Dead inventory is costing the retail industry $50 billion a year in the US alone. Dead stock is scary. And as lifeless as it is, it lives on in your store: taking up space, haunting your bottom line and maybe even frightening your customers.
In this article, we’ll cover a few crucial aspects of dead stock, including:
- The cost of acquiring it
- How to avoid it in the first place
- What to do with it if it does end up in your store
The Cost of Dead Inventory
Before you develop a strategy for avoiding dead stock, you need to know the full weight of the expense retailers face if they fall victim to it.
Holding on to and managing stock that has become obsolete carries a number of costs. Some of the biggest hits to retailers include:
Each dime you’ve spent on non-selling products is money held captive. A tremendous amount of retailers’ finances are invested in physical products, and when those products aren’t selling––they’re left with a huge chunk of money floating out in space that could have been used for something else. This kind of misinvestment will not only bottleneck your cash flow, it’s serious enough to cripple your business.
You make money by selling products, not by storing them. Keep in mind that dead stock not only ties up your capital, it also takes up real estate in your store and could even trigger high finance fees and insurance premiums. Also, the longer your inventory sits the more susceptible it is to damage. If something sits so long it gets weathered, worn or broken–you can kiss any chance of a profit (or breaking even) goodbye.
The administrative cost of dealing with dead inventory is a beast. When you decide to run items through a clearance cycle, you’re already losing money. Now you have to pay employees to shift, scan or remove the dead inventory. POS software that can quickly identify or prevent non-selling stock helps eliminate (or at least lessen) this expense. We’ll cover exactly how later…
There’s an opportunity cost associated with holding a dead item in inventory. If that item isn’t moving, there’s another that will. It’s to your financial benefit to get rid of the item that’s not making any money. If you don’t act, you’re losing the opportunity for profit. POS analytics can show you what items and brands sell the best, so you’re never losing the opportunity to stock items that will sell, while avoiding items that don’t.
When everything’s said and done, the total cost of holding dead inventory can represent a shocking 25-45 percent more than the inventory unit cost value.
Avoiding Dead Stock
The costs associated with holding on to dead stock should scare you into developing an effective strategy against it. And the best way to deal with dead stock is to never end up with it in the first place.
So, how do you avoid it?
The answer is simple: with dynamic point of sale software.
Measuring the layers of dust on an item is no way to go about isolating your dead inventory. And you have no way of knowing you have dead stock if you don’t have a POS system. You also have no way of avoiding or acting on dead inventory without the data and reporting capabilities of a good POS system.
With an intuitive point of sale system that “talks to” your inventory levels and measures your customer behaviour, you can avoid the dead stock disaster a few different ways.
Stock Minimum & Maximum Levels
Stock minimums and maximums will help you be cautious of what items to purchase and when, giving you the upper hand on surplus inventory.
A POS that links vendors and merchants helps ensure that purchase orders are generated that do not exceed a maximum order amount. This is especially handy if you’re entrusting employees with ordering.
Minimum stock alerts will buffer your strategy against acquiring dead inventory by making sure you’re not going overboard to avoid dead stock and ordering too little, resulting in missing out on sales and inviting your customers to go to your competition.
Sales Reports by Brand, Category or Product
Reports on brands, products or categories of items that sell well will help you strategically stock your shelves so you don’t end up with items that don’t move. A sales by brand report will show you exactly what brands are selling well AND how much margin you’re working with.
Without a point of sale system that relays data this way, you can make the mistake of overstocking a brand or item you think is a profitable bestseller, when you actually recoup a low profit for it.
Perhaps a large majority of items in a “best-selling” category result in returns or refunds. POS software with an analytics platform will tell you the big picture of your best-selling products and brands so you can accurately measure all facets of your sales.
Non-Selling Stock Reports
Generating non-selling stock reports equips you with the data you need to take action on current dead stock and avoid it in the future. Here’s how a few simple clicks in your POS software can help you differentiate, control and eliminate your dead stock:
- Navigate to a non-selling stock report to see what items are dead.
- View your product list to see what kind of margin you’re working with on those items.
- Create a promotion tied to dead items within the bounds of your margin (so you’re still making some kind of a profit).
- Promote your promotion on signage or even in an email to your customer list.
- Check your sales by promotion a week or so later to monitor your success and determine next steps.
Margins & Discount Reports
Before you go all-in on a promotion involving dead stock, do a little research in your point of sale back office. Your product margins will show you exactly how much room you have to breathe to still make a profit.
Discount reports will show you what promotion strategies have worked in the past and how your promotions have impacted your gross margin.
Questions about how to maximize the ROI of your dead stock? Get in touch with our customer success team. We’re happy to help!
Your Last Resort: Ways to Deal with Dead Stock
Dealing with dead stock is a losing battle. You have to accept that your margins will suffer. But the big question is: how much? How can you minimize the gut-wrenching loss your dead inventory carries?
Part of the solution to your dead stock problem lies in how you acquired it in the first place. Your dead stock can tell you a few things:
Your price is too high.
Perhaps the price of the item is too high and you should investigate lowering it. Review your margins and see if you can adjust the price without taking too much of a hit. And keep in mind the opportunity cost mentioned above.
It’s in a bad location.
Maybe your dead stock never had a chance at life because it’s not in a good location and not easily accessible to customers. Examine relocating your dead inventory, but be careful not to cannibalize the sales of your best-selling products in the process.
You don’t want to relocate an item that sells well just to highlight one that doesn’t. Find a balance, and remember to do your research with the POS analytics tools above before making any moves.
It’s just not a good product.
There’s a chance your inventory is dead because it’s just not a good or desirable product, and perhaps you need to put it on promotion.
Some retailers hear the word promotion and immediately think their margins will be absolutely killed. But by now you know that with the right information gathering in your POS, you can develop strategic promotions, monitor them and react to them to lessen your risk.
You ordered too much.
Ordering too much is risky and sometimes deserves a risky solution. There’s the marketing device of branding something with a deep discount to gain new customers and more sales.
We see this every year on Black Friday. Companies are willing to take a loss on an item knowing the attraction of the sale will lead to major gains for other products in their store. If you over order, this risky but sometimes effective strategy is one way to quickly burn through dead stock while creating opportunities for the sale of other items.
Of course, this problem can be avoided altogether with the right point of sale software in place. As noted above, setting maximum order limits on your inventory can prevent you or a staff member from ordering and stocking too much inventory.
Dynamic Retail POS: Your Secret Weapon Against Dead Stock
As a business owner, the worst thing you can do is buy inventory that ends up sitting around not making money and collecting dust. And as discussed, there’s a lot that goes into the costs associated with these dead items.
If you don’t have a POS system in place to help you avoid dealing with dead inventory–or worse, you’re paying for one without the proper features in place to fight it off in the first place–you’ll need some strategies to recoup what you can from your non-selling items.
If you’re struggling with dead stock and are ready to level-up your retail point of sale solution, contact Epos Now for a free, 15-minute demo of our software. It’ll be your secret weapon to fight dead inventory and so much more.