What is Deadstock?
“Deadstock is a cash flow killer”, says Jennifer Rosenberg, president of Indianapolis-based Acorn Distributors Inc. “We make money by moving boxes, not by storing boxes”.
Deadstock is that portion of inventory at your store that just won’t sell.
Suggested Reading: What is Inventory Management?
There could be various reasons why your stock stays on the shelves. Some of them can be
- Wrong purchasing decisions – Often, your deadstock is a direct consequence of making bad purchase decisions. In retail, you may be tempted to grow quickly. Instead, you end up blocking too much free cash.
- Poor management of inventory – Undoubtedly, lack of proper track-keeping of your inventory flow and status will lead to the accumulation of stock and ultimately increase deadstock.
- Defective product – Sometimes goods don’t sell simply because they are defective. For example, a shoe size might be wrongly marked as 9 when it is actually an 11-sized shoe. In such cases, you can contact the manufacturer and flag the issue.
- Lack of proper marketing – When you and your sales personnel have little knowledge about the product or its technical specifications, then you might find it difficult to market it, or to communicate about it to the customer. This might again lead to the customer ending up not buying it.
Now that you know why this is happening, let’s look at how you can avoid a deadstock situation.
Tips for Managing Deadstock
1. Take the help of a good inventory management system
The stock that you purchase for your store can be divided into two components- Cycle stock and Safety stock. Cycle stock is that portion of inventory that is needed only to meet the customers’ demand between the times you order more inventory from suppliers.
Safety stock is that portion of inventory that is kept as reserve stock. Both have the potential to become deadstock, but safety stock is more likely to enter that zone sooner.
Making use of an efficient inventory management system is a must. These systems give you real-time information about the status of your stock. Some also give automatic alerts when your stock is about to get over. This will help you escape the dead stock scenario.
2. Transfer the deadstock to another company location
Sometimes, there may be cases where some products may move faster at one location, but not at another- they might be geography-specific. In this case, recognize the particular store and move your deadstock to that store where it is more in demand. This process is called ‘inventory balancing’.
3. Have a watertight agreement with your supplier
Before procuring your goods from your supplier, if possible, make a watertight agreement that if the products don’t sell beyond a point, they can be returned at little or no cost. This is essential, as it is important to consider the holding cost of inventory too. You would rather replace the dead inventory with faster moving items.
4. Use efficient demand forecasting solutions
It is extremely important to know in advance what to buy. Forecasting the stock you would require in the future will help you get rid of a large amount of deadstock. There are many advanced tools that help you with this. Your purchase orders also can be utilized over time to analyze the pattern of your purchase and plan the next one, accordingly.
5. Create urgency
For the slow-moving goods, offer discounts, highlight the percentage savings, create urgency by saying that only very few products are available in stock.
6. Bundle products
If your deadstock consists of several items coming under a common category of products like mobile covers, chargers, etc. then you can easily bundle these and create an interesting combination and put a good price on it.
7. Offer free shipping
Free shipping for the product drives in many more people to buy.
Apart from these methods, you can list the slow-moving inventory at marketplaces, price comparison websites, etc.
Most importantly – prevention is better than cure. Knowing how your inventory flows will lead to a significant drop in the amount of deadstock you carry at any point in time. Plan your inventory better using good inventory management software.