Inventory that doesn’t turn over—i.e., that doesn’t sell—is often called dead stock. For businesses that don’t use inventory management software, dead stock can remain on warehouse shelves, forgotten and useless.

Don’t confuse “dead stock” (Two words) with “deadstock,” (one word) 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.

Deadstock costs businesses money. They can’t recoup the costs of unsold goods that they either manufactured themselves or purchased from another company

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Key Takeaways

• Dead stock can be a major expense that reduces profitability by stalling revenue, increasing carrying costs, and taking up valuable warehouse space.
• Businesses can accumulate dead stock for many reasons, including poor inventory management, falling customer demand, and changing economic conditions.
• Strategies to manage or repurpose dead stock include discounting, bundling, and using alternative sales channels.
• Inventory management software can help businesses prevent dead stock by better matching inventory levels to demand.

Dead Stock Explained

Dead stock, or obsolete inventory, is merchandise that’s never been sold to a customer. It often cannot be returned to the supplier because it’s outdated, out of season, or has little to no demand.

For example, if an umbrella vendor still has an umbrella in stock after the rainy season has ended, and consumers have shifted their buying toward summer accessories, those unsold umbrellas become dead stock.

An alternative definition of dead stock

Dead stock is inventory that is unsellable. 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. 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.

But products usually aren’t deemed unsellable overnight, so at what point does stock become dead? It’s often a lengthy process. First, items might be considered slow-moving inventory. 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.

Why is dead stock bad for a retail business?

• Capital investment: Dead inventory represents an investment that’s not yielding returns. Money tied up in unsold inventory could have been better used elsewhere in the business.
• Storage costs: Storing products costs money, whether in a warehouse, retail store, or other storage facility. Dead stock takes up space you could use for products that are selling well.
• Depreciation and obsolescence: Products lose value over time. This is especially true for trendy or seasonal items, and for tech products that become outdated.
• Risk of damage or expiry: Unsold products are more prone to getting damaged, becoming obsolete, or even expiring if they have a limited shelf life. This devalues the stock even more.
• Opportunity cost: Dead stock could have been used to purchase inventory that sells well. Your bottom line could have been higher if the investment had been made in better-performing stock.
• Negative impact on cash flow: Dead stock can negatively impact cash flow, leaving less capital for other important areas such as business expansion or marketing.
• Impacts business analytics: Dead stock makes it difficult to analyze inventory turnover rates and sales forecasting, which hinders strategic planning. For example, Overestimating demand could lead to dead stock, reinforcing a vicious cycle.