When it comes to inventory management, knowing exactly how much to order requires a mix of predictive data analysis, business experience and customer insight. But even the most clairvoyant operations are likely to overorder or overproduce from time to time, leaving the company with inventory that can’t be sold — otherwise known as dead stock, excess inventory, closeouts, or slow selling inventory. The liquidation process for these goods does not have to be complicated or stressful; in many cases simply identifying these closeouts is 90% of the solution. There are businesses that specialize in buying closeouts and they are super easy to contact and work with.
Dead stock impacts revenue and cash flow, takes up valuable warehouse space and may even threaten a business’s viability. Having too much excess inventory is bad news for your bottom line, and if you need information on how the liquidation process or closeout process works, you should talk with companies that specialize in buying closeouts. Here’s how to reduce the risk of accumulating dead stock and smart ways to manage or repurpose excess stock that’s already in your warehouse.
Dead stock, also known as dead inventory or obsolete inventory, refers to items that aren’t expected to sell. Dead stock can negatively affect a business’s bottom line. Don’t confuse “dead stock” with “deadstock,” a niche term used by some consumers, such as sneaker enthusiasts. Deadstock usually refers to discontinued lines of unworn sneakers, or vintage items like clothing and fabric that are no longer available on the market but still have their original tags. Unlike dead stock, deadstock items often sell at a premium price. There are terms that all mean the same or similar thing. Closeouts, dead stock, excess inventory, overstock merchandise, discontinued products and overstock liquidation can all mean the same thing.
Dead stock is inventory that is unsalable. A business may find itself with dead stock because it ordered or manufactured too many items and then found they didn’t sell as anticipated. This may be due to a change in the market, a recession, or simply a slowdown in the company sales. Perhaps the largest customer shut down operations and closed their warehouse. Maybe one of your suppliers is having problems and had to get excess inventory off the floor,. Dead stock can also include damaged items, incorrect deliveries, leftover seasonal products or expired raw materials. Perishable items, like food or medicine, can quickly become dead stock because they usually must be discarded after a specific time. However, the definition of dead stock doesn’t include merchandise returned by customers unless it cannot be resold.
But products usually aren’t deemed unsalable overnight, so at what point does old stock become dead? It’s often a lengthy process. First, items might be considered slow-moving inventory or closeouts. If they remain unsold, they become excess inventory and eventually are categorized as dead stock. For accounting purposes, any inventory that doesn’t turn over after a year is typically considered dead stock and becomes a liability. At this point you may consider reaching firms that specialize in buying closeouts and buying overstock inventory. These are buyers for obsolete inventory that you are unable to sell through your regular distribution channels. The good news is you will be able to liquidate the entire inventory in one shot to one buyer; the bad news is closeout buyers will only pay a small percent of the original value. You can do a simple Google search for closeouts, buyers for closeouts, overstock inventory buyers, liquidation process, where to sell closeouts or clearing out warehouse need to liquidate. This will turn up several closeout companies so you can begin conversation and work on selling off your inventory.
The most obvious cost of dead stock is lost revenue. For example, if a business can’t sell 200 units of a product, each with a $100 retail price, the company theoretically will lose $20,000 in anticipated revenue. Other costs can be significant but harder to quantify. A company’s total carrying costs can tie up much as 20% to 30% of its capital at any given time, but it may be difficult to determine how much of that is due to dead stock. The longer an item is stored before selling it, the higher the item’s carrying costs become, so dead stock is the worst possible scenario for carrying costs. Because dead stock monopolizes shelf space, there can also be an opportunity cost. Resources tied up in dead inventory and closeouts are not available to invest in inventory that could bring in more profits.
As a real-world example, consider that excess inventory typically represents 35% of a restaurant’s expenses, but some waste up to 10% of the money they spend on food — you could say a bin of wilted produce is the epitome of dead stock.
As a rule of thumb, dead stock refers to liquidation products that haven’t been sold for at least one year. New products have different timeframes. For example, you can give them 90 days to prove their viability. If there is no movement after this period, they have a large dead stock potential. Inventory becomes dead stock items once they reach the point of no demand. Due to prolonged excessive storage fees and inferior quality, these items are not likely to sell. It can range from defective products, leftover seasonal items, or raw materials that have reached their expiration dates. Dead stock items can be anything from unsalable excess stocks, seasonal items, and defective products. Below are the three common reasons why companies accumulate obsolete inventory over time:
Dead stocks are more likely to happen with a lack of inventory management software and poor inventory strategies. Restaurants, for instance, have shorter shelf lives for their products, so food waste and bad produce are inevitable if they don’t monitor how much and when they need food supplies. Another key reason is lack of proper inventory forecasting. A lot of entrepreneurs fall into this trap because they don’t know the financial and business implications of dead stock. You may also have to get rid of inventory if you are shutting down operations and closing your warehouse by the end of the year. Also this holds true if you have to clear out inventory from the warehouse to make room for new products.
Some business owners stubbornly hold onto a failing investment due to the time, effort, and money they have already invested. No, they won’t discount the non-moving products yet. With fingers crossed the company keeps the products longer in the hope that someone will eventually pay full price for them. This won't happen because old inventory does not get better with time, and it is always best to get rid of closeouts before the merchandise gets too old. But the longer the items stay on store shelves, there’s a high chance they’ll end up being dead stocks.
The top sellers get all the attention, but deadstock and liquidation inventory sits somewhere at the back. Entrepreneurs rarely give value for their stale inventory, if they think their best sellers are making up for the loss. The longer you ignore it, the worse it gets until it is beyond redemption and you are forced to liquidate inventory for pennies on the dollar or donate closeouts to a charity. Is it possible to get rid of deadstock? Yes, but you need to invest time and effort clearing the dusty corners of your warehouse.
Selling your dead stock, closeouts and liquidation stock to generate cash is a short term strategy. It ensures you don’t lose your business but at the same time, it has zero guarantee of reducing future occurrences. Avoiding surplus inventory is the ultimate key to preventing dead stocks. If you are looking for a closeout company you can search for closeout websites online. A Google search using terms like closeouts, buying closeouts, liquidation process, need to move excess inventory will start you off in the right direction.
Merchandise USA buys closeouts from major importers who need to sell excess inventory. If you are shutting down your 3PL warehouse or closing your business we can help you. We buy closeouts of all housewares, sporting goods and toys. Excess inventory of home goods, lawn and garden product and other general merchandise can also be liquidated. There are liquidation companies in every major city, but Merchandise USA has been in the closeout business 38 years and we have an excellent reputation.
We can help you easily navigate the liquidation process and we can buy entire inventories of closeouts. If you sent too much inventory to Amazon or have too much stock in the warehouse we can help you with the closeout process for getting rid of your excess inventory.