What is Dead Stock? 7 Strategies to Prevent and Move Dead Stock While Increasing Profits [Full Guide]
Whether you are a newer, growing eCommerce brand or a larger online retailer, dead stock can make or break your business. Unfortunately, it’s also something many eCommerce brands seem to live with.
However, even the smallest optimization could reverse significant profit margin losses.
And to truly be able to spot, reduce, and ultimately prevent dead stock by implementing advanced strategies, you first need to optimize your tools to identify and analyze dead inventory.
This post covers everything you need to do just that and shares some dead stock examples. But before we get to the seven strategies to prevent and move dead stock, first, we will help you to determine where your brand stands and show you how to spot and analyze it.
In this complete dead stock guide, we cover:
- What is the difference between excess inventory, slow-moving products, and dead stock?
- What is dead stock costing your business?
- What are the top causes of dead stock?
- How to do a dead stock analysis
- Seven strategies to prevent and move dead stock while increasing profits
Let’s jump in. But first:
What Is the Difference Between Excess Inventory, Slow-Moving Products, and Dead Stock?
To prevent and move dead stock, online retailers first need to characterize stock into excess inventory, slow-moving products, and dead stock. Let’s break down each:
- Excess inventory. Any surplus or extra inventory you have on hand is called excess stock.
- Slow-moving products. These are products that aren’t sold within a certain amount of time, determined by the specific product life cycle.
- Dead stock. This is dead inventory in your warehouse that is not selling at all.
And at what point do excess inventory and slow-moving products become dead stock?
When excess inventory is not sold within a given time frame, it is allocated to slow-moving inventory. When that slow-moving stock stops selling entirely or is dramatically reduced, then it is considered dead stock.
Generally, this means products that have sold for almost a year are considered dead stock. However, it’s very dependent on your specific industry. Additionally, different product types and variants will have different time frames.
Apparel, for instance, is very seasonal. Meaning, slow-moving summer stock will become dead stock by fall. That’s not to say that dead stock is aligned with product life cycles. Let’s look at this dead stock example.
Example of Dead Stock
Let’s assume you are a consistently growing online jewelry brand. You ordered and added 100 tennis bracelets to your online store. Based on demand forecasting and purchasing history, you have estimated that you will sell them in the next three months.
However, market demand for jewelry and tennis bracelets drops unexpectedly.
In addition, your online merchandising strategy is only pushing best-selling products based on sales, not factoring in important retail KPIs. It is also not factoring in that it’s a new product that needs time to be considered a bestseller. So customers aren’t even seeing your tennis bracelets in some of your virtual merchandising displays.
Therefore, after the projected three months, you only sold 25 bracelets out of the 100 you ordered. And with new jewelry season trends, your demand forecasting now shows that ankle bracelets are this season's trends.
This remaining balance of 75 tennis bracelets is now considered dead stock. Dead stock that is putting a drain on resources and costing you money.
What Is Dead Stock Costing Your Business?
Lost revenue is the most obvious cost of dead stock, but it's far more complicated than that. Cost, beyond revenue, may be harder to quantify, but they are just as critical, taking a significant toll on a business's overall cash flow.
Especially if you’re stuck in the vicious eCommerce cycle, known as the Pareto Principle, whereby 20% of a brand’s products (or sometimes even fewer) are generating 80% of its revenue.
These more “hidden” costs include:
- Insurance and finance costs
- Holding and storage costs
- Handling costs
- Profit loss
- Capital loss
- Opportunity loss
Let’s take a close look at each.
1. Insurance and Finance Costs
Carrying excess inventory doesn’t just increase insurance costs. Dead inventory can also lead to higher finance fees, especially if you’re buying wholesale materials or bulk-manufactured products on the account.
Therefore, the more dead stock you have — and the longer you sit with it — the higher the accrued debt interest will be for these products. It will also cost more to insure.
2. Holding and Storage Costs
Expected warehouse costs include rent, maintenance, electricity, property taxes, and more. However, when you are carrying excess inventory, these costs increase due to the warehouse space needed.
Let’s say 35% of your warehouse and storage space is full of slow-moving or dead stock. You’re likely going to need to rent space elsewhere if you want to add more, faster-moving product categories, or hold your seasonal or safety stock levels.
3. Handling Costs
Another increase in cost for excessive dead stock is handling costs. We know that every second you have staff in the warehouse — handling, counting, maintaining, and moving inventory, etc. — costs your business in hourly wages.
Constantly moving and having to re-stock dead stock puts an extra burden on this handling. The more handling you need, the more staff you need, and the higher the handling costs. And the longer dead stock is hanging around, the more often it will have to be moved and handled.
4. Profit Loss
When dead stock has been around for a while, sellers often resort to massively discounted promotions, often earning less than the cost. Unfortunately, this means that dead stock can lead to severe profit losses without the right non-moving inventory strategies in place.
5. Capital Loss
A capital loss is an overlooked cost of dead stock. Even established online retail brands often rely on borrowed capital to sustain inventory levels, especially before peak seasons.
And what happens if this stock that was bought with borrowed money doesn’t sell? Available capital for future inventory purchases remains tied up, leaving brands without adequate capital cash flow, which could otherwise be used for faster-moving products.
6. Lost Opportunities
Lastly, let’s look at the opportunity cost of dead stock. If you have too much slow-moving or dead stock, it’s costing you revenue in all the other ways listed above. This means you’re spending money on dead stock that you could otherwise be using to expand your business or increase profit margin gains with new product procurement.
Now let’s look at the top causes of dead stock.
What Are the Top Causes of Dead Stock?
As we now know, dead stock is unsellable excess stock, which can be seasonal, or not. However, there are actually six top causes of dead stock. Let’s look at each.
- Lack of attention. When all your attention goes to your bestsellers, it’s easy to overlook slowing or dead inventory. In fact, many newer sellers rely on those best-selling products to mitigate profit losses from slower movers. The thing is, when slowing stock is not given the steady attention it needs, you run the risk of this inventory becoming dead stock that can not be salvaged.
- Low demand. Another top cause of eCommerce dead stock is demand changes or customer behavior. What makes the demand even trickier to get a handle on is that often this demand is not within your control. Niche, market, and seasonal trends, or the end of product life cycles, can quickly affect demand or render specific products unsought after or obsolete.
- Defective product. Having a range of products that turn out to be flawed in production or design can be the worst dead stock cause when it is a result of multiple customer returns. However, if it is something you notice before it goes into circulation, it can be far less devastating than the others, as you may have a chance to return these products to the manufacturer.
- Poor merchandising strategies. If your customers are only being exposed to a very select pool of products, then they are only buying from that pool. This is what happens when you’re not using advanced merchandising strategies that work with inventory optimization to help spread demand and limit dead stock.
- Lack of action. Another contributing factor to dead stock comes down to action. Online retail brands often wait too long to pivot their strategy, invest in the right optimization tools, or run smaller promotions. This means slow-moving stock becomes dead stock — dead stock that becomes even harder to sell, leaving little choice but extreme dead stock liquidation.
- Bad inventory optimization and management. Lastly, your inventory management and optimization plays a key role in managing dead stock. Without good inventory forecasting and inventory management strategies in place, or an organized warehouse, it will be harder to track slow-moving inventory and act accordingly.
Now let’s look at how online retail brands should be doing their dead stock calculation.
How to Do a Dead Stock Analysis
Continued dead stock analysis is vital to your overall inventory management. Here you want to look at:
- Where your excess, slow-moving and dead stock weaknesses are
- What the likely causes for these bottlenecks are
Once you can see where these weaknesses and bottlenecks are, and what is causing them, you have a far better chance of not only managing the profit loss but preventing it altogether.
One of the top things you want to look out for when doing dead stock calculations and analysis is lack of visibility. If potential shoppers don’t see your products, how can they buy them?
These bottlenecks will point to the three main areas where you can prevent and move dead stock while increasing profits:
- Marketing strategy
- Merchandising strategy
- Inventory optimization strategy
Now that we know what is likely causing your dead stock and what it is costing, let’s look at key strategies that should be used to prevent and move dead stock.
7 Strategies to Prevent and Move Dead Stock While Increasing Profits
So, you’ve spotted excess and slow-moving stock and want to reduce your dead stock inventory — where to start?
To minimize dead stock, you will want to test these seven expert strategies.
- Test Micro Promotions
- Combine Marketing and Inventory Optimization KPIs for Advanced Merchandising
- Get Creative with Your Bundles
- Upgrade Your Demand Forecasting and Inventory Planning
- Lower Risk and Negotiate Supplier Return Policies
- Involve Your Most Loyal Customers
- Invest in the Right Management and Automation Tools
1. Test Micro Promotions
Instead of waiting until you have to run dead stock liquidation sales, why not try micro promotions and discounts to help dilute excess stock?
This can be in the form of a discount, or it can be in the form of upselling incentives such as coupons or free shipping. (Did you know that shoppers are up to five times more likely to buy from your store if you offer free shipping?)
The idea is to start low enough to offer incentives without compromising on margin and profit potential. Micro discounts actually tend to perform a lot better than very high liquidation sales.
2. Combine Marketing and Inventory Optimization KPIs for Advanced Merchandising
As we mentioned earlier, poor product visibility is probably the number one reason for your dead stock and slow-moving inventory speed bumps. The root cause is often a lack of synergy between a brand’s retail optimization and marketing goals when planning their merchandising strategies.
Many brands are using eCommerce sorting strategies that only factor in one type of criteria, most likely bestsellers, which results in shoppers being shown only a small part of a store's inventory. Instead, brands should be optimizing their categories and other critical merchandising areas by factoring in a host of variables.
A good multi-parameter sorting or merchandising strategy should factor in a combination of KPIs such as:
- Item demand and price competitiveness in the market
- Inventory value
- Days to finish inventory
- Variants stock ratio
- Days in store
- Days since back in stock
- Product reviews (ratings and total amount)
- Conversion rates
- Real margins after discounts
- Sales quantities or revenue amount
This can be done manually or with advanced merchandising tools like Kimonix.
Of course, you also want to factor these parameters into your product marketing strategy by personalizing and optimizing your email and PPC product feeds.
3. Get Creative with Your Bundles
Another strategy worth testing is product bundling (or kitting). By combining one popular seller with a slower mover, brands are able to not only improve AOVs (average order values) but move inventory.
Not sure where to start? Here are 10 product bundling examples that convert, according to ConvertCart.
4. Upgrade Your Demand Forecasting and Inventory Planning
How you plan and manage your inventory matters and plays a huge role in preventing low demand causes. The trick is to not just rely on a linear demand forecasting analysis. Instead, brands should be opting for a more bottom-up approach.
Bottom-up inventory planning uses an initial demand forecast to get your stock baselines. It then cautiously layers key growth assumptions onto that solid foundation to rescue costly planning mistakes.
Why? Making more minor assumptions that are statistically more likely to be true, enables brands to plan inventory better.
You can read more about upgrading your demand forecasting and inventory planning here.
5. Lower Risk and Negotiate Supplier Return Policies
A good head start for online retailers is supplier negotiation. Brands may be able to mitigate or lower dead stock risk by discussing supply buyback deals. Yes, you want to build good relationships with manufacturers or raw materials suppliers.
However, you also have ironclad agreements in place and negotiate deals for the excess stock, especially for products that are highly seasonal. This will help you at least recoup costs while also keeping enough valuable warehouse space for new products, reducing financial damage overall.
6. Involve Your Most Loyal Customers
Staying on top of what your customers want and need is a crucial component of planning inventory and reducing dead stock risks.
By sending surveys to your most loyal customers and then combining these results with market research and demand analysis before launching new products on your store, you can mitigate risk substantially.
Not sure where to start? Check out this list from Zonka with 60 eCommerce survey questions to ask your customers in 2022.
7. Invest in the Right Management and Automation Tools
Last but not least, you will need the power of automation to truly identify slow-moving stock and to prevent it.
With the right management tools that harness the power of machine learning and AI, online retailers can make quick adjustments based on real-time data and avoid having to liquidate stock at the end of a season at diminished profits.
This isn’t just about inventory management software. You also want to streamline all the following significant bottlenecks areas:
- Marketing strategy
- Merchandising strategy
- Inventory optimization strategy
There you have it, absolutely everything you need to know about identifying dead stock and preventing it long-term. As you can see, managing dead stock is about far more than inventory management. To recap:
Ultimately, it comes down to laying a solid foundation with a good inventory planning strategy and then backing it up with a good, varied item or product visibility that factors in real-time retail and marketing KPIs.
Still, got questions? Feel free to reach out to our merchandising and marketing experts here.