Dead stock is inventory that hasn't sold within its expected timeframe. For most retail businesses, non-selling inventory is typically classified as slow stock after 6 months, and after 12 months, any inventory that doesn't turn over is officially considered dead stock.

An accountant can then legally put them as a liability on your balance sheet, as it silently drains your profits by tying up valuable capital and retail space.

Too many people I see make the costly mistake of placing dead stock with a significant discount in prime selling locations, hoping for a quick sale to get rid of it. This diminishes the overall shopping experience. It also lets your customers think that you are a discount shop. Let us not make that mistake.

Understanding Dead Stock

Officially, dead stock is merchandise that hasn't sold within 12 months. Still, it can include seasonal items that missed their peak selling period, trend-based products that never worked for you, such as the recent examples of Snow White dolls after the movie flopped, or items that don't sell in your shop.

Financial Burden

Based on our experience, our installers report that about 20% of the stock is dead when our POS system is installed in a shop. That's a lot, considering that 20% of the shop is closed.

Identifying Dead Stock

Modern point-of-sale systems should provide you with tools to identify dead stock, hopefully before it becomes a significant problem. Our POS system can analyse sales data and highlight items that haven't sold within a specified timeframe, enabling you to take proactive action. This technology-driven approach lets you identify potential issues early and implement strategic solutions. I have discussed this here.

Data-Driven Inventory Decisions

With this comprehensive sales data at your fingertips, you can:

• Set automatic alerts when items haven't sold within a specified timeframe
• Track sell-through rates by category, supplier, and season, we call that the inventory turnover rate.
• Analyse which displays and locations generate the highest sales
• Forecast optimal stock levels based on historical performance
• Generate markdown recommendations to maximise recovery on slow-moving items

The Psychology of Effective Retail Displays

Understanding why dead stock accumulates is only half the battle; what you have retail merchandising strategies o get rid of it. It involves insight into how customers navigate and interact with your retail space.

It involves creating what retail experts call the "treasure hunt" experience, using this dead stock to draw shoppers progressively deeper into your store and encourage exploration and discovery. Research shows that customers typically spend 15% more time in stores when they are arranged to facilitate this journey of discovery.

Now, suppliers advocate for their products to be displayed together, which makes it easier for them, but this rarely aligns with how customers shop. Shoppers don't typically think, "I need something from supplier X today." Instead, they think, "I need something for my kitchen" or "I'm looking for a birthday gift." Retailers should use theme-based displays as they work directly to their customers' needs and shopping patterns.

Common Mistakes in Dead Stock Display

Retailers' most frequent error is ignoring it.

However placing dead stock in prime selling locations is the next. What is the point of putting stock that does not sell in the best part of the shop? These areas should be reserved for your best-selling, full-margin products.

When you place dead stock in these premium positions:

• You're using your most valuable retail real estate for your least valuable products
• You're training customers to look for discounts first
• You're creating a "discount store" impression that can devalue your entire brand
• You're reducing the visibility of products that sell well and are reasonably priced.

The next big mistake is creating a large clearance sections that dominate your store's visual landscape. When clearance merchandise takes centre stage, it sends a powerful message to customers that your merchandise isn't worth buying at full price.

Rather than falling into these common traps, implement these proven display strategies that balance clearing dead stock with maintaining your store's visual appeal and professional image.

Strategic Approaches to Dead Stock Display

The Strategic Attention Zone Approach

A more effective solution for displaying dead stock is implementing a strategic attention zone approach. This method involves:

• Placing clearance merchandise in less-trafficked areas of your store
• Using attention-grabbing elements (like distinctive signage or lighting) to draw interest
• It forces people to look at your shop more.

Customers seeking bargains will venture into these less prominent areas to check out potential deals. This approach does not devalue your stock or shop. It preserves your prime selling space for high-margin items while giving dead stock visibility and the opportunity to sell.

Bundling Opportunities

Another effective strategy is bundling dead stock with complementary products that sell well. For example, if a particular item isn't selling, rather than discounting it heavily and placing it in a clearance bin, try bundling it with an item that does sell.

This approach can help you sell items using dead stock sales. I have a customer who took a recipe book that didn't sell and bundled it with a recipe book that did sell, then sold them as a bundle. It worked.

When to Apply Strategic Discounting

While maintaining margins is essential, strategic discounting has its place in managing dead stock. The key is timing and implementation:

• Implement progressive discounting rather than immediate deep discounts, and slowly work on the discount to find its price.
• Create time-limited promotions to generate urgency. I only have four left, and we won't get them back once they're gone.

Rotation and Refreshment

Put some of your dead stock in this area. After a while, pull out the items that don't sell and put in new dead stock. People are always looking for something new. Now you have another category of stock items, "the truly dead stock."

Creating a Dedicated Clearance Strategy

About 20% of your stock is dead. You need a deliberate strategy for handling dead stock to maximise recovery while maintaining your store's professional appearance.

The Clearance Calendar

Establish a regular clearance calendar that aligns with your business cycles. This might include:

• Monthly "refresh" evaluations, where slow-moving items are identified
• Quarterly deeper clearance events for items that have truly stagnated
• Seasonal transition periods, where remaining seasonal merchandise is cleared, are the perfect time for the Australian stocktake sale.

The Clearance Zone

Designate a specific area of your store for clearance merchandise. This space should be:

• Consistent in location, you want the bargain-hunters to know where to look
• Distinct enough from your main displays to maintain separation, so it does not cheapen your shop.
• Organised not to look like a jumble sale - Deep in your shop to drag people in.

The key is that this area shouldn't occupy your prime retail space but should still be accessible and professionally presented to shoppers.

Measuring Success with Key Metrics

To evaluate the effectiveness of your clearance strategy, track these key performance indicators (KPIs):

• Inventory turnover rate before and after implementation
• Average time to sell dead stock items
• Recovery percentage on original cost
• Impact on overall store margins
• Changes in new inventory sell-through rates

These KPIs provide objective feedback on your strategy's effectiveness and areas for refinement.

Implementing Your Dead Stock Strategy: Action Steps

Take action now, to find your slow and dead stock using our POS reports will only take seconds. 

Audit your stock

Use your POS system to generate reports of items that haven't sold in the past 6 months and stock that hasn't sold in the past 12 months. Calculate the size of the problem.

Examine other shops' clearance areas.

See what works for others. See how they use it.

Create a Dedicated Clearance Zone

Designate an area for clearance items that doesn't dominate your store layout but still provides visibility.

Visual merchandising techniques

Typically, a red sign works well in Australia, for example, here.

Set Review Period

Schedule regular reviews of inventory performance. You want to catch slow-moving items before they become dead.

Written by:

Bernard Zimmermann is the founding director at POS Solutions, a leading point-of-sale system company with 45 years of industry experience. He consults to various organisations, from small businesses to large retailers and government institutions. Bernard is passionate about helping companies optimise their operations through innovative POS technology and enabling seamless customer experiences through effective software solutions.

We have all experienced inventory nightmares. The most persistent one is dead stock. It sits there, and you see it everywhere in the shop. It is a silent killer of profits, a space hogger in your shop, and a constant reminder of a wrong purchasing decision. Here are some battle-tested strategies used. Often, they are painful, but they do work.

What is Dead Stock

Dead stock is stuff that's not selling. It's inventory that is now growing roots in your shop. I recently saw a shop with items on the shelf that were a few years old. They did not even look sellable.

What is the dead stock analysis?

Deadstock analysis involves:

-Identifying non-selling inventory

-Calculating the cost of holding this inventory

-Determining reasons for lack of sales

-Assessing the impact on profitability and cash flow

-Developing strategies to prevent and manage dead stock

The Hidden Costs

Tied-up capital

That money could be working for you instead of gathering dust.

Rent costs

You are paying for every square metre of your shop; here, you are paying for space for nothing as the stock there is not selling.

Opportunity cost

You could be stocking items there that sell instead.

Other costs

You are paying for shoplifting, insurance, staff cleaning, etc. All for stock that does not sell.

How do you determine dead stock?

Here's how you spot dead stock: Set up specific criteria. Different retailers use different rules.

Time

Items that haven't sold in 6-12 months (varies by shop and industry)

Excess inventory beyond reasonable selling expectations

Products with little to no customer interest. Your staff will know this.

Outdated or obsolete products

Also, check for obsolescence; the sale cycle is only a month in fast-moving stock lines on movie toys.

Quantity

Selling less than 60% of purchased inventory

Damaged or unsellable condition

Look at your shelves for outdated, damaged, or low-quality items. Listen to your staff as they often know these items.

What is a dead stock register?

A dead stock register is a record-keeping system that tracks an organisation's movable property or assets that are no longer in use or have no sales potential. It includes product name, buy date, quantity, and current condition. Your POS system should have one, and its weight should be gold for tracking dead stock. If you have our POS System, follow the instructions here. It will take seconds to give you the result. I have seen results of over $50,000 of dead stock coming out. 

Regular stock reviews.

I make it a habit to review my inventory quarterly.

Strategies for clearing Dead Stock

Alright, you've identified the dead weight. Now what? Here are some tactics I've used successfully:

Discount, But Do It Smart

Slashing prices is the go-to move, but be strategic. I want it out.

How do you clear stock quickly?

Nothing beats flash sales to clear stock quickly. In my experience, end-of-financial-year and stocktaking sales work very well.

Bundle It Up

This is my go-to method. I find that pairing my dead stock with an item that sells and then using the item that sells as a push for a dead stock item works well. I offered my clients some monitors with a screen filter. From my client's point of view, they were getting a monitor and screen filter together at a beautiful price; from my point of view, I was moving monitors with something that had no value to me. It was a win-win situation.

Try a new sales channel

If it's not selling in your shop, try online marketplaces. I've had success moving dead stock on eBay. You could also try Facebook Marketplace.

Use it yourself

Sometimes, you can use the products yourself. You do not need them, but consider them something you got for nothing.

Donate

Sometimes, it is best to cut your losses. I donated to a charity, which bought a pile of old computer parts for free. We got a tax deduction, and we felt good about doing something for the community.

Preventing Future Dead Stock

The best way to deal with dead stock is to prevent it. Here's how:

Improve your forecasting

Use your POS data to predict trends and seasonal fluctuations

Implement just-in-time inventory

To reduce risk, you want to keep your stock levels lean, so buy in small quantities and regularly rather than in large orders. Your automatic ordering in our POS System can handle small orders over a short period.

Can you get a sale or return

It is often worth giving up some margin if you can get this, If, say, you were to buy ten items and be stuck with an item in dead stock at a 50% margin, your actual margin is now 44% If, say, you were to buy ten items and be stuck with two items dead at a 50% margin, your actual margin is now 37.5% If, say, you were to buy ten items and be stuck with three items dead at a 50% margin, your actual margin is now 28%

The Role of Technology

A robust POS system with inventory management features can help. Here's why:

Real-time tracking

Know what's in stock and what's selling at any given moment.

Automated reordering

Set up alerts for low stock to prevent stockouts of popular items

Sales reporting

Identify trends and slow movers before they become dead stock

How do you write off dead stock?

If you do not get rid of it but want to write it off, you need to ensure proper documentation to your accountant for tax purposes

-Identify the items you will write off

-Determine the book value of the dead stock. Your POS System should have that.

-Note a journal entry to the accountant to remove the value from inventory assets. 

-Do not adjust the cost price in your POS data unless you intend never ever to order that item again. 

Conclusion

Deadstock is a retail reality but doesn't have to be a business killer.