What is Deadstock?: The Meaning and How to Avoid It
What is dead stock?
In retail and ecommerce, dead stock refers to the inventory that doesn’t sell and doesn’t have a high likelihood of selling in the future. Dead stock typically lives in a warehouse or a brick-and-mortar store’s stockroom. Dead stock has never been sold to a customer, so returned merchandise doesn’t fall under this category.
Seasonal items are commonly classified as dead stock. Take the New Year as a dead stock example. New Years 2019 is only good ONCE; it can’t be resold the next season. On January 2, 2019 much of that merchandise becomes dead stock almost instantly.
What is dead inventory? Essentially, dead stock and dead inventory are the same thing. Dead stock is also referred to as deadstock (though the one-word spelling is more common for other definitions), obsolete stock/inventory, and excess stock/inventory.
Businesses that don’t have any inventory control or management in place are more susceptible to accumulating a lot of dead stock, as well as other inventory issues.
What is the dead stock meaning for other definitions? And what is deadstock, when spelled as one word? In brief:
- Coveted items which are no longer available, such as vintage goods (this is spelled deadstock, one word)
- Slang for sneaker lovers, meaning the unworn excess sneakers available for a discounted price (also spelled as deadstock; “deadstock condition” means brand-new sneakers that are usually discounted)
Why is dead stock bad for business?
Obsolete stock isn’t great for business, especially when you consider the costs. Let’s look at some of the ways you lose money:
- Actual lost money: You’re not generating a profit off of the merchandise that you’ve invested money into. You’re losing the total landed cost for each of these units.
- Lost opportunity: Because the products have no chance at seeing the light of day, you’re losing out on the opportunity to generate a profit (or just break even). Dead stock also takes up space that more profitable and fast-selling items could occupy.
- Holding costs: The expenses associated with storing the product add up over time. This includes warehouse, insurance, utilities, and more. One article from Industrial Distribution estimates that businesses pay up to 30% more than the stock’s value in carrying costs alone.
- Increased employee wages: With more items on the shelves, and more maintenance needed to manage excess inventory, it’s not uncommon that businesses have to increase staffing. More staff on the clock means more money you’ll dole out for wages that aren’t directly helping your bottom line.
Creative ways to manage or repurpose dead stock
In case you do find yourself facing a situation where dead stock is taking up WAY too much space in your warehouse and on your balance sheet, there are some ways you can salvage it.
Free gift with purchase
This option is another form of giving back, except this time directly to your customers. A free gift with purchase promo increases the value of the order, and will give shoppers fewer reasons to object. You can also surprise customers with a free gift — this will create a positive experience and hopefully nurture them for future transactions.
Whether you go the surprise-and-delight route or use it as a marketing tactic, offering a free gift with purchase is a great way to add incentive to buy, ultimately increasing your conversion rates.
Want proof? One study found that consumers value “free” more than “discounted.” Instead of choosing a 33% discount off the regular price of coffee, more consumers opted for 33% free. Here’s the catch: The discount was the better deal.
Consider adding a minimum purchase limit to qualify for the free gift, but make sure it’s not too high that shoppers are displeased with the value you’re providing.
As another example, Birchbox has an entire page dedicated to its freebies:
Like free gifts, product bundles can also be used to increase the perceived value of an order. Product bundles are essentially when you group together multiple products, typically with a common theme, and offer them for a single price.
Often, the bundled price is less than the total price if the shopper were to purchase each item separately. If this is not the case, there’s typically added value in the form of exclusive products, free gift wrapping, or a container to put everything in.
If you want to use product bundling to move dead stock, pair your excess with your top sellers. You may not be able to make a profit on the items, but at least they’re no longer taking up space on your shelves.
Host a major sale event where you list of all your dead stock on your website and make it available in any retail store location(s) you might have. Advertise the big savings to your customers.
Again, while you may not make the profit margin your originally planned for, at least you’re generating some sort of cash flow and freeing up space for new, more profitable opportunities.
Wholesale, closeout, and liquidation
Don’t want to deal with selling the stock yourself? Hand it off to someone else for a discounted bulk price. Some routes to explore:
- Wholesale: This can work if the reason you have so much dead stock isn’t because of an issue with the merchandise, but because of something else.
- Amazon: Have a Vendor Central profile that you can post the items on? Amazon automatically adjusts pricing to make products move.
- eBay: Brands that have returned or repaired product typically sell it on eBay at a reduced price.
- Closeout liquidators: These companies will buy your product in bulk and resell it in their own shops for low prices.
- Consignment shops: This is a particularly good option for apparel and home goods.
Return to your supplier
The first idea is fairly simple: reach out to your supplier to see if you can simply return the excess inventory. If they won’t offer a full refund, you might be able to get them to repurchase the stock at a discounted price, so you can at least cut your losses.
Keep in mind that this may also mean you’ll have to pay a restocking and a shipping fee, and you may not get a refund on the freight-in costs you’ve already paid.
They might also offer you a credit rather than a monetary refund, in which case you’ll need to assess if the reason for dead stock was a product quality/supplier issue or not.
The more quickly you try to do this, the better your chances. If you’ve been sitting on merchandise for one month, you’ll have an easier time than if you’ve been holding it for a year.
Make a donation
Today’s consumers are increasingly considering a brand’s corporate social responsibility (CSR) when making purchase decisions. Here are a few stats to show just how important it is:
- 66 percent of customers want brands to take a stand on big issues (Retail Dive)
- More than half of consumers are willing to drive further and pay more to shop at a store that demonstrates CSR (Aflac)
- 96% of consumers feel that it’s important for companies to have good social and environmental policies (Reason Digital)
One way to make good use of your dead stock AND a good impression of your brand is to use it to make a charitable donation. Not to mention the tax write-off you can use when you file.
Apparel retailers have a great opportunity here; brand-new clothing is one of the easier items to donate. You can find a charity to partner with and hand off your excess inventory to a worthy cause. Remember to get the proper documentation and seek a licensed tax professional if you go this route.
If you have existing relationships with potential retail or eCommerce collaborators, brainstorm around how they might be able to use your dead stock.
Get creative here. Partnerships can take many forms. Can you partner up for a co-branded product bundle? What about a co-sponsored “garage sale”?
Colorado Crafted uses this approach in their own inventory management practices. “We have done giveaways based on inventory that we have in excess, that we anticipate expiring but has not yet expired,” says Sarah Welle. “For example, we partnered with a local brick-and-mortar shop a few years ago and gave away a package of caramels and a promotional postcard and coupon to her first 50 customers of the day.”
How to avoid dead stock
Rather than having to cook up creative ways to get rid of dead stock, there are steps you can take to mitigate how much dead stock you have in the first place.
Upgrade your inventory management
Almost half of small businesses either don’t track inventory or use a manual method. If that’s you, it’s time to upgrade your inventory management and invest in the tools that will help you make smarter decisions and reduce the amount of dead stock you have.
Effective “dead inventory management” requires the right tools. With proper inventory management software, you can set up alerts to notify you when inventory is aging. This way, you can tackle the issue proactively. The right IMS will also help you generate more accurate forecasts and help you determine the right reorder point for all of your items.
If dead stock is a major pain point for your business, you could consider a niche dead stock register software. However, most of today’s IMS options should do the trick.
Test your ideas first
Before you invest in a bunch of merchandise for a brand-new product or category, test it in small batches. You could launch a limited-edition line on your eCommerce store or open a pop-up shop to gauge the level of interest.
While this might be more expensive up front, just think of how much money you’d lose if you ordered a ton of units and they didn’t sell.
You can also use surveys to ask customers if they’d be interested before you even bring the idea to life. Rather than basing product development solely on your gut instinct or creative passions, use data and research to validate product-market fit.
Improve internal communications
As businesses scale, one common growing pain is keeping your internal teams on the same page. What was formerly a tight-knit team is now a multi-departmental team with different levels of seniority.
Sometimes dead stock is caused by lack of internal communication, especially cross-departmentally. Leverage automated notifications from your IMS to alert individuals from different areas about important changes in stock.
For more guidance, we’ve put together a handy article about keeping marketing and retail operations in sync, and 5 updates your ops team should proactively share with marketing.
Offer quality products
Sometimes too much dead stock indicates that there’s a problem with your product. Is it manufactured properly? Is it high-quality or are there lots of defects? Have you run it through the proper quality assurance processes?
Check out customer reviews of those who HAVE bought the product and see what that feedback states. It could unlock the reason behind the dead stock. You may need to reevaluate your supplier partners if the issue is in how the items are made.