Definition: Deadstock is a certain portion of a stocked item that the company is unable to sell. This term refers to the amount of a product that remains in stock too long because it couldn’t be sold.
What Does Deadstock Mean?
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When a company places a certain number of items in its catalogue it previously predicted that demand would be satisfactory. Nevertheless, those predictions sometimes fail and certain items are never sold. When identified, deadstock should be removed from regular sales channels and liquidated from stock in a non-traditional selling process. Companies have to optimize its warehouse space by clearing room for best-selling products but also deadstock should be, under regular circumstances, sold for a profit, although lower than expected.
For example, some companies offer deadstock items at discount with the purchase of another product or sell them to discount retailers at lower prices. Firms try to minimize deadstock because they generate undesirable costs. To do that, companies have to improve their sales forecasts. A better research on what consumers would like and which quantity can be actually sold. Firms should also use information systems to get timely alerts about potential deadstock, with the purpose of minimizing the associated costs.
Example
Ethnic Art is a store specialized in handcraft made by Latin American natives. It recently opened a store in the U.S. and predicted that the best-selling items would be the wood sculptures. The store initially purchased 20 sculptures that were foreseen to be sold in three months.
However, customers did not accept well those products and after three months the store had sold only 3 out of 20. The store manager then identified the remaining 17 sculptures as deadstock. The company therefore lowered the price by 40% to make them more attractive to visitors but the strategy did not result well.
After two additional months there were 10 sculptures as deadstock yet. In the meantime, other successful items required the space occupied by the sculptures. After doing some analysis, the manager decided to give one sculpture for free with the purchase of certain amount of money.
