When it comes to inventory management, deadstock belongs in the ninth circle of hell. Because of how much working capital it eats up, deadstock can even be fatal to a growing business.
However, deadstock is retail’s best-kept secret and most apparel retailers assume that they will have about 40% dead stock at the end of every sales cycle. That’s almost half of their entire inventory!
What is Deadstock?
To put it mildly, “Deadstock” is the part of your purchased inventory that Simply Won’t Sell. It is a source of anxiety and dread as it puts a block on your working capital.
Deadstock is a problem that should be nipped in the bud. To do this successfully, you need efficient inventory management from day one.
Stagnant, non-moving inventory puts incredible pressure on the business to stay afloat with limited cash flow. Whether you are a manufacturer or a retailer, it is through fast-moving inventory that you generate your working capital beyond the product or store launch stage. Therefore, you must have a foolproof inventory management system as well as the means to market your product.
But first, you should know your stock management basics.
All purchased stock falls into two categories:
- Cycle stock
- Safety stock.
Cycle stock, as the name suggests, is the “rolling” part of the inventory. You stay on top of sales to estimate how much you need to have on hand between re-orders.
Safety stock is your reserve stock- the stock you hold for times when sales might spike or vendor shipments get delayed.
Both categories have the potential to end up as deadstock. Safety stock more so, as not as much attention is likely to be given to it during stock reconciliation.
Why do so many retailers and manufacturers end up with dead stock?
Well, poor forecasting and demand planning is often the most common reason for ending up with deadstock. Here are a few ways by which that can happen:
1. Over purchasing:
Purchasing mistakes are a direct result of overestimating your demand or not understanding market needs. Sometimes retailers buy a lot of stock towards the tail end of a trend, and it ends up becoming nothing but a problem when the clientele moves on to the next trend.
2. Inefficient inventory management
Many retailers or manufacturers are yet to progress beyond the Excel spreadsheet method, unaware of or unwilling to invest in an automated inventory management system or software. They also tend to hold or move merchandise in silos, with every store having its separate inventory instead of a centralized warehouse.
This results in over-ordering or stock duplication: an SKU gets ordered when a perfectly saleable one is sitting in a store nearby. Moreover, inventory management software is a great thing to have if you plan to take your business online. Multichannel or omnichannel selling can be a competent avenue to unload your dead stock by tapping into new audiences.
3. Inadequate marketing or not capitalizing on trends:
Buying stock is not enough, retailers must get the message out about what is up for grabs among their customers. Moreover, the sales personnel need to be well-trained and well-informed about all aspects of the product, and capable of motivating the customer to buy it.
4. Not having a system for filtering out and returning/replacing substandard merchandise:
Warehouses should have a well-lit, well-demarcated “receiving and sorting” area where they receive goods from the vendor. It should be equipped, and its personnel trained, to sort out defective or poor quality merchandise to be sent back ASAP and replaced. Not doing this as part of a process compromises stock quality over the long run, making it unsaleable.
All of the above add up to a mountain of deadstock that retailers feel pressured to move. This is where deadstock management comes in.
Assuming the deed is done, how do you clear out your deadstock?
If you have a situation on your hands, deadstock management should be taken up on a priority.
Here are 6 things you can do to manage Deadstock.
1.Invest in an automated inventory management system:
Money spent on an efficient, intuitive and streamlined inventory management system is never wasted. It will allow you to pool your stock in a single virtual location, giving you a dashboard view of buyer preferences, and where the deadstock lies. This can give you ideas for how you can reassign it for maximum saleability. The system can also send alerts about critically low stock, or be programmed to auto-generate purchase orders for fast-moving items.
2. Make returns and exchanges a part of your vendor agreement:
Apart from defective products that warrant immediate replacement, it would be helpful to have an agreement with your supplier wherein you can return stock that remains unsold beyond a certain time-point. Alternatively, you can keep certain products in your retail store on a “consignment” basis, wherein you reimburse your vendor only for goods sold, according to a pre-decided margin.
3. Move deadstock around for maximum visibility and saleability:
The data provided by an inventory management system is highly useful in determining the geography/ demographics where certain SKUs are likely to sell. Moving dead stock to these locations maximizes its chances of selling. If you do not have your stores beyond a certain geography, consider rolling the stock into other channels: Online marketplaces, auctions and such.
4. Up your forecasting game:
The better you get at forecasting, using tools and techniques developed for the purpose, the lesser your chances of ending up with more stock than you can sell. Plus, analyzing your purchase orders can help you streamline purchasing, and break out of old buying patterns.
5. Make the customers an offer they can’t bypass:
Clearance sales, free shipping, creating a sense of urgency using countdowns on the website, or flags signaling “low stock” are all effective tactics that tempt the customer to make a purchase.
6. Bundle similar-category products into attractive packages:
You can make “styling bundles” out of non-moving clothing, shoes, and accessories, for instance. Or say, Knife sets and chopping boards. This will add a layer of interest and appeal to the customer as a great bargain to be had.