Key Points:
- Inventory that doesn’t sell and remains in the storeroom or warehouse is referred to as deadstock
- Easyship collaborates with 3PL providers and warehouses across the world to help you manage your inventory and eliminate occurrences of dead stock in your eCommerce business
- If you don’t have clear and reliable ways of calculating your inventory turnover ratio, reorder points, and economic order quantity (EOQ) you may end up with dead stock
While it would be great to sell all the products you have in inventory on a consistent basis, there are times when you are just stuck with excess inventory that ends up sitting in storage or at a warehouse. This is deadstock, and it can be a major problem for your eCommerce store.
If you are constantly dealing with excess inventory, it could be a pointer that you need to implement inventory management strategies to clear out your dead stock and prevent it from becoming a recurring problem.
In this article, we’ll cover the definition of deadstock, its causes, what to do with it, strategies you can implement to prevent it, and how Easyship helps eCommerce retailers manage their inventory.
Table of Contents
Dead Stock: Definition and What it Means
For retail and eCommerce companies, inventory that doesn’t sell and remains in the storeroom or warehouse is referred to as dead stock. Such an inventory needs to be disposed of to free space for money-making products.
Here is why deadstock is bad for your business.
- Carrying costs: you may end up paying up to 30% more than the product's value in holding costs. These are costs associated with inventory storage such as insurance, utilities, and warehousing costs that tend to add up over time.
- Opportunity cost: Keeping it means that it takes space for fast-selling and more profitable items. You are not only losing out on the opportunity to generate profit but also to break even by keeping items that have no chance to sell out!
- Lost money: you already invested money into purchasing, transporting, and stocking such inventory. With no chance of generating profit with it, it means you may lose the total investment cost for the merchandise if you don’t act swiftly to recoup some of the costs.
- Labor costs: If dead inventory keeps on accumulating with the changing eCommerce seasons, the maintenance and management costs for such inventory will quickly add up and eclipse the product's value. You may end up hiring more staff and paying more wages that aren’t improving your bottom line.
What Causes Dead Stock?
There are several reasons why you may end up with dead stock in your business. Here, we discuss the most common.
- Ordering inconsistencies
Ordering inconsistencies arise when you order excess inventory at once, or when you order at the wrong time. This results in overstocking, which creates a high chance of ending up with dead inventory.
So, if you don’t have clear and reliable ways of calculating your inventory turnover ratio, reorder points, and economic order quantity (EOQ) you may end up with dead stock.
You may also accumulate dead inventory if you rely on inaccurate data that is not consistent with eCommerce cycles to gauge the demand for your products.
2. Poor sales
There are many reasons why you may grapple with poor sales in your online store. They include:
- Your target market is out of favor with your product
- Selling obsolete products that are out of season, or out of fashion. For example, trying to sell winter clothes in summer or Christmas and New Year’s fashions in May.
- Your goods are priced too high
- Your competition is more appealing with great deals
Regardless of the reason, poor sales in your business may create a dead inventory on the shelves, and you need to rethink your marketing strategies to get rid of it as quickly as possible.
3. Poor quality or defective products
Selling low-standard items or defective products that do not meet industry standards such as product specifications, packaging requirements and the accepted quality limit (AQL) will make customers shy away from purchasing your products. This will inevitably create dead stock on your shelves and stockroom.
What to Do with Deadstock
There are several strategies you can use to dispose of your dead inventory and recoup some of the money. Here are some better ways to get rid of your dead stock and free space for new and more profitable opportunities, other than loading it in a garbage truck!
- Clearance sales: There are always buyers out there hunting for a bargain. You can target such buyers with your dead stock by running clearance sales on your website at great discounts.
- Bundle it: This is another excellent way to recoup the cost price of your dead inventory. Simply group these products with more current, top-selling items and offer the combination at a discounted price, lower than the cost of buying each item separately.
- Gift with purchase: Everyone likes free things! Offering your dead stock as giveaways, incentives, or gifts with purchase is a great way to clear dead inventory. Use your dead stock to encourage buyers to spend more money on your store for a free gift. For example, you can create an offer for your buyers to get a free gift with every purchase above $50 or $100.
- Selling to closeout liquidators: These are companies that will buy your dead stock in bulk and resell it in their own shops, website, or online marketplaces such as eBay or Amazon at low prices. If your dead inventory is apparel and home goods, selling to consignment shops will do the trick.
- Return to your supplier: You can negotiate with your supplier to immediately return the excess inventory that is not selling. If they are unable to offer a full refund, negotiate with them to repurchase the inventory at a discounted price. This will help you cut down your losses. You can also negotiate for a credit offer, rather than a monetary refund.
- Donate it: There are so many charities that are more than willing to receive your dead stock as a donation. Making a donation is a great way to build your brand's corporate social responsibility (CSR). You will have given your excess stock to a worthy cause and created a good impression of your brand. Make sure to work with a tax advisor to take advantage of tax write-offs, tax breaks, and other benefits from the tax department.
How Can eCommerce Stores Prevent Dead Stock?
After you have cleared dead stock from the shelves, you should now focus on putting measures in place to eliminate the possibility of getting stuck with dead inventory in the future.
To achieve this, you need to implement deadstock inventory management strategies that will help you stay up to date with eCommerce business cycles, gauge your product demands accurately, and alert you when your inventory is on the verge of death.
Here are some strategies that eCommerce stores can implement to prevent dead stock.
- Inventory Management Software (IMS)
If you have not done so, you need to start using inventory management software (IMS) to track the performance of all your product SKUs and maintain better visibility of stock movements.
IMS will enable you to generate intelligence reports concerning your reorder points, inventory turnout ratio, and economic order quantity (EOQ) so that you can avoid ordering inconsistencies and overstock of goods.
IMS will also keep you in the loop with reports and forecasts on product demand, trends on best-selling items or slow-moving inventory, and alerts on ‘dead’ or ‘dying’ products so that you can plan to address any potential issues and sell them out quickly.
For example, you can stop reordering dying products that are falling out of favor with customers, and concentrate on best-selling counterparts.
2. Test your ideas first
You should take your time and gauge the demand and level of interest for brand-new products or categories. Opening a pop-up shop, launching a limited-edition line in your e-store, and surveying customers to know whether they are interested in your product is a great way to gauge the market interest for your items.
Other than moving solely on your creative passions or gut instinct to invest in a bunch of merchandise, use data and research to validate, test-market, and market-fit your product ideas.
Although this approach may come with upfront costs, it is way much cheaper than ordering tons of products that will lie idle on your shelves and won't sell. It is a savvy approach to prevent dead stock in your e-store.
3. Offer quality products
If you ended up with dead stock because there is a problem with your product, start offering quality products to avoid the same in the future. Checking out customer feedback on the review section of your store is a good place to start and establish the social proof of your product in the market.
Do your customers say your product is poor quality or defective? After unlocking what is affecting the quality of your product, the right quality assurance processes are in place to guarantee quality items to your buyers.
Begin by reevaluating your manufacturing process, packaging requirements, and product specification. You may also need to consider partnerships with new manufacturers or suppliers so that you can source quality products that will delight your customers and prevent instances of dead stock.
Easyship Helps eCommerce Merchants Manage Inventory
Easyship is your partner when it comes to eCommerce inventory management. We collaborate with 3PL providers and warehouses across the world to help you manage your inventory and eliminate occurrences of dead stock in your eCommerce business through the following ways.
- Upload product catalogs: You can use our shipping tools to upload product catalogs and provide the most accurate rates at checkout. Easyship will use your product catalogs to provide the most accurate quote for your shipment.
- Warehouse automation: Through our powerful eCommerce shipping software, we sync your orders daily with your warehouse so you can completely automate the process. All the order details and shipping documents will be automatically sent to the warehouse for fulfillment every day.
- Shipping couriers: Our system selects the best couriers automatically when you install our Rates at Checkout feature. Couriers will be chosen based on your shipping rules or checkout options.
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