Inventory management is crucial for an online store. Ideally, as an online store, you want to have just the right amount of inventory so that your store is neither overstocked or under stocked. But being able to accurately forecast demand is tough. You must have heard recently that big retailers like Amazon and Target despite having access to the latest technology and prediction algorithms have ended up overstocking products and are offering huge markdowns in hopes of preventing an overstock situation commonly referred to as dead stock.
Dead stock is unsold inventory at the end of its life cycle, which cannot be sold. Hence, the value of inventory that is dead stock becomes 0. These scenarios are quite common for stores selling fashion, perishable goods, furniture, accessories, merchandise etc.
Say you run a store selling sports merchandise and you bought $100,000 worth of NBA jerseys across multiple teams of which $30,000 was spent buying jerseys of Brooklyn Nets, in anticipation of a dream Kevin Durant and Kyrie Irving blockbuster pairing. But as the NBA season unfolded, this turned out as a bad deal and you’ve still got $20,000 worth of Nets jerseys with you. This is dead stock and you just lost $20,000. This is a massive hit on your margins. Just for the math, you need to sell all other of your inventory at a 50% profit margin just to break even. Moreover, you continue to lose money as you pay for storing inventory that cannot be sold. Hence, it’s a double whammy.
To prevent heavy losses due to a dead stock situation, retailers resort to heavy discounting and sometimes over discounting to lose out on better profit margins. Read more about over discounting and how you can prevent it in the latest issue of Konigle Sellingnomics.
- Know your inventory costs
Of all the stores that use Konigle, we found over 65% of SKUs do not have costs associated with them. As shared above in the example of Nets jerseys, if we do not know what our costs are, it becomes extremely difficult to calculate at what price to sell and when to minimize losses and maximize our margins.
- Keep an eye on selling rates
Selling rates are a leading indicator of a dead stock situation. If products are not selling fast enough, then you can take a call on whether to discount or not. Moreover, monitoring selling rates also helps if you’re in danger of selling out and it helps you take a call on how much stock reorder.
- Estimate demand
This is not easy and as shared earlier, even the biggest companies have failed at this due to the massive volatility in the last few years. But being able to track selling rates, understanding your competitors, and knowing your costs can help you deal with uncertainty better.
- Run data driven markdowns
Monitoring your inventory levels and progressively marking down products is much better at protecting your profit margins, than waiting until you’re with dead stock and selling almost everything for 99% off. Though this is cumbersome but super valuable.To make it easier, Konigle’s Dead Stock Prevention tactic allows you to automate markdowns triggered by inventory levels. This helps you identify which products have high remaining stocks and mark them down on time before they are dead stock. With this tool, you can filter products based on inventory levels, let’s say those that have more than 50 and more and you can easily set a series of Markdown Schedule and run promotions based on your preferred duration.