Dead stock

Dead stock is inventory that's unlikely to sell within a commercially useful timeframe — typically because the SKU is obsolete, seasonal, mis-bought, or simply demand has moved on.

It still counts as inventory on your balance sheet. It still occupies warehouse space. It still ties up working capital. But it isn't producing revenue, and the longer it sits, the more it costs.

Dead stock is the warning stage — it's stopped moving but is often still sellable at the right price, so the response is commercial: a promotion, a markdown, a bundle. Obsolete inventory is the terminal stage — past its commercial life, written down and no longer counted as sellable. Act on dead stock and you may avoid it becoming obsolete.

For most scaling brands, dead stock is the silent killer of cash flow. The bestsellers move; the dead movers don't. The average inventory turnover might look healthy because the bestsellers compensate, but a quiet 15–25% of the warehouse is dragging the whole operation down.

How to identify dead stock

Three approaches, in increasing order of usefulness:

The age test. Any SKU with stock that's been on hand for X months without movement. Useful as a first filter. Threshold depends on category — 6 months for fashion, 12+ months for hard goods.

The sell-through test. Any SKU with weeks-of-cover above some threshold (e.g. 24 weeks of stock at current run-rate). More forward-looking — captures SKUs that are technically moving but at a rate that won't clear before the stock spoils, expires, or becomes obsolete.

The contribution test. Any SKU whose forecasted gross profit over the next year is less than the cost of holding it for that year (storage + capital + write-down risk). Most rigorous; catches SKUs that should be culled even if they're "moving."

In practice most operations use a mix: age + sell-through + commercial judgement. The ABC-style segmentation that drives cycle counting usually flags the dead-stock candidates.

What causes dead stock

A small number of patterns produce most of it:

1. Optimistic forecasting at launch. New SKU, big initial PO based on hopeful projections. Sales come in at 30% of forecast. Dead stock from day one.

2. MOQ over-buying. The supplier required 1,000 units. You sell 50/month. The math always produced 18+ months of stock; you signed the PO anyway.

3. Seasonal mis-timing. Christmas range produced and shipped late. Hits the warehouse in January. Now you're holding it until next October — assuming the design is still relevant.

4. Range turnover. Brand refreshes a collection; the old colour or print becomes the dead movers. Standard in fashion and beauty; problematic when nobody plans for clearance.

5. SKU proliferation. 47 colourways of one SKU because "we'll see what works." Inevitably some are slow movers from the start, but nobody cuts them.

6. Channel changes. Lost a wholesale account, gained a DTC channel — different velocity assumptions. Stock built for the old channel is dead in the new.

What dead stock actually costs you

Every unit of dead stock costs five things:

• Capital tied up. Cash you can't use elsewhere. At a 10% cost of capital, every £100,000 of dead stock costs £10,000 a year just in opportunity cost.
• Storage. £/pallet/month or £/case/month. Adds up across 12+ months.
• Insurance and shrinkage risk. Dead stock at the back of the warehouse is more likely to be damaged, misplaced, or pilfered.
• Write-down at year-end. Auditors require dead stock to be written down to its net realisable value, often a fraction of cost. Hits the P&L.
• Distraction. Every time you reorganise the warehouse, run a stocktake, or plan the layout, dead stock is in the way.

A well-tracked dead-stock figure is the cleanest possible argument for SKU rationalisation.

How to clear dead stock

Five tactics, ordered roughly by margin recovery:

1. Bundle with bestsellers. Force-attach dead SKUs to fast movers in promotional bundles. Recovers some margin and clears stock at scale.
2. Mark down through your own channels. End-of-line sale on the website, eBay outlet, Amazon clearance. Captures most of the residual value, slowest method.
3. Sell to wholesale clearance buyers. Specialist liquidators take pallets at deep discount. Fast, low margin recovery, brand risk if the goods reappear in unwanted channels.
4. Donate. Some categories (apparel, food, beauty) qualify for tax-deductible donation. Net cost may be lower than markdown.
5. Write off and dispose. Last resort. The accounting hit is real, but freeing the warehouse space and management attention is sometimes worth it.

Common dead stock mistakes

• Hoping it'll sell eventually. It usually doesn't. The longer dead stock sits, the more it loses value (and the more new dead stock it attracts).
• Calling it "in storage" rather than dead. Naming matters. Dead stock named honestly gets cleared; "back-warehouse stock" stays.
• Discounting bestsellers to clear dead stock. Common bundling mistake — devaluing a healthy SKU to move an unhealthy one. Sometimes worth it, often not.
• Not tracking dead stock at all. Most ERPs don't surface it as a metric. If you can't see it, you can't manage it.