Solution: Defective products are the least worrisome type of dead stock, as long as they can be returned for repair or replacement. The product may have been labeled as a size 9 but is a size 11. For example, shoe stores sometimes receive products that simply don’t cut for the size of the customer’s feet. Products are defective because of a design or engineering flaw. ![]() There are several reasons for dead stock: Defective product What Can Cause Dead Stock And How To Fix It? You may also like: The Ultimate Guide to Inventory Planning: Benefits, Models, Challenges And Best Practices 3. This means you have more floor space to market and sell your products. If you maintain low inventory levels, you don’t need to devote as much storage space in the building for additional inventory. Dead stock takes up valuable shelf space that could be used for faster-selling products. Retailers are very mindful of inventory turnover per foot of shelf space. See related: 8 Ways Retail Stores Can Cut Running Costs Less inventory spaceĪs a retailer, managing store space is of utmost importance. The more cash a company has tied up in stock, the less cash it spends on other priorities. Holding costs generally include storage space, labor, and insurance. Higher holding costsĪlso called inventory carrying costs, holding costs are those associated with storing inventory that remains unsold. In the end, such a snowball effect can be mighty costly. More employees mean higher payroll costs, which can have a disastrous impact on your cash flow management and profit margin. All of these tasks require more staffing to do the work. ![]() More items mean more maintenance, shuffling, counting, and ultimately disposing of the items. Inventory management requires more effort if there are more items on the shelves. Therefore, your investment is down the drain, which is a loss of revenue for your business. The inability to sell your products hampers your chances of generating a profit from the merchandise you have purchased. Here’s how dead stock can be directly and indirectly costly to your business: Money lost Dead stock is detrimental to retail businesses because it ties up capital, affects revenue, increases carrying costs, and takes up valuable shelf space. But worse, this will likely have caused a ripple effect among your suppliers, who also have too many potatoes in stock. If your price for a bag of potatoes was $100 and you had 180 bags leftover, you would have a loss in expected profits of $18,000. This remaining balance is now considered dead stock. As a result, you only manage to sell 20 bags of potatoes after three months. Surprisingly, consumer demand for potatoes has suddenly plummeted due to a new trend in diet fad. Your potatoes will be sold in three months based on your inventory forecast. It’s best explained with a brief hypothetical. The most obvious consequence of dead stock for a retail business owner is lost revenue. How Does Dead Stock Affect Your Retail Business? Dead stock also can include damaged items, wrong deliveries, leftover seasonal products, or expired items.ĭead stock is even more challenging for convenience and grocery stores because perishable items, such as food, fruit, or medicine, can quickly become dead stock if they spoil. In other words, dead or obsolete stock refers to items that retailers or online retailers cannot sell.Ī retail business may end up with dead stock due to ordering too many items and then finding that they did not sell as expected. If you’re a retail business owner, the chances are that with each change of season, somewhere in your inventory, there is an ever-growing amount of product that simply isn’t selling.
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