What is deadstock, you wonder? Simply put, deadstock is inventory that doesn't sell. Unfortunately, Deadstock is a common issue with businesses that don't use any inventory management software. As a result, the products that don't sell can remain on warehouse shelves for ages, useless and forgotten. Not only does deadstock cost businesses a lot of money, but it can also take up valuable warehouse space, which otherwise could be used to store more of the business's top-selling inventory. A company, unfortunately, cannot recoup the cost of these unsold goods, whether they have been manufactured itself or purchased from another distributor. So what causes deadstock? Why is it an issue for your company? What can you do to avoid it? Here is everything you need to know about deadstock and the top tips you can follow to manage your obsolete inventory.
In our deadstock guide, we’ll help you understand:
What Is Deadstock?
The deadstock definition is quite simple, in which deadstock is defined as unsellable inventory. There are various reasons a business can find itself tackling a vast amount of deadstock, from ordering or manufacturing too many items to the items ordered or manufactured not being sold as expected. Damaged goods, leftover seasonal products, expired materials, and incorrect deliveries can all make up your deadstock inventory as well. The quickest items to turn into deadstock are usually the perishable ones, such as food and medicine. Merchandise returned by the customers, however, does not count as deadstock.
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Deadstock Meaning & Definition
Also known as obsolete inventory or dead inventory, the deadstock meaning refers to items that aren't expected to sell after a certain point. It is safe to say that deadstock can affect a business's bottom line drastically, leading to a lengthy process of becoming excess inventory and eventually turning into a liability both financially and physically. For an item to be declared as deadstock, it is typically expected not to be turned over within a year.
Why Is Deadstock Bad for my Business?
The deadstock condition is no good for companies because they come with high and unwanted costs. Here are the main reasons deadstock is terrible for companies of any shape and size:
- Loss of money: You have invested money into these products; however, you have not generated profit off of them. It leads your company to lose the total landed cost for each deadstock unit.
- Loss of opportunity: Since you will not turn these deadstock products over any time soon, they cause you to lose out on great opportunities that could generate profit or help you break even. Deadstock inventory also takes up a lot of physical space in your warehouse with otherwise could be used to house more fast-selling and profitable products.
- Holding costs: Expenses regarding the storage of deadstock can add up over time. Warehouse fees, utility costs, and insurance are a few of the expenses that deadstock items in your inventory are subject to them. In addition, more staff on the clock looking after the deadstock means more money for products that will not turn over the investment.
What are the Main Causes of Deadstock?
There are numerous reasons companies can come across a deadstock problem. Even some of the biggest names in retails often come across deadstock inventory that they need to take care of. Here are some of the main issues that can cause your stock to go still:
You may have ordered too many items at once or placed an order at the wrong time. Reorder Point, Economic Order Quality, and Inventory Turnover Ratio are simple calculations you can turn to follow a more effective schedule for ordering. The Inventory Turnover Ratio helps you calculate how many days it takes for your items to turn into profit. The Reorder Point Formula (ROP) is based on the number of days it takes for items to reach your warehouse and on your material usage. This formula gives you an idea of when you should be placing your next order from the vendor. The Economic Order Quality (EOQ) calculation, on the other hand, helps you follow up on these two previous formulas. After specifying your turnover ratio and the right time to place an order, you can then detect how many times you should be ordering from your distributor. Finally, the EOQ tells you the number of units you should be calling at a time.
Your product may be out of fashion, it may have a higher price than its competition, or the competition may solely be more appealing. Any one of these reasons may lead to poor sales, which has to force you to reconsider your marketing and selling strategy. Product kitting and bundling, online selling, and high discounts are some of the leading sales strategies you can use to shed this cycle. Also known as kitting, product bundling can help you place together slow-moving and fast-moving products together, form a brand-new item and sell it at a different - often affordable - price. While high discounts are probably the easiest and most appealing way of managing deadstock inventory, online selling is another method that can help you find buyers for your hard-to-sell stock and embark upon a niche customer base.
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Quality check standards are also necessary when your stock is not turning over because it's defective. You can avoid defective products coming into your warehouse by setting up specific criteria for raw materials and certain items. Packaging requirements, Accepted Quality Limit (AQL) standards, and product specifications can help you ensure you are selling high-quality and worthy products. Product specifications refer to the physical dimensions of the product. Setting physical requirements for products when placing orders from a vendor can help you create a quality check criterion. If any item does not meet the height, length, or weight requirements you have set, you can send the product back to the distributor for a replacement. It will help create a first-level security border and cut down on time required for subsequent checks.
How to Avoid Deadstock
No matter the size, the industry, and the business model of a company, all businesses are bound to experience deadstock sooner or later. However, there are numerous ways you can effectively learn how to manage deadstock and get rid of the cumbersome inventory that is holding back your profits.
Evaluate why your product is not selling.
The initial step in understanding why your product has gone into deadstock condition is to evaluate how you have been selling it. Are your prices higher than your competition? Does your website have clear, transparent, and understandable texts and images? Is the product keeping up with the trends? Product reviews are also substantial social proof that justifies your products. If the reviews placed by your customers are mostly negative ones, it may create confusion and disappointment in the items.
Check to see if you have a buyback option.
The buyback option is one of the few ways that you can move forward from deadstock items. But, first, you need to check your agreement with your manufacturer. Most of the time, manufacturers provide a buyback option in case the product does not turn over. After all, your distributors, too, want to be comfortable and confident enough to give sellers movable and high-quality inventory.
Know when to let go.
Encountering deadstock, though critical and damaging, is not the end of the world. Some of the most successful brands know when to call it quits and move on from a product that simply is not turning over. So while it is frustrating to see that you've tied up capital to a non-profitable product for so long, it is also crucial to learn from your mistakes and let go with a more intelligent, more aware perspective.
Create bundle deals, discounts, and markdowns.
Everyone loves a good deal, which makes bundle products and discount sales a win-win option in getting rid of deadstock inventory. You can consider bundling a potential deadstock item with a better performing one, as well as creating online flash deals, limited discounts, and similar special offers. While you may be enduring a minor loss by selling the better-performing product at a markdown, you will still be able to generate free inventory space for more profitable product ranges.
Do not underestimate the power of data.
Deadstock inventory is a common pitfall for business owners to go soft and emotional on the products that don't sell. In addition, some businesses tend to lean towards selling products that are on a trend hype. While this may seem lucrative at first, trends go out of style quickly, leaving businesses with packages of unsold stock that are not trendy anymore. It may be tempting to stock up on trending products in hopes that they will sell out massively; however, listening to data rather than to temporary hunches is a much more effective and intelligent way of avoiding deadstock.
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Written by Erhan Musaoglu
Erhan Musaoglu is the CEO and Co-Founder of Logiwa.