What Is Dead Stock?
Imagine carrying a really heavy backpack around day in, day out. Sure, you can still move, but lugging it up a mountain will leave you exhausted. Imagine the sensation of dragging that extra weight around… and now imagine your business feeling the same way. Now you’re wondering: What could be that additional weight that’s dragging my business down? My products are selling well, my yearly revenue is increasing…
That’s what you’d think, but somewhere in your warehouse, there’s a high chance that with every change of the seasons, there’s an ever increasing amount of products that simply won’t sell – what’s referred to as dead stock.
Dead stock are products unlikely to ever move from the shelves on which they rest; lurking forgotten on a back shelf in your warehouse and they’re slowly but surely draining valuable finances which can be put towards growth.
Just think about how much you’re losing through carrying costs by choosing (inadvertently or otherwise) to continue holding on to these dead stock. First, there’s the opportunity cost of using precious space to store these has-beens/never-beens. For every bin dedicated to dead stock, that’s a lost opportunity to stock up on more of your top sellers. Are the benefits of choosing to hold onto dead stock enough to outweigh the potential of freeing up that space to increase revenue? Probably not.
On top of the opportunity cost, there’s also storage costs to think about. These can take the form of rental costs for warehouses, the money spent on utilities, insurance, security, and equipment… the list goes on. All these costs are supposed to be covered by your revenue from selling your products, but your dead stock aren’t pulling their weight in helping you cover these expenses. Instead, you’re spending money on storing them.
Here are three ideas on how you can cut your business free from the weight of dead stock:
1. Bundle it
Bundle your dead stock with more current products, and sell the combination at a discount. You’ll be able to move a high volume of items quickly and get these freeloading dead stock items out of your warehouse ASAP. Sure, your profit margins may take a beating, but it’s better to sell off as much as you can – at the very least you’ll be able to recoup the cost price.
Or you could use your dead stock as giveaways(Get a free gift with every purchase of $100); everyone likes free things, AND you’re encouraging them to spend more to qualify. Offering good value for money is the best incentive to get customers spending since not everyone wants to pay full price for items they don’t like enough, but a free gift and/or a big discount will get them spending.
2. Return it to your supplier
You’ve tried to sell your dead stock off at a discount, but customers aren’t really biting. These stocks only arrived recently and you soon figured out these products weren’t quite your usual customers’ cup of tea. You’re sure there’s a market out there, somewhere, for purple-sequinned trucker-caps, but it doesn’t seem to overlap with yours.
The best option then would be to try to sell it back to your supplier. If it’s still current and there’s enough room in the return policy, you may be able to convince your supplier into taking back the slow moving products. But do prepare yourself for the prospect of making a small loss on returning dead stock to your supplier; what’s likely to happen is they will offer you credit (eg. $5,000 worth of credit for stock valued at $5,000) instead of receiving cash. There’s also a high likelihood you’ll be charged a restocking fee of about 10% to cover any repacking needed.
3. Donate it
This option is a little more country-specific than the others. But if you’re a clothing retailer in the United States and you’ve just found a carton of dead stock from four years ago lying forgotten in a corner of your warehouse. You’ve got a slim chance of selling it to your customers (if it didn’t sell then, it’s not likely to sell now…) but the contents are still new. It seems wasteful to throw everything away in the name of spring cleaning your business, but what other options do you have?
The great thing is, charities in the U.S. will be glad to take the load off your shoulders. And the best part for you is that you get to do a good deed by donating to charity… plus you get to claim a tax write-off!
To enjoy this benefit, you have to make an agreement with the charity, stating that the items were donated at no cost to the charity. Signed receipts by your charity of choice and your business will document the transaction, and you get to deduct the market value of the inventory from your taxes after donation. And… if your donations are used directly to care for the ill, needy, or infants, you’ll get even more tax breaks from the IRS.
After you’ve successfully cleared out all the dead stock from your warehouse, it’s time to reduce the possibility of being stuck with dead stock. To solve this problem, you need reliable inventory system software to know when products are on the verge of “death” so you’ll be able to eliminate them from your inventory before they become dead stock.
Inventory management software allows you better visibility of stock movements. You’ll be able to generate intelligence reports, tracking the performance of all your different SKUs. Through these, you’ll know when something isn’t selling well, and make plans to phase out “dying” products from your store. Running these reports regularly will keep you in the loop when a product is falling out of favor with customers so you’ll can stop reordering immediately.
Intelligence reports using order management software can also save you from the panic of dealing with unexpected discoveries of forgotten dead stock. Once you’ve marked out products as “dead” and “dying”, set them aside in a separate section of your warehouse, and you’ll see immediately how much space they’re taking up… Space that could be definitely be put to better use.
So what are you waiting for? Cut yourself free from the weight of dead stock!
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