The Dead Stock Dilemma
Every warehouse has them: products that barely move, taking up space and tying up cash that could be working elsewhere. The temptation is to slash prices and clear them out. But aggressive liquidation creates its own problems—training customers to wait for sales, cannibalizing full-price products, and sometimes damaging fill rates on items that actually matter.
The real skill isn't clearing dead stock—anyone can do that with steep enough discounts. The real skill is clearing it strategically, recovering maximum value while protecting your core business.
What Actually Counts as Dead Stock
Before you start clearing inventory, make sure you're targeting the right products. Not all slow movers are dead stock.
True dead stock:
- No sales in 90+ days with no seasonal explanation
- Products you've discontinued or won't reorder
- Damaged or expired goods
- Superseded SKUs (old version replaced by new)
Not dead stock:
- Seasonal products in their off-season
- New products still building velocity
- Replenishment items with long but predictable cycles
- Products held for specific customer commitments
Misclassifying slow movers as dead stock leads to clearance sales that hurt margins unnecessarily.
The True Cost of Holding Dead Stock
Quantifying the cost helps justify clearance investments:
Carrying cost: Typically 20-30% of inventory value annually. This includes:
- Cost of capital (what else could that cash be earning?)
- Warehouse space and handling
- Insurance and taxes
- Risk of further obsolescence
Opportunity cost: That warehouse space and capital could be used for products that actually sell.
Hidden costs: Dead stock clutters your data, complicates your planning, and distracts your team.
If you have $100,000 in dead stock with 25% carrying cost, you're spending $25,000 per year just to store products you can't sell at full price.
A Framework for Prioritizing What to Clear
Not all dead stock deserves equal attention. Prioritize based on:
Value × Age × Space
High-value items that have been sitting for a long time and take up significant space should be cleared first. Low-value, compact items can wait.
Create a simple scoring system:
Value score (1-3):
- 1 = Low unit cost (<$10)
- 2 = Medium unit cost ($10-50)
- 3 = High unit cost (>$50)
Age score (1-3):
- 1 = 90-180 days without sale
- 2 = 180-365 days
- 3 = 365+ days
Space score (1-3):
- 1 = Compact, minimal storage impact
- 2 = Moderate footprint
- 3 = Bulky, significant storage required
Multiply the scores. An item scoring 27 (3×3×3) needs immediate attention. An item scoring 1 (1×1×1) can wait.
Clearance Strategies That Protect Fill Rates
Strategy 1: Tiered Markdown Approach
Don't go straight to 70% off. Start modest and escalate:
- Week 1-2: 10-15% discount, email to existing customers
- Week 3-4: 20-25% discount, add to website sale section
- Week 5-6: 30-40% discount, broader promotion
- Week 7+: Liquidation channels or donation
This captures customers willing to pay more before resorting to deep discounts.
Strategy 2: Bundle with Winners
Pair dead stock with popular products to create perceived value without heavy discounting:
- "Buy our bestseller, get [slow mover] free"
- "Complete the collection" bundles
- Gift-with-purchase promotions
You clear dead stock while driving sales of products you actually want to move.
Strategy 3: Channel Separation
Sell dead stock through different channels than your main business:
- Amazon Warehouse deals
- Liquidation marketplaces (Overstock, Zulily)
- Flash sale sites
- B2B closeout buyers
Your regular customers never see the deep discounts, protecting your brand positioning.
Strategy 4: Geographic Arbitrage
Products that don't sell in one market might sell in another:
- Expand to new Amazon marketplaces
- Find international distributors
- Partner with regional retailers in different areas
Different tastes, different seasons, different price sensitivities.
Strategy 5: Donation and Write-Off
Sometimes the best financial decision is to donate dead stock for a tax write-off:
- Deductible at cost basis (sometimes higher for qualifying donations)
- Frees up warehouse space immediately
- Potential PR benefit from charitable giving
Run the numbers—donation often recovers more value than selling at 90% off after accounting for handling costs.
Protecting Fill Rates During Clearance
Clearing dead stock can inadvertently hurt fill rates on active products if you're not careful:
Don't raid safety stock of active items. Clearance efforts shouldn't steal attention, budget, or space from maintaining inventory of products that sell.
Watch for substitution effects. If your clearance product is similar to an active product, heavy discounts might cannibalize regular sales. Consider discontinuing promotions once certain velocity is reached.
Maintain service on A-items. Never let dead stock clearance distract from keeping your best sellers in stock. If your team has limited bandwidth, focus on fill rate for A-items first.
Track fill rate during clearance periods. Monitor your overall fill rate and A-item fill rate specifically. If they start dropping, scale back clearance activities.
Preventing Dead Stock in the First Place
The best dead stock strategy is not creating it:
Tighter new product introduction. Start with smaller initial orders for new SKUs. Wait for velocity data before committing to large buys.
Earlier discontinuation decisions. Set clear criteria for when to stop reordering. "If sales drop below X for Y months, we discontinue." Make the decision before inventory becomes dead stock.
Better forecasting. Most dead stock originates from over-forecasting. Invest in better demand planning to buy more accurately.
Vendor partnerships. Negotiate return terms or consignment arrangements for new products. Some suppliers will take back slow movers.
Shorter seasons. For seasonal products, buy for 80% of expected demand rather than 100%. It's better to sell out slightly early than to be stuck with leftovers.
Measuring Success
Track these metrics to evaluate your dead stock reduction program:
Dead stock as percentage of inventory: Target reduction year over year. If you're at 15% dead stock, aim for 10% next year.
Days to clear: How long does it take to clear dead stock once identified? Faster is better.
Recovery rate: What percentage of original value are you recovering? Track by clearance channel.
Fill rate trend: Make sure overall fill rate isn't declining while you focus on clearance.
New dead stock creation: Are you creating less dead stock than you're clearing? If not, you're fighting a losing battle.
Key Takeaways
- True dead stock has no sales in 90+ days and won't be reordered
- Carrying costs on dead stock run 20-30% of value annually
- Prioritize clearance based on value, age, and space consumption
- Use tiered markdowns to capture maximum value
- Separate clearance channels from your main business to protect brand
- Donation with tax write-off often beats liquidation pricing
- Monitor fill rates during clearance to avoid unintended damage
- Prevent dead stock through better buying and earlier discontinuation decisions
Frequently Asked Questions
How much dead stock is acceptable?
Industry benchmarks suggest dead stock should be less than 5-10% of total inventory value. If you're above 15%, you have a significant problem that needs attention.
Should I include dead stock in my inventory valuation?
For financial reporting, yes—at the lower of cost or net realizable value. For operational planning, it's often clearer to report active inventory separately from dead stock.
How quickly should I try to clear dead stock?
Aim to clear most dead stock within 6-12 months of identification. Longer holds rarely improve recovery rates and continue accumulating carrying costs.
What if my dead stock is perishable or has an expiration date?
Move faster and accept lower recovery rates. The alternative is total loss. For products approaching expiration, donation to food banks can often provide better after-tax returns than liquidation.
How do I handle dead stock that's tied up in Amazon FBA?
Amazon charges significant long-term storage fees. If inventory hasn't sold in 6 months, create removal orders before the next fee assessment. Either destroy it or have it returned for alternative liquidation channels.