What Is Dead Stock?
Dead stock is the ghost that every eCommerce business hides in its closet and one of the scariest things to deal with. Any inventory that cannot be sold for various reasons ends up as dead stock, and if it exceeds a specific limit, it’ll start to drain the revenues of your business.
Many factors lead to unsaleable products, but poor inventory management is one of the significant reasons for a dead stock pile-up. Irrespective of the size of your eCommerce business, you need to forecast the order quantities efficiently to prevent dead stocks. Even the most efficient eCommerce giants cannot prevent dead stock completely. However, it can be reduced significantly with the help of analyzing purchase behaviors of customers, effective warehousing strategies, and implementing an inventory management system.
How Dead Stock Impacts Your eCommerce Business
The effects of dead stock on your business go beyond just drained revenue.
Whether you have a 3PL fulfillment partner or your own warehouse, how you manage and utilize the space efficiently matters. Dead stock takes up warehouse space, leading to you pay extra for the products that do not generate revenue. Depending on your warehouse arrangement, your fulfillment partner, and the insurance you have for your products, you might even have to pay additional insurance coverage for these products. If you are a retailer with limited space, you will have to incur additional labor costs to handle the dead stock.
Disrupted Growth Potential
If you think warehouse space is the only drawback of having dead stock, you’re wrong. The money and resources needed to store and dispose of the dead stock could have been used to expand your business, invest in new products, improve your business processes, and more. Accumulating dead stock can drain you of your resources that could have otherwise gone into scaling your business.
Negatively-Impacted Sales Record Sheet
Handling and maintaining dead stock demands resources and finances. Forecasting future demands and allocating enough finances becomes difficult when this happens, and you might incur an exponential loss.
Most Common Factors Leading Up to Dead Stock
Inconsistency in Orders
Ordering more than the demand or ordering at the wrong time can lead to inconsistencies in your stock. Customers’ purchasing patterns are constantly changing, so the demand forecasting for your products should be done efficiently. Seasonal trends also play an essential role in order inconsistencies. This usually applies to clothing and lifestyle products that change with the season. Even a clearance sale might not help in curbing the loss.
Bad Sales Volume
Product quality, current trends, better alternatives, prices—there are a lot of factors that result in poor sales for your brand. You may need to develop better marketing and sales strategies to sell off the items in your inventory within a short period. If you’re struggling to meet your breakeven point, product bundling and high discounts are a few efficient ways to get rid of piling dead stock. Another option is to sell dead stock to liquidation stores at a discounted price. This way, you can still make some profit while getting rid of your dead stock.
Defective and Damaged Products
Inventory management, whether it’s for small or established businesses, requires a lot of attention and resources. If the quality of your products drops, the number of damaged and defective products might increase, leading to an exponential return rate. A 3PL fulfillment center can help you maintain product specifications, packaging requirements, and accepted quality limits.
Managing Dead Stock Before It Piles Up
Even the most efficient eCommerce businesses can encounter dead stock, and it’s not a one-time problem. It cannot be eliminated entirely, and as long as you are in business, dead stock will keep accumulating. However, the good news is that it can be reduced significantly if you implement the right inventory management and order fulfillment strategies. Let’s take a look at some of the ways in which you can control dead stock.
How to Prevent Dead Stock from Accumulating
Inventory Management System
To prevent ordering too many products in excess of your demand, you need to know the exact quantities of products available currently and the forecasted amount by performing demand forecasting. When you are a growing eCommerce business, it’s nearly impossible to accurately maintain your own inventory. With the help of an automated inventory management system, you can measure and track the stock across different warehouse locations, forecast the demands, and reorder only the necessary stock.
Order in Small Quantities
It is a misconception that you should restock in bulk. According to your demand forecast, you can restock in small quantities. This way, even if you cannot sell a few products, you can subtract that excess order amount when you restock the next cycle or sell them off in bundles or discounts. Even though you’ll miss out on bulk purchase discounts if you’re buying them from a manufacturer, but you can prevent them from becoming dead stock.
Bundles and Discounts
You cannot eliminate dead stock completely. What you can do is be proactive in handling them without piling up. Bundling the products with other items or offering a great discount that your customers cannot resist can help dispose the dead stock without much loss. This is one advantage you have over eCommerce giants like Amazon or Walmart – to change the course of your action immediately. You could also give them away as a gift with other purchases. This will help you in creating a personal bond with your customers too.
What better way to get rid of dead stock without piling up than to give them away as year-end donations and charities. This can be aligned with your CSR initiative and helps you in building a brand identity.
Does Dead Stock Ever Go Away for Good?
If you are into the eCommerce retail industry, you can never get rid of dead stock completely. It’s natural to get excited and overstock your inventory, and it’s fine! The idea is to keep the damages minimal and preferably stop them before it gets out of control. You can follow different inventory management and warehousing strategies to keep the dead stock in control, and these need to be done continuously. It’s not a one-time thing that you can just implement a special step in your order fulfillment strategy and get it over with. You need to stay consistent until one day, you reach that zen point where you can completely control your dead stock. Of course, when you are a growing or established business, you might not have the time or resources to give too much attention to these details. That’s where a 3PL fulfillment partner like ShipBots comes into the picture. From developing an efficient demand and pricing strategy to implementing an efficient inventory management system, we can handle every step of order fulfillment for you. Get in touch with us today to speak with our shipping and warehousing experts to learn how to manage dead stock successfully.