In most ecommerce businesses, keeping stock levels up to that of customer demand is very important. This often then leads to the temptation to order more stock than necessary as a precaution. But overstocking can be self-defeating.
Having some safety stock to handle emergencies or unexpected demand spikes is a good idea. However, having too much stock can be harmful because it may lose value before being sold, leading to "obsolete inventory" and reducing profit margins.
In this article, we will discuss techniques to prevent, detect, reduce, and manage obsolete inventory, helping your business become more profitable.
What is dead stock or obsolete inventory?
Dead stock refers to unsold or obsolete inventory at the end of its product life cycle. This type of inventory negatively affects financial performance by lowering profit margins, tying up cash, and raising costs associated with warehouse storage and staffing.
There could be many causes for dead stock - ranging from shifting customer preferences, poor inventory management, slow sales, defective products, changes in store layout, or other economic factors.
While dead stock refers to unsellable inventory that hinders sales, deadstock has gained a new meaning among certain retailers. It describes obsolete items that have become collectible, often commanding high prices.
A prime example is limited-edition sneakers, for which customers may pay a premium. Unlike dead stock, deadstock inventory can enhance sales and elevate a store's appeal.
Causes of dead stock:
Several factors can lead to obsolete inventory, we cover a few of them below:
- Overstocking: Ordering more inventory than needed, repeated consistently, normally leads to overstock when demand goes down, and many unsold items are left over with the business.
- Excessive product similarity: Too many similar products will cause customers to purchase top-selling models and abandon others.
- Ineffective inventory management: Mistakes in inventory handling and poor management practices can hinder efficient turnover, causing dead stock.
- Seasonal or trend shifts: Leftover stock from seasonal sales or outdated trends can quickly turn into dead stock.
- Defective items: Products with known issues are difficult to sell and often become dead stock.
- Expiration or obsolescence: Outdated goods that have expired or are obsolete do not appeal to any customer and remain unsold.
- Wrong demand forecasting: Using Incorrect data for demand forecasting can lead to excess purchases and result in overstock.
Impact of obsolete inventory on businesses:
Dead stock can have significant adverse effects on both the financial health and operational efficiency of your business.
Financial Losses
Dead stock ties up your working capital, representing a substantial opportunity cost. The funds invested in unsold inventory are immobilized, preventing their use in profitable ventures, marketing efforts, product development, or other growth initiatives. While discounting dead stock might help boost sales, it also reduces profit margins.
Additionally, dead stock incurs continuous storage and holding costs. Each square foot of warehouse space allocated to dead stock is a space that isn’t generating revenue.
As dead stock sits in your warehouse for extended periods, it becomes more vulnerable to damage, further reducing its value. In some instances, you may even face disposal costs to eliminate dead stock from your inventory, which can be particularly expensive for perishable or regulated items requiring special handling or disposal methods.
Operational Inefficiencies
By taking up valuable warehouse space, dead stock limits your capacity for storing profitable products. It also complicates inventory management and forecasting.
Dead stock can lead to inaccurate inventory data, creating a ripple effect throughout your supply chain. This may result in stock-outs of popular items or overstocking of slow-moving products that then require expensive markdowns. These inefficiencies can harm your brand if customers frequently encounter out-of-stock or heavily discounted products.
5 tips for reducing dead stock and obsolete inventory efficiently:
1. Discounting and clearance sales to quickly move excess inventory
Discount and clearance sales are among the most effective ways of ensuring dead stock reduction. This will ensure that prices for the products are reduced to attract customers' purchases of the stock, if not to avoid inventory, which otherwise would remain unsold.
In this kind of strategy, our dynamic repricing can make all the difference. It allows for automated changes in price depending on market conditions and competitor pricing so that your discounts are competitive yet profitable.
2. Bundling dead stock with popular products to increase sales
Another strategy to tackle dead stock is product bundling. By combining less popular items with high-demand products, you can increase the chances of selling inventory that might otherwise become obsolete.
Our product bundling feature makes it easy to create attractive bundles that appeal to customers, thereby moving dead stock more effectively. This not only clears out unsold inventory but also adds value to your offerings, enhancing customer satisfaction.
3. Exploring alternative sales channels
Expanding to alternative sales channels can also help in reducing dead stock. Instead of relying solely on a B2C approach, consider selling on more prominent online marketplaces. We facilitate this by enabling you to manage and sell on multiple marketplaces from a single platform.
By diversifying your sales channels, you can reach a broader audience, increasing the likelihood of selling excess inventory.
4. Implementing effective inventory management techniques
Effective inventory management keeps dead stock at bay. First-in, first-out techniques ensure that older items are sold prior to the new ones; hence, there is less likelihood of something reaching a stage of becoming obsolete.
Also, demand forecasting helps to find out which products are going to sell, so the inventory can be adjusted. Periodic inventory audits and quality checks are also significant for maintaining accuracy in inventory and its quality.
5. Using a platform for real-time inventory tracking and analysis
Real-time tracking and analysis are essential for making well-informed inventory decisions. Our tools offer extensive resources for tracking inventory levels, sales performance, and market trends.
This live data enables you to detect sluggish items in advance and make necessary changes before they turn into unsellable inventory. Utilizing this information can help you enhance your inventory control, making sure there is a good equilibrium of supply and demand.
Wrapping up:
Understanding and managing obsolete inventory and dead stock is crucial for a successful and profitable ecommerce business. Carrying inventory that cannot be sold can have major financial and operational consequences, such as reduced income, higher storage expenses, and constrained cash flow.
ChannelEngine offers a complete answer to these obstacles.
- Our dynamic pricing tool can give you a competitive edge and aid your discounting strategy.
- The product bundling feature on the other hand can help boost sales of less popular products.
- With our platform, you can sell on multiple marketplaces without any hassle.
- Our real-time inventory tracking and analysis tools provide valuable insights to manage your stock levels better.
