Dead Stock: A Guide To Handling It

Dead stock is an inevitable part of running any business. At some point, you’re going to end up with inventory that’s no longer selling – products that sit on the shelves or in storage gathering dust.

As a business owner, there comes a time when you need to make a decision about that dead stock. You have two main options:

• Donate the products to charity
• Sell off the inventory, even at a loss, to recoup some money

Of course, there are pros and cons to both approaches. And it often depends on factors like the total value of the dead stock and your specific business needs.

Regardless of which path you choose, properly handling that dead stock is important for the health of your business. Letting inventory sit indefinitely ties up capital and takes up storage space. Here are some tips:

What is dead stock?

Deadstock refers to inventory items that are stale, outdated, or damaged and unlikely to sell at their original price. Here is the actual dead stock meaning and it’s an example:

Stale inventory

Products that have exceeded their expiration date. For perishable goods like food, this means the products are actually spoiled and usually discarded. But for other products, being “stale” simply means the item is no longer in style or demand.

Outdated inventory

Products that are no longer in style, no longer compatible with newer items, or are technologically obsolete. As customer tastes change and new versions of products appear, older inventory can become outdated and unsellable.

Damaged inventory

Goods that have been physically damaged during shipping or storage, making them either unusable or unsellable at full price. The damage may have occurred for a variety of reasons, like leaks, tears, broken parts, chipping, fading, etc.

Also Read: What is Retail Inventory Method and How Does it Work?

Dead stock causes

There are several reasons dead stock can build up in a business:

Overproduction

Producing more of an item than there is demand for is one of the main causes of dead stock. Businesses may overestimate sales forecasts or produce in large batches to save on costs without checking actual sales trends. The excess inventory then sits unused.

Changes in consumer tastes

As consumer tastes and trends change rapidly, products that were once popular can quickly become outdated. Businesses may end up with excess inventory of products that are no longer in demand. This is especially common for products like apparel, electronics, and home decor.

Changes in product design

Businesses may introduce product redesigns that make their existing stock obsolete. For example, updated smartphone or laptop models can leave previous versions as dead stock. While the products may still work, consumers prefer the newer versions.

Supply chain issues

Problems in the supply chain like delays, order errors, or mismatches between supply and demand can all result in dead stock. Businesses may receive incorrect amounts of inventory that cannot be immediately sold.

Defective or damaged goods

Faults in quality control processes can allow defective or damaged products to become part of the inventory. These issues may not be identified until after the products are in stock, leading to dead stock that cannot be sold to customers.

Why is it important to get rid of dead stock?

Dead stock is excess inventory that doesn’t sell—items that have been sitting in your warehouse or store for a long time. There are several reasons why getting rid of dead stock is important for any business:

1. Costs money to store and manage

Deadstock still costs money even though it’s not selling. There are warehousing costs, insurance costs, regular inventory checks and reorganization, and labor costs related to managing dead stock items. The longer items sit, the higher these costs accumulate over time.

2. Takes up space unnecessarily

Having a bunch of deadstock items taking up space means you have less room for new, profitable products. This limits your ability to bring in newer, trendier products that actually sell. The longer items sit, the more space they consume without providing any revenue.

3. Damages your brand image

Having products that have clearly been sitting around for a long time and are out of date can damage customer perceptions of your brand. Customers see old, dusty products and may wonder why your store can’t keep up-to-date inventory.

4. Impacts cash flow

Deadstock ties up cash that could be used for purchasing new inventory, investing in your business, or growing in other ways. The longer items sit unsold, the longer that cash remains tied up not generating any revenue.

Is dead stock bad for your business?

While having dead stock simply sitting in your warehouse or storefront can be frustrating, it can actually be detrimental to your business if it’s not handled properly. There are a few reasons why:

Lost revenue

The products sitting as dead stock represent lost revenue potential. Every extra month or year they sit unsold means your business is missing out on the profit that product sales could have generated. This can add up significantly over time.

Extra costs of storage

You have to pay for the warehousing or retail space that dead stock occupies, as well as any costs to store and insure the products. These overhead costs chip away at your profits without generating any revenue in return.

Difficulty liquidating

The longer products sit unused, the harder and more expensive they typically are to eventually sell or liquidate. Their value decreases and potential customers are harder to find.

Lost future sales

If you continue to allocate resources like production or marketing budgets to products that aren’t selling, you take away funds that could be used on products customers actually want. This can stunt your business’s growth potential.

Damaged brand perception

Seeing products that are clearly outdated for extended periods can give customers the impression your business is not on top of trends or is unable to properly manage inventory. This can damage your brand and company reputation over time.

How can we reduce deadstock?

Reducing deadstock can help businesses save money, improve cash flow and optimize warehouse space. Here are some ways to reduce deadstock:

Improve demand forecasting- Accurate demand forecasting based on historical data, customer preferences, and market trends can help you order the right amount of inventory and minimize overstock. Invest in good forecasting e-commerce inventory management software and tools.

Offer discounts – Once you realize you have excess inventory of a particular product, offer promotions and discounts to clear it out. Consider flash sales, coupon codes, and BOGO deals. Even selling at a loss may be better than letting products sit unused.

Donate to charities – For unsold inventory that you cannot sell at a discount, consider donating to charities. Many charities will take certain types of unused goods and products to distribute to those in need. Check what charities will accept your products before donating.

Liquidate through liquidators– As a last resort, work with a liquidator to sell your deadstock in bulk. Though you may get lower prices, liquidators can help clear entire excess inventories fast and realize some revenue rather than no revenue.

Review ordering and replenishment policies – Analyze why deadstock happened and adjust future inventory ordering strategies. Consider ordering in smaller batches more frequently to match demand and reduce the risk of overstock.

How to calculate dead stock costs?

The costs associated with dead stock need to be calculated carefully to understand their impact on the business’s finances. Several factors contribute to dead stock costs:

Purchase cost

The initial purchase cost of the dead stock inventory items is an obvious cost to factor in. This includes the costs paid to suppliers for the products as well as any freight and customs charges.

Storage and handling costs

As dead stock sits idle in storage, it continues to accrue costs related to storage space rental, insurance costs, and inventory handling/moving costs. These overhead costs can add up significantly over time.

Opportunity costs

Funds that are tied up in dead stock inventory cannot be used for other purposes that could generate revenue for the business. The potential revenue lost represents an opportunity cost that should be considered.

Depreciation and obsolescence

Over time, inventory tends to depreciate in value due to factors like damage, expiration, or loss of market demand. This depreciation also represents a cost to the business.

Disposal and liquidation costs

Finally, the costs of disposing of or liquidating dead stock inventory should be factored in. This can include costs of donations, returns to suppliers, liquidation sales, or proper disposal of unusable products.

Here are the steps you need to take for your dead stock calculation:

First, do a thorough inventory of your stock to identify items that fall under dead stock. This includes products that are:

• Outdated
• Damaged
• Discontinued
• Unsold for a long time

Make a list of all dead stock items along with their quantities. Then take the following steps to calculate dead stock:

Step 1: List the cost price of each dead stock item. You can find this information on purchase invoices or in your accounting records.

Step 2: Add up the total cost price of all your dead stock items. This gives you the total dead stock value in cost price.

Step 3: Calculate the current market price of each item by checking online marketplaces and retailers.

Step 4: Multiply the current market price of each item by its quantity to find the current market value.

Step 5: Add up the current market value of all dead stock items. This gives you the total dead stock value at current prices.

Step 6: Subtract the total dead stock value at cost price (Step 2) from the total at market price (Step 5). The difference is your dead stock loss.

For example, if you have 10 outdated shirts that cost you $10 each but currently sell for $5 each, the calculation would be:

Cost price = $10 × 10 shirts = $100

Current market price = $5 × 10 shirts = $50

Deadstock loss = Current market value ($50) – Cost price ($100) = -$50

Once you accurately calculate your dead stock loss, you can figure out the best options to reduce that loss through strategies like markdown sales, donations, or recycling. Regularly monitoring dead stock can help minimize future loss by improving your ordering and shelf life management.

Proactive strategies to prevent dead stock

Having dead stock is almost inevitable in retail, but there are ways to minimize it through proper planning and management. Here are some proactive strategies to help prevent accumulating too much dead stock:

1. Carefully Plan Orders

Analyze sales data and purchase history to determine accurate order quantities. Compare current trends to previous years. Consider factors that may affect demand like promotions, seasonality, and popular trends. Then place smaller, more frequent orders instead of large bulk orders. This reduces the risk of overstocking.

2. Provide Flexibility in Orders

When placing orders, ask your suppliers about cancellation and return policies. Ask if orders can be changed or adjusted prior to shipment if needed. The more flexibility, the better able you will be to adapt orders to changing demand.

3. Monitor Stock Levels Closely

Track stock levels carefully using inventory management software. Set threshold levels to trigger orders or adjustments. Alert responsible employees when thresholds are reached so orders can be placed or stock reduced quickly through discounting and promotions.

4. Offer Discounts and Promotions

Seasonal sales and markdowns help keep stock moving and avoid accumulating too much dead stock. Start small initial discounts and gradually increase them over time to motivate customers and clear stock.

5. Donate or Liquidate as Needed

If dead stock accumulates despite your best efforts, consider donating unsold items to charities or schools. As a last resort, hold a liquidation sale to finally dispose of stock at deeply discounted prices.

Following the steps in this guide will help you properly identify, handle and offload excess inventory in a way that benefits your business.

Once you’ve gotten dead stock under control, the next step is to implement systems that will help you avoid accumulating excess inventory in the future. Using a robust and the best POS for small businesses like Hana Retail with real-time inventory tracking and sales analytics can give you the visibility and insight you need to order inventory intelligently and keep products moving off the shelves. 

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