DTC ecommerce brands typically have more than 2x the "healthy amount" of dead stock in their inventory. And it's costing them big!
"Dead stock" is one of those business terms that, even if you don't know what it means, you know it's not good. Still, it's a familiar haunt in the ecommerce industry.
Typically, a healthy business has 15% dead stock (or less) in its active inventory. But for direct-to-consumer(DTC) brands, that number typically creeps up toward 33%. This ties up capital and radically drives up operational costs.
So, let's break down how your company can get rid of dead stock.
But first, what does "dead stock" mean? And how can you avoid it in the first place?
What is dead stock?
Dead stock (or dead inventory) refers to inventory items that a business considers unsellable. Dead stock items are the ones that don't sell as well as predicted. Dead stock can also refer to damaged or expired units, unsold seasonal products, products that were delivered by mistake, etc.
Most common examples of dead stock are seasonal items that are no longer in demand. In some cases, they are unlikely to be sold before their expiration date and go to waste. As such, they only occupy valuable warehouse space that otherwise could house fast-selling products. As a result, slow-moving inventory comes with some pretty hefty hidden costs.
The cost of dead inventory
This probably goes without saying, but holding onto dead stock doesn't make you money. It actually costs you money.
And without inventory management software to pinpoint what SKUs are moving and which ones aren't, you might be hoarding dead stock unknowingly.
As a result of poor inventory visibility and control, you're stuck paying high inventory holding costs, storage costs, utilities, insurance, and so on to protect this inventory on the off chance that it might sell.
Not to mention, aged stock and dead stock takes up warehouse space that could otherwise hold headstock. Where dead stock refers to your worst-selling products that don't make you a lot of money, headstock items are your super-reliable best sellers.
In other words, you're also missing out on opportunity costs when you hold onto dead inventory, so factor those into your calculations too.
When you add up all these costs, dead inventory costs a shocking 30% more than the inventory's value on average. And that number doesn't reflect the additional roughly 15% in missed opportunities that happen when your cash is tied up in stock that doesn't sell.
How to avoid dead stock
Common sense says to avoid dead stock in the first place. And you'd be right - that's the best practice.
But, admittedly, this is easier said than done for most retailers and online stores. Luckily, there are a few ways you can get ahead of dead stock before it starts piling up.
Improve inventory management
The most significant contributor to dead stock is inventory mismanagement. More specifically, not knowing what inventory you have, which products are moving, and what's just sitting around.
Luckily, an inventory management software like Cogsy makes managing inventory easy.
With the intuitive, real-time data source in place, you can keep track of what products you have in stock, calculate weeks of supply, and determine the best reorder point more accurately. And consequently, know which of those items aren't moving.
For example, say you see a headstock product's sales drop off. Cogsy can send you notifications to confirm if that SKU is at risk of becoming dead stock or if a stock out caused this drop-off.
That way, you can polish your inventory management system and take informed action. This might mean proactively discounting the inventory (before you end up stuck with it) or restocking the product. If the latter, Cogsy will even recommend how many units to order based on your sales data.
Proactively discount potential dead stock
Knowing what's selling and what's not is half of it. The rest is market trends.
In other words, what's selling big right now? And will it continue to be popular a month from now? A year from now? Or will it fall off eventually?
For example, holiday products fly off the shelves in the weeks leading up to the big day. But they slam to a dead stop as soon as the holiday passes. So, there's no point in stocking Christmas cards in July.
That's why many fashion brands like ASOS and Zara run end-of-season sales. During which, they'll offer, for example, swimsuits and shorts at a heavy discount when Summer ends.
This allows retailers to get rid of excess inventory before it becomes dead inventory while also making space for brand new products and next season's items.
Sure, offering discounts lower your profit margins. But it's better to make something that offsets manufacturing costs than invest in holding items that might never sell.
Upfront market research
Frankly, every product you decide to stock is a bit of a gamble.
But some are much safer bets than others, and you can identify which products fall in this category with a bit of market research.
The best and easiest way to do this is by surveying your current customer base. These people likely fit into your buyer persona (the gender, location, interests, and socioeconomic profile your brand targets).
They'll have the best insights into what your buyer persona is shopping for right now. And those insights help predict how potential products will perform, so you can stock up on ones that likely won't turn into dead stock.
For example, ecommerce underwear company Parade runs semi-annual customer insight surveys to gauge what people like, don't like, and would change. (Here's the August 2021 survey as an example.)
They even offer a $20 store credit to everyone who fills out the survey and raffle off a $500 gift card to one lucky respondent. This boosts engagement on these questionnaires so the Parade team can get better data to work with.
But keep in mind that current trends will influence customer survey results. Luckily, you should have enough of a pulse on your industry to know which preferences are fading trends and which are timeless classics.
Offering trends will always be the riskier gamble because trends are more likely to turn into dead stock. So, if in doubt, choose best-sellers to be your safety stock.
Diversify your best-sellers
Some companies avoid dead stock by sticking exclusively to their best-sellers.
This is a solid strategy. But it could cut off opportunities for repeat customers and lead to those top products going stale.
That's because consumers typically won't replace an item with the exact same thing (there are, of course, a few exceptions like pantry items). Meaning, if you only offer a few best-sellers, you might limit yourself to one-time customers.
But you can get around this if you sell items that are slight variations of your best-sellers.
For example, the luxury sock brand Comme Si only offers a handful of products (socks, boxers, tote bags, and the likes). But they're best known for their online-only Italian-made socks.
However, this is a product that most consumers only replace when they have to. And many big-name competitors like Fruit of the Loom offer similar products at a fraction of the cost.
So, Comme Si stands out by offering higher quality products than most competitors to spike some initial interest. And they don't just stick with boring white tube socks.
The brand keeps its sock offerings fresh by using trends to inform slight variations (color, fabric, and height) to its headstock product, creating limited editions. This keeps customers coming back before their top drawer gets empty.
5 ways to get rid of dead stock
Here are the five best ways to get rid of dead stock that might save you from any more hidden costs or losses.
- Return products if possible
- Evoke FOMO in your customers
- Bundle products for a discount
- Sell it to dead stock buyers
- Donate what you can't sell
1. Return products if possible
Many supplier contracts come with a return policy. Meaning, you can sometimes return products for upwards of 365 days. But to issue a supplier return, the items typically need to be in "good as new" condition and returned in their original packaging.
Not sure this is an option? Check the fine print on your supplier contracts to see:
- If they offer returns
- If you're in the return window
- Any conditions you'll need to meet
If you're still in the return window and the products are in good shape, feel free to return the dead stock to your suppliers and see if you can get a refund. Just keep in mind that this option might come with a small fee. Typically, this will be a 10% fee with the choice to pay in credit instead of cash.
However, if the products are in poor condition, consider holding onto them, even if you're in the return window. It's not worth ruining your supplier relationships over the cost of a little dead stock.
2. Evoke FOMO in your customers
If returning products to your supplier isn't an option, try evoking FOMO (fear of missing out) with a clearance sale.
The idea that if you don't act now, you might not get a better option provides a psychological trigger. One that urges customers to impulsively purchase products they weren't looking to buy.
In fact, 60% of Millennials admit to making a reactive purchase after experiencing FOMO, usually within 24 hours of first feeling it.
So, start by figuring out the lowest possible price for which you can sell a product. Ideally, this price should offset some of the hidden costs. But if you've been holding onto the product for a year or more, it might be worth selling it at the price you bought it (or even at a loss) to untie capital.
For example, sustainable denim brand Boyish recently sunsetted The Clancy Jean, one of their slower-moving styles. Meaning, rather than holding onto dead stock inventory, they put the items on sale (which they hardly ever do) for just above what it costs to make each unit.
The brand tagged the jean listings as "On sale" to draw people's eyes to it on the page. And they kept the Clancey listed alongside their full-price best-sellers. This helped the Clancey jeans, now discounted at $75 per pair, stand out among the $150+ alternatives.
Surrounding product page copy and email messaging noted that this deal was only available "While supplies last." As a result, their customer's FOMO turned into red-alert urgency, driving the dead stock to fully sunset faster.
3. Bundle products for a discount
When you have lots of the same product, add more oomph to the FOMO by bundling related products together. These related products can be fellow dead inventory items or best sellers. Then, sell those bundles at a discount.
Product bundling is an incredibly effective strategy to get rid of dead stock for health, beauty, and home goods brands, where consumers get more value from a complete set.
For example, Caraway bundles their pots and pans. Then, they sell the set to customers for $100 less than buying each product separately. As a result, the cookware company regularly sells out, leaving little to no dead stock in their warehouse.
And like most companies, Caraway also offers exclusive holiday bundles to supercharge how fast stock flies off the shelf.
In the 2021 holiday season, this looked like bundling their two best-selling bundles for an additional 20% in savings. That way, they could start the new year with a cleaned-up backstock.
Pro tip: Mark your exclusive holiday bundles as "While supplies last" to maximize the sense of urgency.
4. Sell it to dead stock buyers
At this point, you might want to look into working with a dead stock buyer. While you might lose some cash in the transaction, getting something for this inventory is better than nothing at all.
And depending on the product's condition, you have a few options for getting rid of dead stock that might leave you at least breaking even. For example:
- Wholesalers will buy your good-to-great condition dead stock in bulk.
- You can sell good-to-great condition dead stock on price-matching sites, like Amazon's Seller Central.
- Similarly, you can offer products in okay-to-good condition on eBay or to a closeout liquidator (they'll then resell those items at a lower price).
But here’s the caveat: if any of your dead inventory is damaged or in poor condition, you might want to consider donating or recycling those units - rather than trying to sell them.
5. Donate what you can't sell
When you just can't seem to get rid of your dead inventory, it's better to cut your losses than keep paying to hold onto it. But dumping it doesn't have to be a total waste. Instead, consider donating what's unsold and unusable.
Tons of local charities would probably love to take your dead stock inventory off your hands. Just be sure to double-check that it's legal (some products like alcohol can't be donated in all areas).
Plus, if you choose a qualifying organization, you can use dead stock as a tax write-off. Not to mention you get some phenomenal PR as soon as you drop the items off.
That's because 75% of consumers expect companies to give back in a meaningful way. And Millennial slash Gen Z consumers will even go out of their way to buy from brands who actively support causes they believe in (sustainability and social responsibility being the top two).
Not sure where to donate your dead inventory? The nonprofit Good360 will collect your excess inventory, then vet it out to charities for you. And you still get the tax break and bragging rights.
The bottom line is: if you collected a ton of dead stock over the years, don't worry! You won't be stuck with it forever. But, to keep hidden costs from piling up and cash flow pumping, it's best to get rid of the dead stock as soon as possible. And, ideally, to do it in a way where you get something to offset the initial investment.
Dead stock FAQs
What are the common causes of dead stock?
There can be multiple causes of dead stock, where some of the most common ones include inaccurate inventory forecasting, excess order quantities, poor sales, low demand, and bad product quality.
How to prevent dead stock?
To prevent dead stock from piling up in your inventory in the first place, you can resort to using inventory management software, monitoring sales trends, calculating accurate reorder points, surveying customers, diversifying the product mix, and purchasing high-quality products.
Why is dead stock bad for business?
Piling up on dead stock can cause financial damage to a business. Dead inventory causes high holding costs and deals damage to business revenue. Furthermore, due to the increased workload in the warehouse, you need to raise your staff's wages or risk employee dissatisfaction. Finally, dead stock takes up inventory space that would otherwise be filled with items that generate sales.