5 Most Common Causes of Dead Stock in Retail
Merchandise that has not been or cannot be sold is referred to as dead stock, which can create substantial financial burdens for retail businesses. Such items represent unrealized sales opportunities as well as expenses that cut into the retailer's profits. Dead stock occupies shelf or rack space that could be used for other products that could generate sales revenue. Furthermore, retailers may have already been contracted to pay for the dead stock. The longer these items remain unsold, the longer they are accounted for as a loss to the business.
Dead stock has never been worn, used, or sold, and has been in inventory for an extended period of time. The product often still has its original packaging and tags.
So what causes dead stock in your store? Here are the five most common causes:
In this case, something is wrong with the product, such as poor engineering or design. Shoe stores, for example, sometimes get products that simply don't fit customers' feet correctly. The product might have been marked as a size 9 but fits like a size 11.
Defective products are the least troubling type of dead stock because returning the products to be fixed or replaced is a possibility. For example, you can contact the manufacturer and request a return authorization (RA) for the merchandise. The vendor will issue you a credit for the stock and in many cases even pay for the freight back to its warehouse.
Customers Hate It
One of the most difficult types of dead stock to deal with is product that customers loathe. You bought it expecting it to sell, but your customers have other ideas. Perhaps the product is no longer popular, newer products have rendered it obsolete, or the product's actual appeal was never strong to begin with.
The best thing to do in this situation is to minimize your losses by slashing the price and moving the merchandise as fast as possible. The presence of merchandise in your store that customers do not want can overshadow and hurt the other goods you sell. Since cash is king in retail, you need to get whatever cash you can and move on; the product is just losing you more money the longer it sits on your shelves. Reducing prices to rid yourself of this kind of dead stock could mean price cuts of as much as 50 percent or more.
Too many times, retailers hold on to dead stock as a result of ego. Conventional wisdom should lead to deep discounts to move dead stock, but if a retailer does not adapt, items will continue to collect dust. Perhaps the retailer believes that the merchandise is worth more than what consumers are willing to pay. If you keep prices high under the assumption that customers will change their minds, the products may never move at all. Retailers might base their actions on the costs paid to procure the merchandise and the profit projections that led them to stock the products in the first place.
For example, a high-end television that has been on the market for a while will eventually face rival devices and then become obsolete. A retailer might try to stick with the original price for the product based on an assumption that customers will continue to pay that amount even when other, more expensive options become available.
This dead stock takes up space on shelves that could have been used to fill in products in greater demand. The solution is to free up whatever cash you can by dumping the dead stock to focus on more profitable products.
Poor communication between a buyer—often a store owner—and the sales staff can lead to inventory sitting as dead stock simply because no one knows how to sell it or understands why a customer would want it. Products sometimes enter the market, but the sales staff is unfamiliar with their usage. If a store's staff cannot explain to customers why a product is relevant or how to use it, chances are that the merchandise will not sell. To prevent such a scenario, make sure you have a plan in place to educate people on the sales floor about every product on your shelves.
You may have different products that are too similar to one another, and the sales staff may be pushing a particular brand while other items sit on the shelves. Among the reasons: perhaps your staff has personal preferences, or the store has a commission structure that pushes the staff to focus on selling higher-priced items and ignoring rival products.
Before introducing new items to your store, invite your staff to view samples of those items along with what you already sell. This exercise can help identify features that differentiate seemingly overlapping items.