the more you have to sell.
How to avoid: Excessive SKU count can be a natural resultof a business’s growth and the process of figuring out its customer base, soitcan’t always be prevented. But it can be managed. Routinely analyze your SKUsto identify which are top performers and which are underperforming. The sooner youcan spot slow-moving items, the sooner you can spare yourself the cost and troubleof housing excess inventory while minimizing the SKU’s potential fate as deadstock.
Poor sales. A product may not sell for several reasons — itspricemay be too high, it may be out of style, it may be less appealing than a competingproduct or it may not match the target market’s needs.
How to avoid: The first step is to determine the cause ofpoor sales. You may need to become better attuned to your customers, adjust pricingor revise inventory management strategies.
Drop in demand. Even if your company has solid forecastingcapabilities, changing market conditions can lead to sudden, unpredictable drops indemand, leaving the company with inventory it can’t turn over.
How to avoid: It’s not easy to be prepared forfactors thatare outside your control. You can mitigate the impact by maintaining efficientinventory management practices that reduce over-ordering and preparing contingencyplans in case demand falls. The nimbler your supply chain, the more quickly you canadjust. Some companies have launched supply chainvisibility (SCV) projects to make sure they can adjust quickly.
Quality issues. Defective or subpar products can leave you withitems that customers simply won’t buy.
How to avoid: Set rigorous standards for raw materials andproducts before they enter your warehouse and during manufacturing. Focus on productspecs, packaging requirements and setting acceptable quality limit (AQL) standards.
- Product specifications: Examine items when you receive them. Ifany item received doesn’t match specification, get it replaced —don’t risktrying to sell bad products.
- AQL: Acceptable quality limit, also known as acceptance qualitylevel, is usually expressed as a ratio of the number of defective items over thetotal items sampled. AQL is used to determine at what point a product or rawmaterial doesn’t meet quality standards.
Lack of customer interest. If customers aren’t interested inwhatyou’re selling, there’s a good chance you’ll end up with deadstock.
How to avoid: Better market research, including talkingdirectly to customers, can help you become attuned to customer desires and needsbefore making product investments. If an existing product is selling slowly andrisks becoming dead stock, try offering it at a discount.

8 Tips to Effectively Manage or Repurpose Dead Stock

Dead stock is a common enough problem that nearly all businesses experience it from time totime. Fortunately, there are ways to minimize potential losses. Here are some of them:

Give a free gift with purchase: You can get rid of dead stock bygiving it away when customers buy another item, though this tactic may not help yourbusiness’s bottom line except by freeing up space that you can use for otherinventory. Still, it might inspire customers to make a purchase because they will begetting more value out of their orders. And, studies have shown that after receivinga free gift with purchase, customers may be more likely to shop at the same retaileragain.
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To minimize losses, consider offering a free gift only when customers exceed aminimum purchase limit, such as $100 or more.
Bundle products: You may be able to offload dead stock by bundlingit with another, related item and selling the bundle at a price that’s lessthanwhat customers would pay for the items separately. This approach is also known as“kitting.” Like all tactics to offload dead stock, your profit marginswill likelytake a hit. To recover as much revenue as possible, it’s best to bundle deadstockwith highly popular items that are likely to sell anyway.
Avoid mismatching products: If customers feel like they’re being forced topurchaseitems they don’t want or need, they’ll be less likely to find value inthe bundle.

Partnerships: If you have a positive existing relationship withanother company, think about ways you might be able to shift dead stock bypartnering to offer a co-branded product bundle, or sending that stock as a freegift with purchase from the company you partnered with.

Another option is to co-sponsor a closeout sale or factory sale where all dead stockis sold at a low price for a limited time only.

Stocking Method	How It Works	Who & When
FIFO (first in, first out), LIFO (last in, first out)	LIFO assumes goods last added to inventory are first sold; FIFOassumes goods first added to inventory will be the first sold	FIFO: Industries where goods are perishable; LIFO: Any businesswith rising costs; sell most costly items firs for accountingbenefit
Fixed order quantity	Only specific quantities of items may be ordered; minimizeserrors, storage space issues and unnecessary expenditures	Use when industry costs are stable
Fixed period ordering	Item only ordered at a certain time, with replenishment linkedto intervals	Use when demand fluctuates; quantity differs
Vendor-managed inventory (VMI)	Vendor or sales rep manages your stock. An example is beveragesor bakery goods	Use when demand fluctuates and goods are perishable
Min-max	Set minimum and maximum quantities for all items	New or small businesses that want to keep it simple
Just-in-time (JIT)	Goods are brought onsite only when needed	Experienced practitioners with solid data, used by Leanmanufacturers
Two- or three-bin system	One container of same stock item always in use, one or twocontainers always full	For small items in modest quantities that can be quicklyresupplied
Set-par levels	Order when a minimum number of items remain. Recalibrate levelsregularly	All businesses

Return goods to the supplier: You may be able to return excess rawmaterials or non-perishable retail items to their suppliers. Even if a supplierdoesn’t offer a full refund, it may purchase the dead stock at a percentage oftheoriginal price, allowing you to recoup some losses, or it might provide you with acredit. If the supplier offers a credit in return, be sure you’ll be willingtopurchase from the supplier again.
Note that you may have to pay for shipping and restocking fees.
Offer discounts or have a clearance sale: Discounts and clearancesales may be the most straightforward way of dealing with dead stock. Even if youdon’t get the profit margin you originally hoped for, selling dead stock at adiscount can help you get cash flowing while freeing up space. Advertise big savingsto customers; they may be more encouraged to buy. Clearance sales can be especiallyeffective if your dead stock is full of seasonal — yet still useful —items.
Take advantage of wholesale sellers: If you can’t sell deadstock toyour customers, you may be able to sell it to another company that will resell it atdiscounted bulk pricing. There are several options:
- Wholesalers buy goods from manufacturers at a lower price and then sell them toretailers for a higher price. The retailers then sell items to consumers.
- Closeout wholesalers focus on turning over end-of-life-cycle products.
- Liquidation companies exist to resell excess stock. They usually buy dead stockat a very low price, so you might not break even — but at least you canfree upshelf space for more profitable items.
Try a different sales channel: If your standard sales methodsaren’tworking, consider selling products in an online marketplace, such as eBay. Siteslike these typically already have audiences, so you may be able to tap into newcustomers who haven’t previously heard of your company or seen your products.Youmay have to put in some effort to manage your products on online marketplaces, butthe sites’ search functions can make it easy for consumers to find your items.
Note that you may have to pay to sell via online marketplaces, either through salescuts or monthly fees, so it’s a good idea to thoroughly read the terms andconditions in advance.
Donate dead stock: While donating dead stock to a good causewon’t helpyou recoup lost revenue, you may qualify for tax deductions and make a good impressionon customers. More and more consumers — especially younger consumers — careaboutcorporate social responsibility when making purchasing decisions. One study found that81% of millennials expect companies to “make a publiccommitmentto good corporate citizenship.”

5 Ways to Avoid Dead Stock

While it’s important to know how to get rid of dead stock when necessary, it’seven better toavoid having dead stock in the first place. Better inventory management, quality control andresearch into customer needs can help.

Here are some specific measures companies can take:

Invest in inventory management software: Companies that perform inventorycontrol and management manually usually have limited visibility intoinventory levels because they rely on periodic physical inventory checks and lack acontinuous flow of up-to-date information.
Inventory management software can help companies avoid dead stock by trackinginventory levels in real time and forecasting demand to make informeddecisions about how much inventory to purchase. You can monitor the performance ofall your SKUs so you can see which items are selling and which aren’t and takestepsto increase sales or phase out items at risk of becoming dead stock.
Test products before mass producing: Making small batches of productsand seeing how customers react before committing to larger-scale production may be moreexpensive upfront, but the advantage is that you hedge the risk of ordering ormanufacturing a large number of units that don’t sell. Meanwhile, you can getcustomerfeedback and possibly discover changes you can make to improve the product and boost itschances of success.
Ensure products are high-quality: Quality issues are a common cause ofdead stock. If customers are not satisfied with your products, they’ll stopbuying.Before mass manufacturing or ordering in bulk, establish rigorous quality assuranceprocesses to ensure there are no defects in the raw materials you use and the productsyou ship to customers. Every component should be of adequate quality to meet customerneeds.
Monitor slow-moving products: Keep an eye on slow-moving SKUs —theymay become dead stock in the future. To do so, you’ll need a moderninventory management system that tells you which items are languishing. Once youidentify lagging SKUs, be proactive about getting rid of slow-moving stock before itfurther damages your cash flow. And, attempt to identify the cause and a potentialremedy for the future. You may need to offer promotions or discounts, phase out theproduct or revamp the item.
Survey customer needs: If you know what customers want, you’ll bebetter positioned to avoid dead stock in the first place. Send out customer surveys, andconduct market research before investing in new products. And, continue gatheringcustomer feedback after you start selling those products — the results may alertyou topotential issues that could lead to future dead stock problems, such as changingrequirements or a drop in product quality.

Eliminating Dead Stock with Inventory Management Software

Inventory managementsoftware can help eliminate dead stock by continuously monitoring and managinginventory levels to ensure you have just enough inventory to meet demand.

Advanced inventory management software can improve forecasting capabilities by using machinelearning to analyze usage and demand, while automatically calculating the optimal time toreplenish inventory items. This helps companies avoid holding excess stock that could end upsitting on shelves indefinitely. Leading software solutions support inventory trackingacross multiple locations and enable businesses to trace items through their entirelifecycles to track product quality issues.

Bottom line, avoiding dead stock can be challenging for businesses of any size. Companies canbe left with dead stock for many reasons, from inconsistent ordering practices to economicdownturns and quality issues. However, businesses can take steps to minimize the risk ofdead stock by using inventory management software, monitoring customer demand and applyingrigorous product-quality standards.

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FAQ

Q: What does the term “dead stock” mean?

A: Dead stock is inventory that a company has held for a long time and isunlikely to sell. To get rid of dead stock, companies may employ strategies such as offeringdiscounts or bundling dead stock with better-selling products.

Dead stock shouldn’t be confused with “deadstock,” a niche termthat’s applied to someconsumer items, such as discontinued lines of sneakers and apparel, that are often highlycoveted and sold at a premium price.

Q: Does deadstock mean an item is authentic?

A: The term deadstock, as applied to consumer goods, means the item beingsold is authentic. Deadstock goods must be brand new, never worn and usually include theoriginal tags.

Q: What is deadstock fabric?

A: Deadstock fabric is past-season fabric that went unsold, usually becauseit was surplus, unwanted by the designer, slightly damaged or of subpar quality. Somefashion companies may source deadstock fabric to save money or prevent fabrics from beingthrown away.