If you’re left with too many units and no way to move them, you could be experiencing one of the worst (yet most common) problems for modern commerce brands: dead stock.

An estimated 46% of stock losses come from human error, with US retailers having roughly $1.43 stuck in stock for every $1 sale they make.

But what exactly is dead stock? And why is it important to avoid it? In this article, we’ll share tips to help you clear your obsolete inventory and improve your demand forecasting systems to maintain the right inventory levels moving forward.

Table of contents

• What is dead stock in inventory management?
• What are the most common causes of deadstock?
• The real impact of dead stock on your retail business
• 3 ways to reduce dead stock and protect your bottom line

What is dead stock in inventory management?

Dead stock refers to inventory that has not been sold and is unlikely to be sold in the future. It represents products that have become obsolete, outdated, or simply lost their demand, resulting in a lack of customer interest or inability to generate sales. Dead stock ties up valuable warehouse space and capital, impacting a business's profitability.

If you’re still faced with unsold inventory, even after your peak season, you’re likely seeing increased storage costs and reduced working capital — both of which can have a negative impact on your bottom line.

The opportunity cost of excess stock is often just as damaging. With reduced profit margins and tighter cash flow, modern commerce brands are limited in their ability to invest in promoting faster moving products that will increase their revenue, resulting in a vicious cycle of lost sales.

Dead stock vs. deadstock

Beyond the traditional definition of dead stock in inventory management, there is an emerging definition worth noting. 

With the rise in ethical and sustainable e-commerce, unsold merchandise that is no longer accessible may hold increased value due to its scarcity in stores, leading it to be sold at a higher price.

In this case, the term used is “deadstock” rather than “dead stock”. 

During the peak pandemic era of the early 2020s, retail experts witnessed a rise in demand for deadstock products as consumers sought new alternatives to fast fashion. At the same time, more than half of US adults say they are ‘extremely’ or ‘somewhat’ likely to make purchases that make them feel nostalgic, leading to an increase in deadstock items for sale on online marketplaces like ebay and Etsy.

Some examples of commonly sought-after deadstock items include:

• Sneakers
• Vintage apparel
• Toys and collectibles
• Video games

A rise in sites like deadstockofficial.com, whose Instagram account currently has nearly 80k followers, and an increase in fashion powerhouses like Fendi and Alaïa now using upcycled material in their designs are further proof of growing demand for deadstock.

What are the most common causes of dead stock?

To protect your brand from the impact of dead stock, you need to know what causes it in the first place. 

There are a variety of reasons inventory can become obsolete, including:

• Over-ordering units ahead of peak seasons
• Changes in economic conditions
• Poor sales
• Lack of control over lead times
• Over-ordering due to backorders
• Order cancellations due to stockouts
• Damaged and expired goods

While some of these causes cannot be avoided, mistakes in manual demand forecasting and replenishment processes are often to blame for the excess inventory that commonly leads to dead stock.

Inaccurate demand forecasting combined with a lack of visibility into slow-moving inventory are the primary reasons retailers fall into the trap of overestimating their inventory turnover, resulting in slow-moving products or dead stock.

The real impact of dead stock on your retail business

Dead stock can negatively impact your profits and cash flow in a variety of ways.

Let’s take a closer look at some of the biggest problems dead stock can cause for modern commerce brands.

• Loss of sales: Dead stock can drain your business of its two most precious resources: time and money. When your working capital is locked up in low-demand or seasonal items that won’t sell, you have fewer resources to invest in promoting your bestsellers and top-performing items. Now you’re not only losing money on obsolete stock, you’re also losing opportunities to increase sales of your in-demand products.
• Increased holding costs: Carrying stock comes at a price even when it’s moving fast. But when your inventory becomes old or outdated, you incur many additional fees, including increased storage fees and administration costs.
• Reduced storage capacity: If you’re an Amazon seller, dead stock inventory can cause big problems with your FBA capacity limits. However, even for retailers with their own warehouses, the reduced inventory space can limit your ability to sell.
• Limited or constrained resources: Whether you decide to run clearance sales or invest time and marketing into innovative product bundling, the energy and resources required to offload your dead stock means fewer resources to put toward your high-margin, high-velocity products.

No matter how you look at it, dead stock inventory is detrimental to a retailer's financial health. 

It ties up a significant amount of capital that could be invested in other areas of the business and limits your ability to offer new products or run effective marketing campaigns, and could result in significant losses if the inventory remains unsold.

Example of dead stock: How one miscalculation can lead to a $90,000 loss

To understand the real impact of dead stock, let’s take an example of an electronics retailer.

Let's assume they purchased 500 units of a laptop for $800 each, resulting in an initial investment of $400,000. They were expecting to sell these laptops for $1,200 each, aiming for $600,000 in sales and a net profit of $200,000 (excluding other expenses).

However, as time goes on, it becomes apparent that the demand for this laptop model is low. By the end of the season, they have only managed to sell 200 units, leaving 300 units as dead stock. 

This means they have $240,000 worth of stock that isn't selling.

The retailer now faces several challenges. First, the $240,000 tied up in dead stock cannot be used for other purposes such as purchasing new models or investing in marketing efforts.

Additionally, they must find a cost-effective place to store the unsold laptops. Let's assume they need to spend $500 per month on storage, resulting in a total storage cost of $4,000 for eight months.

If the laptops remain unsold and outdated in the next season, the retailer may have to sell them at a significant discount, perhaps for $500 each. This would only recoup $150,000 of the initial $240,000 investment.

3 ways to reduce dead stock and protect your bottom line

When it comes to dead stock, an ounce of prevention is worth a pound of cure.

But even the biggest brand giants with the most advanced inventory management systems can still get it wrong. Case in point, Nike lost more than $100 million for failing to properly test its new inventory system in the early 2000s.

With the rise of AI in inventory planning and rapid developments in demand planning software, it’s easier than ever to protect your business from dead stock and refocus your energy on increasing your topline results.

Here are a few key ways to get started.

1. Sell or liquidate dead stock inventory

Every day you keep your obsolete stock is another day of reduced profitability.

Fortunately, there are many ways you can offload your dead stock to reduce your carrying costs and free up more capital to invest in other areas of your business.

Here are a few ways to offload your dead stock:

• Host clearance sales and promotions
• Bundle dead stock items with other faster-moving items
• Offer dead stock items as a free gift for shoppers
• Run targeted campaigns for shoppers who have purchased similar items
• Ask suppliers if they would be willing to buy back excess inventory
• Sell your dead stock to a liquidator at a reduced price
• Learn about donating your dead stock for a tax write-off

Once you’ve dealt with your existing dead stock, focus on modernizing your inventory planning processes to prevent this situation in the future.

2. Strengthen your sales forecasting

To prevent future dead stock, you need to know how much of a particular SKU is likely to sell based on its history and considering all past constraints — including any outliers in your sales data, like stockouts and sudden spikes or drops in sales.

However, in many cases, commerce brands are still using the same spreadsheet-based sales forecasting years or even decades into the business. 

Once your sales volume increases beyond the limits of your existing forecasting system, you’re bound to see an increase in inventory distortion, including stockouts, overstocks, and dead stock.

For greater accuracy, make sure your sales forecasting methods account for the following factors:

• Historical product sales performance
• Market research and consumer behavior trends
• Sales history for competitive products
• The most likely sales patterns for new products.
• Outlier variables (promotions, weather affects, and other anomalies)

With a single source of truth forecast customized to your unique products and business, you can unify your team and empower greater inventory control at all levels of the business.

3. Improve your demand forecasting

When it comes to refining your order quantities, having a clear understanding of how much of your products customers would be willing to buy is the dream for every modern business, but DIY or off-the-shelf demand forecasting solutions can’t give you the full picture.

To set healthy inventory levels for both your existing and new products, look for a demand forecasting and planning solution that provides:

• Accurate forecasting using AI to identify and predict key patterns in demand
• A customizable dashboard to show you the data you need when you need it
• Real-time adjustments to accelerate delivery or adjust advertising on certain products
• The ability to proactively plan reorder points and automate purchase orders

The unfortunate truth is that even the most robust demand forecasting methods can’t deliver 100% accuracy. 

However, a better and more customizable approach can help you avoid stockouts, prevent overstocks, and secure more sales.

Don’t let dead stock hold you back

Dead stock can drain your profits and prevent you from making the strategic moves that propel your business forward, but avoiding it can be easier than you think.

Flieber is the customizable inventory planning platform that automates your forecasting, runs advanced scenarios to help you plan, and sends real-time alerts when it’s time to take action.

When you’re ready to drop the guesswork and manual entry, Flieber can help take your operations to new heights.

Learn more about how Flieber works with a free, fully functional, trial period.