What is a dead stock? Dead stock definition | Virto Commerce Glossary
First of all, what does dead stock mean (or what does headstock mean)? Take a close look at your warehouse. The products might be selling well, but with every change of seasonal collections, with every inventory re-stock there’s an ever growing pile of products that just don’t sell and the additional weight it adds to your business is dragging it down. That is referred to as dead stock (or deadstock/headstock).
The dead stock definition is essentially a stock of products that are not likely to ever leave the shelves. A common mistake of your retail businesses is not doing anything to get rid of their dead stock, meaning these products continue to occupy space in the warehouse and slowly drain valuable finances which could be allocated towards business’ growth.
What does headstock mean for your particular business? To get a better idea, try calculating carrying costs you have by holding on to the items that define deadstock. Look at your storage costs - the rental costs for warehouses, the money spent on utilities, insurance, security, and equipment, etc. All these costs would need to be offset by the revenue from the product sales, however the deadstock items are not making any sales, so they keep adding to the costs instead of helping to cover them.
Another important topic here is missed opportunities, because what is headstock? It’s essentially shelf space that is lost that could be holding more of your top sellers.
This is why the correct approach to dead inventory management is critical.
Now, that we have answered the question of “what is dead stock/ what is headstock?” let’s look at a few ways to fix the dead stock issue.
If the stocks have arrived recently and you have realized quickly that they are not going to be received as well as expected by your customer base, the items are likely still current and there’s enough room in the return policy, so you may be able to send the slow moving products back to the supplier. Often times in this case the supplier will accept them, but will most likely offer you credit instead of paying back cash. There’s also a high chance the supplier will charge a restocking fee of about 10% upon the return of the merchandise, so be prepared for taking a small loss.
If returning is not an option or you simply decide to hold off on paying that restocking fee and give your dead stock one last chance, try bundling those items with more current products, and offer a discount on the set. Of course, your profit margins will be smaller in this case, but it’s better than having those items sitting in your warehouse creating more storage costs - at the very least you’ll be able to get the cost price back and break even.
Another option is to use your dead stock as giveaways. Customers love freebies and you can use those to encourage them to spend more by setting a qualifying purchase limit.
For example, “Buy 5 shirts and get a free hat” or “Spend $150 and get a free gift”. Offering good value for money is the key here. Consumers would not want to pay for items they don’t like enough, but a free gift or a good discount is likely to change their mind.
Now, this option might not apply to any country or business, but if you’re a clothing retailer in the USA, this option might work for you. Say, you have discovered some dead stock items in your warehouse from several years ago lying. The chance of still selling them is next to none at this point. Returning is not an option anymore either, but the items are still new and in great condition. Rather than simply throwing it away, you can at least claim a tax write-off by donating them to charity. Those organizations will be glad to take the load off your shoulders, plus some good karma never hurt no one.
You will need a written agreement with the charity, stating that the items were donated at no cost and signed receipts in order for your business to deduct the market value of the inventory from your taxes. Also, if your donations are used directly to care for the ill, needy, or infants, you can get even more tax breaks from the IRS.
Now that you’ve managed to get rid of all the dead stock from your warehouse, the next step is trying to avoid accumulating more. This is where good Inventory management software comes in handy. It will provide better visibility of stock movements and allow to keep track of how well your different SKU s are performing. So, when something is not selling well, you would be able to catch it and take action right away!