What is Deadstock and How Can You Avoid It?
What is Deadstock and How Can You Avoid It?
Over time, unsold stock can pile up and become a problem for your brand. It ties up resources, increases costs – and this deadstock can quietly eat away at profits.
It is a problem that can easily be overlooked if the right systems aren’t in place. Here’s what you need to know to protect your business from accumulating deadstock:
What is deadstock?
Deadstock is inventory that hasn’t sold and is unlikely to sell in the future. It can be found in warehouses and storerooms, posing a problem for both eCommerce brands and retailers.
Seasonal, obsolete and low-quality products often become deadstock. Think floppy disks or 2020’s New Year’s Eve decorations. But it can also come in the form of a highly anticipated product that didn’t perform as well as expected upon release.
However, it’s worth noting that returned products don’t count as deadstock.
What does deadstock mean for your business?
Deadstock is bad news for your business. Simply put, it costs money and impacts cash flow.
If you haven’t sold the products you’ve invested in, it means you’re losing money. But sometimes it makes sense to cut your losses, because holding on to deadstock can cost a considerable amount too.
Storage costs, like warehouses, insurance, maintenance and staff, can add up over time. If you’re using 3PL or Fulfillment by Amazon centres to store your products, the fees can really add up – particularly if you’re impacted by seasonal price hikes.
Deadstock also takes up space that could be used to store more profitable, fast-selling products. When all the costs are factored in, brands can end up spending substantially more than the unit cost.
But the impact goes beyond costs. Deadstock data can impact key business decisions around product lines, partnerships and sales channels. So it’s important to monitor and manage it.
What causes deadstock?
To prevent deadstock from building up, it’s important to understand what causes it. Here are some of the most commons contributing factors:
1. A lack of inventory management
Brands with poor inventory management are more likely to accumulate deadstock, as well as other inventory problems. Without accurate monitoring or management, they may not even be aware of the extent of their deadstock. It’s important to take control of your inventory to avoid inventory issues.
2. Bad ordering practices
Producing or ordering more products than you need will obviously lead to excess stock. It can be difficult to strike a balance between preventing a stockout and avoiding deadstock, but there are lots of tools that can help you with this.
3. Product cannibalization
Brands that introduce updated product models or sell products that are too similar can end up with deadstock sitting on their shelves. This is called product cannibalization and it’s generally best avoided.
4. Underperforming sales
Brands may have an in-demand product on their hands, but a whole range of other factors can stall sales. Think negative reviews, PR disasters and ineffective marketing. So businesses that are struggling with deadstock may benefit from cross-department solutions.
5 ways to avoid deadstock
The good news is that there is plenty businesses can do to reduce the amount of deadstock in their warehouse. While some of them require some investment, they will benefit your businesses in more ways than one.
1. Make sure your inventory management is up to scratch
Brands can take control of their inventory by introducing modern tools.
Smart barcodes and RFID tags can make it easier to count deadstock, while inventory monitoring tools – such as Digital Shelf – can provide real-time oversight of stock levels across all sales channels and retailer networks.
Brands can also set up custom alerts that will highlight ageing inventory. They can then take action, adjust upcoming orders and prepare for potential returns from stockists. This is particularly important for CPG brands that sell products with a limited shelf life.
2. Introduce or improve your demand forecasting
Accurately calculating future sales is key to avoiding deadstock.
Sales reports, frequent stock counts and stock monitoring tools can provide the accurate data needed to do this. Brands should also consider the impact of trends, seasons and the economy too.
Inventory forecasting software can be used to easily highlight volume and velocity trends.
3. Verify audience demand
Though it will require some investment, it makes sense to confirm your forecasts with some consumer research or small scale tests.
Brands can use surveys, interviews, pop-up stores and limited releases to assess demand for a new product. The extra insights will indicate if plans need to be scaled back in order to avoid deadstock.
This approach can also highlight product cannibalization and allow brands to address it at an early stage.
4. Smart ordering processes
There’s no point in having forecasts, consumer research and inventory data at your fingertips if you don’t proactively use them.
All this data should inform automatic reorder points, order sizes and safety stock levels. Although it’s a good idea to be conservative when ordering seasonal merchandise and other items that are likely to become deadstock.
These decisions can then be regularly reviewed based on new data and deadstock levels.
5. Offer quality products
Negative reviews and poor design can slow down sales, so having a lot of deadstock can sometimes indicate product issues.
To make sure products move fast, brands need to work with reliable manufacturers and product designers. Brands should also regularly track their ratings and reviews across all channels with a digital shelf solution.
How to get rid of deadstock?
In reality, not every product flies off the shelf. No matter what you do to prevent deadstock, there’s still bound to be some in your warehouse. However, there’s five easy ways to shift it.
1. Create a free gift promotion
Brands can earn brownie points with their customers by turning deadstock into free gifts.
Increase customer loyalty and retention by adding it to orders as a surprise. Alternatively, you could turn it into a promotional tool to boost conversions on your website. It can be particularly effective as a ‘While Supplies Last’ offer.
2. Create product bundles
Pair your deadstock with complementary products and best-sellers to create multi-product packages.
If your bundle is priced competitively, it could shift deadstock, drive sales, push up your average order value and please customers all at the same time. This is a great way to get rid of excess stock without lowering a product’s perceived value.
3. Slash prices in a clearance sale
If you have a lot of deadstock, a massive clearance sale is probably the best way to go.
You can advertise big savings to drive traffic to your website or use delivery thresholds to encourage shoppers to add other items to their cart. If you plan your sale wisely, it should free up space, generate cash flow and result in the sale of some other products too.
If Black Friday is coming up, your deadstock may suddenly seem like an asset.
4. Sell it through a third party
Brands could consider giving their deadstock to someone else to sell.
Wholesale outlets or closeout specialists may be willing to buy deadstock for a knockdown price, while consignment stores will split the profits after they sell your products.
Alternatively, you could turn to Amazon and its Automate Pricing Tool. This will automatically lower your deadstock’s pricing to ensure it sells, while also taking in the maximum profit possible.
5. Donate your deadstock
Donating deadstock to a charitable organisation can help people in need and boost your brand’s reputation. It may even be possible to reduce losses with the use of tax deductions.
For fashion brands, this is an obvious option because so many charities benefit from clothing donations. In recent years, the industry has also come under fire for sending deadstock to landfill, so this is a great way to be more sustainable too.
However, brands that sell niche products may need to spend some time seeking out a charitable partner that will appreciate their deadstock and put it to good use.
The more stock a business carries, the more deadstock can cost them. So it’s essential to deal with it proactively for the sake of profitability. But the significance of unsold stock is growing on another level too.
As consumers seek out sustainable companies and governments introduce anti-waste laws, too much unsold stock could pose an even bigger problem.
Companies that destroy deadstock may soon be breaking the law. In fact, France has already banned companies from sending unsold clothing, cosmetics, books and electronics to landfill. So it makes sense to minimise excess stock and find ways to get rid of it responsibly.