If you’ve ever noticed that there’s an increasing amount of products in your warehouse that have stayed there for months as the seasons change, that is what is known as deadstock.
Deadstock is inventory that doesn’t sell and doesn’t have the probability of selling in the future. It can come in the form of unsold seasonal items, outdated products, or overstocked goods. Having deadstock has horrible implications for your business. They should be disposed of quickly as they only result in unnecessary storage costs.
Proactive inventory management is important and in this article, we’ll break down how to address this and how Green Fulfilment can help you with deadstock issues.
Why is Deadstock Bad for Business?
Deadstock is expensive! There are several negative consequences tied to having deadstock. Poor deadstock management leads to:
- Expensive holding costs: It’s also known as inventory carrying costs. These are the expenses associated with keeping inventory. It can include storage space, labor, and insurance. The more cash a company has tied up in inventory, the less money a business has available for other things.
- More employee wages: The more stock you keep on the shelves, the more effort it takes to manage inventory. Staff will have to spend time reshuffling, recounting, and ultimately disposing dead stock that won’t bring in revenue. It means higher staffing costs for the management of items that don’t bring in revenue.
- Less inventory space: Deadstock takes up valuable shelf space that could have been used for better selling products.
- Devalued, expired, and wasted products: When a product sits on the shelf for too long, they depreciate in value. They are at risk of becoming obsolete, getting damaged, or expiring. Deadstock poses a higher risk for perishable goods such as food or cosmetics.
- Lost money: The biggest reason deadstock is bad for business. Businesses only regain their investments in inventory only when they sell products. Deadstock causes businesses to lose out on investments.
The Most Common Causes of Deadstock
There are plenty of reasons why your business could end up having excess stock. Before we can tackle how to successfully manage deadstock and solve the problem it poses, let’s look at the most common causes:
- Outdated Products: When products are no longer in season, the less likely it will be able to sell during the rest of the year. However, there are some businesses that can hold on to a reasonable amount of seasonal deadstock, because they’re sure that they can sell the products when the next season comes around.
- Quality Issues and Broken Products: If something is wrong with the product or the batch of products, that leads to deadstock. Sometimes it’s because of poor engineering or poor design, and if there is no action taken to dispose of these inventories, it has negative consequences.
- Low Demand and Inaccurate Forecasting: Unrealistic expectations, flawed data, or other factors beyond your business’ control can cause inaccurate forecasting. When you incorrectly predict demand, you end up ordering too much inventory, and it does happen from time to time. Incorrect demand forecasting will produce excess inventory that can’t be sold and it ends up as deadstock inventory.
- Ordering Too Many SKUs: There is a delicate balance that needs to be struck when you’re ordering products. Stocking up on a wide variety of products may sound like a great idea for expanding your customer base, but the more SKUs you’re offering, the more you have to manage and sell.
Backorders: This happens when a customer orders an out-of-stock item that the company intends to fulfil after restocking. Backorders can also potentially lead companies to overestimate actual demand for a product. It results in excess inventory that becomes deadstock when demand for the product eventually wanes.
The Financial Impact of Deadstock
The most obvious consequence of deadstock is lost revenue and reduced profit margins.
- It ties up capital that could have been spent on your operations.
- It incurs ongoing costs for insurance, handling, and storage.
- Unsold goods need to be discounted or written off entirely.
Picture a scenario where your business fails to sell 300 units of a product. Each product costs £100 in retail. In theory, your business lost £30,000 in anticipated revenue.
And because deadstock tends to take up shelf space, it also costs you sales opportunities. Resources tied up in deadstock are not available for investing in inventory that could bring in more profits.
But apart from financial concerns, deadstock also poses serious environmental challenges.
Unsold goods often end up in landfills and it contributes to waste and pollution. For example, in the fashion industry, production processes can be resource-intensive. Discarded items represent wasted energy, water, and raw materials. In addition, the transportation and storage of these goods generate unnecessary carbon emissions that further exacerbate their ecological footprint.
4 Strategies for Managing and Reducing Deadstock
1. Do regular inventory audits
Inventory audits means cross-checking your business’ financial records with your physical inventory count.
A stock audit identifies discrepancies, uncovers overstocking and understocking situations, detects inventory losses, and assesses the efficiency of your logistics and warehouse workflows.
Carrying out a periodical audit will show you how inventory is moving through the supply chain . The 3 phases of an inventory audit involve planning, execution, and analysis. Here’s a checklist that will give you an idea of how to do a regular inventory audit:
- Evaluate which items to audit
- Schedule an inventory audit
- Collect all important documents
- Conduct the audit
- Record your audit findings
- Report the findings
Consider investing in inventory management software as well. Technology speeds up audits and ensures that there are less disruptions in your business. The IMS (Inventory Management Software) you choose should:
- Show inventory data in real time.
- Customise criteria to perform inventory cycle counts.
- Set up regular cycle counts based on trigger events to minimise discrepancies instead of waiting for a complete physical count.
2. Use demand forecasting tools
Deadstock happens when future demand is miscalculated.
Demand forecasting calculates the inventory needed to fulfil customer orders based on how much product is predicted to sell over a specific period of time. Forecasting takes planned promotions, seasonal surges, historical sales data, and other external factors into account to accurately forecast demand.
Here’s a simplified version to give you an idea of how demand forecasting works:
- Choose a forecast period. This is the length of time used to determine the exact number of inventory you need to order. You can choose a weekly, monthly, or quarterly view to get a sense of demand during different seasons.
- Identify trends. After establishing a timeline, it’s time to analyse the data. Review any promotions you ran, check for geographical growth, assess previous order surges, check last year’s sales performance.
- Forecast the next demand. Review your upcoming marketing plans, include projections for new launches, retiring items, and limited edition products. Look at market share as well and check for any new competitors who are entering or exiting the space. Plan for the unexpected and run a few conservative, average, and aggressive scenarios to be fully prepared.
- Adjust the forecast as you go. Be prepared to continuously compare actual performance with the demand forecast, and redo forecasting as needed. As projections change, remember to keep every stakeholder in the loop. Inform your marketing team, your order fulfilment partners, manufacturers, inventory leads, and more.
3. Implement promotional strategies
There are more than a few sales tactics you can implement to minimise potential losses.
Offer Free Gifts with Purchase
Give deadstock away when customers buy another item. This tactic does not help your business’ bottom line except by freeing up space that you can use for other inventory. It might still attract customers to purchase because they are getting more value out of their purchases. You can also minimise losses by offering free gifts only when customers exceed a certain purchase limit. (e.g., Get a free gift with a minimum spend of £50)
Bundle Products
You can offload deadstock by bundling it with another related item, and selling the bundle at a price that’s less than what customers would pay for the items separately. To minimise losses and recover as much revenue as possible, it’s a good idea to bundle deadstock with very popular items that would likely sell anyway.
Do a Clearance Sale
If your deadstock is because of a common product, seasonal product, or it’s obsolete, holding a clearance sale helps free up inventory space and you’re making way for new and more profitable products.
Sell Deadstock to Wholesale Sellers
If you can’t sell it to your customers, you can sell it to a wholesale seller that will resell it at discounted bulk pricing. Wholesalers typically buy goods from manufacturers at a lower price, and they sell them to retailers for a higher price.
4. Donate or recycle unsold stock.
Giving deadstock away won’t help you recover lost revenue, but it can help your business qualify for tax deductions and make a great impression on customers.
Develop a recycling and repurposing plan for your excess items. If sustainability is your goal, labeling deadstock as rubbish should be a last resort. Set a quarterly or yearly date to take your deadstock to recycling or donation centres.
This solution won’t bring you any profits, but it ensures that all of your goods, whether usable or not, are repurposed or utilised by consumers if they can’t be sold.
Final Thoughts
To manage deadstock effectively, you need the right combination of strategies, tools, and expertise. That’s where Green Fulfilment can help make a difference. Our team is committed to sustainability and implements advanced inventory management solutions. We empower businesses to reduce deadstock and optimise their supply chain operations.
Through our technology, Green Portal, we provide real-time inventory tracking and demand forecasting tools, so your stock levels align with customer demand. This precision helps prevent overstocking and minimises the risk of unsold goods piling up.
Green Fulfilment also offers guidance on recycling, repurposing, and managing excess stock, so your business stays aligned with sustainable practices that reduce waste and environmental impact.
We’ll help you lower expenses, free up warehouse space, and meet your sustainability goals, all while keeping your operations efficient and customer-focused.