The Major Inventory Issue That Constantly Costs You Money & Top 3 Strategies to Mitigate It
Updated: Jul 26, 2021
If you have been in the dropshipping industry for some time, you might have heard of the term ‘dead stock’. Although this is a common issue, it is often neglected by many dropshippers because they do not directly handle the inventory. If left unresolved for a long time, this would amount to a loss of profit to your ecommerce store.
What is dead stock?
Dead stock is the inventory that has not been sold over an extended time period and is unlikely to be sold in the future due to it being obsolete, expired, spoiled, or of low quality. It could amount to various types of costs such as storage fees and opportunity costs on other faster-moving products. Essentially, you are paying for the goods that do not give you any returns.
What are the causes of dead stock?
Lack of quality inspection
This would lead to a higher rate of defective or low quality goods, which is unlikely to be sold.
Poor sales and marketing performance
If this is the case, it could be that either your team has not done well enough to attract and retain customers (e.g., poor customer service, misaligned marketing campaigns) or that particular products have lost their charms in the marketplace (e.g., seasonal/out-of-date items).
The products you sell are simply not appealing enough in the eyes of the consumers. This situation usually happens due to poor market research and forecasting. Sometimes, it can also be attributed to bad luck. For instance, the COVID-19 pandemic has led to major shifts in consumer preferences. For instance, in the late stages, there was a significant drop in demands for my goods, such as clothing and accessories because people do not have the need to dress themselves up and have less disposable income to spend on.
How can you deal with dead stock?
This section would focus on how you can offload the dead stock that is already in your hand.
1. Offering discounts
More often than not, people make their decisions based on the ratio of how much they adore a product and how much they have to pay to obtain it. This means consumers are not willing to purchase your products at the original price level, but would be more likely to spend their money if the items are sold at a much lower price. Besides, putting items on clearance helps to bring customers' attention towards them, which were not noticed previously. Moreover, this could also appeal to buyers at the lower-end market segments who dominantly shop on deals and bargains.
In many cases, you might not make any profits. However, you can at least recover some costs of goods sold and other fees as well as free up space in the warehouses for more trending products.
Another tactic for you to try is to combine the products in dead stock with other hot-selling items. The bundle should be priced less than the values of the individual items added together in order for it to be enticing to shoppers. This might also help to increase the average order values of your store.
3. Giving away
This tactic takes the burden of disposing dead stock off your back. There are two main ways that you could implement this:
Organising a give-away campaign to increase your brand awareness
Offering them as free gifts, which would deliver a more fulfilling unboxing experience to your buyers and enhance customer satisfaction
4. Returning to suppliers
When suppliers are at fault (e.g., sending faulty products), they are usually willing to accept returns. However, if that is not the case, it’s still worth a shot negotiating with them. If you have been maintaining a good relationship with them, this should not be too challenging.
Besides temporary reliefs, more sustainable strategies are needed to effectively eliminate inefficiency and waste as well as maximise your profit level.
1. Dedicating more resources towards demand planning/forecasting
By accurately estimating the demands for certain products, you would be less likely to over-purchase and stock your inventory, thus avoiding holding a large amount of dead stock in the future. Generally speaking, you need a strong data analytics team for this task, who can be hired and trained internally or outsourced (e.g., freelancers)
2. Working with a dropshipping agent
Partnering up with a reliable agent not only helps you overcome some root causes of dead stock but also brings you additional benefits. First of all, they would help you negotiate with suppliers in terms of quality and product specifications as well as more favourable returns policies. Secondly, they help you perform quality checks before making any major purchases and upon receiving the goods at their warehouses. Most importantly, they help you implement good stock control practices such as keeping track of suppliers’ performance and integrating inventory management software.
Let Xianchao Logistics help you with tedious logistics matters so you can focus on growing and scaling your business. Contact us today to get all the support you need. With 30+ years of experience in logistics industry and 5+ years in dropshipping sector, we strive to solve your pain points, ranging from product & supplier sourcing to ecommerce order fulfillment, or branded packaging & private labelling to quality inspection & product certification. Please feel free to reach out to us if you need to know any details about partnering with us.
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