Products sitting on shelves for a long time and items stagnating in the store can become complicated to manage. What to do with this dead stock?
Dead stock are products that have never been sold to the consumer and that are unlikely to be sold in the future for various reasons.
In this article, we will first define what dead stock is. We will dive into what causes this dead stock to build up, and why it’s a real concern in the retail world. We’ll finish with ways to prevent dead stock.
Definition of Dead Stock
Dead stock refers to products that remain in the store’s inventory for an extended period of time. Most critically, this Inventory is not selling and is unlikely to sell in the future. These products have become unsellable because they are not in demand, expired, outdated, low quality or out of season. It also happens that they have not been purchased because the demand has decreased or become nonexistent.
Causes of Having Dead Stock
There are many reasons why dead stock accumulates. Here are four.
Changes in the Demand
Rapid changes in demand can leave you with a lot of unsold items. For example, products with high seasonal demand can become obsolete when the season ends. For clothing and shoes, dead stocks are often items that are no longer in season or have gone out of fashion. These products are less in demand because of new trends.
Economic variations also contribute to changing consumer demand. Economic downturns, recessions and unexpected events, such as protests, natural disasters or political instability, can have a significant impact on people’s spending habits. These upheavals lead to a reduction in demand for certain products.
For example, due to the current inflation, customers have continued to spend on restaurants and travel, but have significantly reduced their purchases in retail stores.
Demand may also change due to ever-changing customer preferences. Rapid changes in consumer preferences can make products obsolete and unwanted, leading to lower sales.
Technological Changes
Technological changes make some products obsolete. If products undergo significant changes or improvements, older versions are less desirable. Old products therefore become dead stock.
Bad Inventory Management or Poor Marketing
The accumulation of dead stock can be caused by inaccurate inventory tracking, lack of real-time data or a poor inventory control system. Ordering excessive quantities of products without accurately forecasting demand can also result in excess inventory that eventually becomes dead stock.
Ordering too many products without first having an idea of the quantity you will sell is indeed an excellent way to accumulate dead stock and increase storage costs. However, miscalculations are also harmful. Mistakes in demand forecasting occur when inventory is not tracked properly, with the right tools.
Ineffective marketing strategies or poor brand positioning also lead to a slowdown in sales and contribute to dead stock. Even high-quality, low-price products are left unsold if marketing and sales efforts are not sufficient, thoughtful and tailored to the target audience. Advertisements that do not reach the target audience, a poor web experience or low awareness of the products and of your store mean that the most sought-after products sometimes stay too long in the warehouse or on the shelves.
Also, difficulties with suppliers, such as delays, quality issues or sudden price changes disrupt the supply chain and also contribute to dead stock.
Short Product Lifespan
Perishable products or products with a limited shelf life may become dead stock if they are not sold before reaching their expiration date. Expired products cannot be sold to customers. They have to be thrown away, causing the retailer to lose money.
Why Is Dead Stock a Concern in Retail?
Dead stock is a real concern for retailers. It has a negative impact on the financial health of the store, on its efficiency and on its overall success. Managing dead stock requires additional time and resources for tracking, storage and disposal of merchandise. This diverts resources from more productive activities and contributes to operational inefficiency.
Maintaining dead stocks incurs more storage costs. The longer products remain unsold, the more space they take up in the warehouse or in the store. This can lead to an increase in storage expenses and inefficiency in space utilization. Dead stock takes up space, both in the warehouse and on the shelves. This space is therefore not used for more popular or profitable products. Limited shelf space is a valuable resource and inefficient use can impact sales and revenue.
Dead stock immobilizes capital. When products do not sell, the money invested in purchasing these items remains tied up in inventory. This has a negative impact on the company’s cash flow as funds are invested in products that do not generate revenue. This can hinder a retailer’s ability to invest in new products, respond to market trends or meet operational expenses.
Additionally, to eliminate dead stock, retailers often have to use discounts, which can lead to lower profit margins or even losses. This has an impact on the overall profitability of the company.
How to Avoid Dead Stock?
Due to all the negative impacts of dead stock on a store, it is beneficial to implement measures to prevent their accumulation. Here are some of these measures:
Implement Effective Inventory Management Systems
Good inventory management helps to avoid overstocks and therefore dead stock. Rigorous inventory tracking is essential to avoid order errors. Physical inventory must also be counted regularly to identify slow-moving or obsolete items.
Technology can help enormously with inventory management. Point of sale or inventory management softwares ensure rigorous inventory tracking and reduces the risk of errors. With these types of software, you can be more precise and efficient. Click here to learn how a point of sale software can make your life easier.
Monitor Industry Trends and Sales
Stay informed about industry trends, consumer preferences and market changes. Adjust your inventory accordingly to meet current demand.
By tracking sales, you have a better idea of which products are selling well and which products have lower demand. For products with a limited shelf life, monitor inventory to ensure items are sold before they expire. You will lose less money this way.
With a good point of sale software, you can track sales and products with expiration dates and thus be more efficient. This type of software makes it possible to maintain a dead stock register. Such a record is essential to effectively track inventory.
Anticipate the Demand
A point of sale software makes it possible to predict demand. Investing in reliable demand forecasting tools or methods helps to order the right quantity of products based on expected sales.
Feel free to ask customers for feedback to understand their preferences. Regular communication with customers can help you stay attentive to their needs and adjust your inventory accordingly.
Plan Your Strategies With Discounts
No retailer wants to lose money by finding themselves forced to lower the price to increase their chances of selling. Discounts are a good way to increase sales, but you must make sure not to give out too many to preserve your credibility and profitability.
Offer just enough discounts to encourage purchases before items become dead stock, while ensuring you minimize your losses. Demonstrate creativity to find other strategies to eliminate slow-moving inventory!
In conclusion, you now have an idea of what dead stock is, its causes and why it is necessary to be concerned about it. You also now know how to prevent it. With this knowledge, you can better manage these dead stocks and put in place solutions to resolve this harmful problem.
