Inventory
Dead stock: the real cost of inventory that will not sell
Dead stock is inventory that hasn't sold for a long time and isn't expected to sell at full price. It ties up cash, takes up storage, and keeps adding carrying costs every month it sits. The sooner you spot it and clear it, the less it costs, even if that means selling below what you paid.
What dead stock is (and isn't)
| Term | What it means |
|---|---|
| Dead stock | No sales for a long period, and little chance of selling at full price |
| Excess inventory | More than you need right now, but it will sell eventually |
| Obsolete stock | Can't be sold as intended: outdated, expired, discontinued or superseded |
| Overstocking | The cause: buying more than you can sell in a reasonable time |
A common working definition is no sales in 90 days or more, but choose a cutoff that fits your products. A winter coat that hasn't sold since March isn't dead in October.
The real cost of dead stock: carrying costs
Dead stock doesn't appear as a line on your P&L, but it costs money every month through inventory carrying costs:
- Capital cost: the cash locked in the stock could be paying down debt or funding inventory that sells.
- Storage: warehouse or 3PL fees for the space it takes.
- Insurance: cover on the value of stock you hold.
- Shrinkage: damage, theft and loss over time.
- Obsolescence: value lost as the product ages, goes out of season or gets replaced.
Add these up as a percentage of inventory value per year, divide by 12, and you have a monthly carrying cost rate.
Monthly carrying cost = Dead stock value × Monthly carrying cost rate Cost to date = Monthly carrying cost × Months unsold
Worked example: what dead stock is costing youExample numbers
| Input | Value |
|---|---|
| Value of stock unsold for 90+ days (at cost) | $15,000 |
| Monthly carrying cost rate | 2% |
| Months sitting so far | 6 |
- Monthly carrying cost = $15,000 × 2% = $300 a month
- Cost so far = $300 × 6 = $1,800
- Another year of holding it = $300 × 12 = $3,600, with no guarantee it sells
How to spot dead stock in Shopify
Shopify's inventory reports cover most of what you need. Report availability can depend on your plan.
- Products by sell-through rate: what share of your inventory sold in a period. Very low sell-through flags slow movers.
- Products by percentage sold: the share of each variant's starting stock that sold during the period.
- Inventory remaining per product: estimated days until stock runs out at current sales rates. A very large number means slow-moving stock.
- ABC product analysis: grades variants by how much revenue they bring in. C-grade products with a lot of stock are prime suspects.
- Month-end inventory value: shows the value tied up in stock, as long as each product has a cost per item entered.
A simple routine: once a month, sort products by days of inventory remaining, and review anything with no sales in your cutoff window.
How to clear dead stock
Pick the option that recovers the most cash for the least effort:
- Bundle it. Pair a slow mover with a best-seller at a small discount. The bundle discount calculator checks the margin.
- Discount it. A clearance price that recovers most of the cost usually beats another year of carrying costs.
- Sell it through another channel, such as a marketplace, outlet or wholesale buyer.
- Liquidate it. Liquidators pay well below cost, but they take everything at once and free up space and cash immediately.
- Donate it. You recover no cash, but you clear the space. Your accountant can advise on any tax treatment.
Choosing a clearance price
The hardest part of clearing dead stock is accepting a price below what you paid. The way through is to compare clearance with the best realistic case for holding on.
Using the example above, say the best case is that the stock eventually sells at cost ($15,000), but it takes another 12 months. Over that time it costs $3,600 to carry. So holding it nets you at most:
$15,000 − $3,600 = $11,400
Any clearance price that recovers more than $11,400, about 76% of cost, beats even that best case, and you get the cash a year earlier. If you doubt the stock will ever sell at cost, a lower price still wins.
How to prevent dead stock
- Order from data, not gut feel. Reorder points based on daily sales and lead time stop over-ordering. Try the reorder point calculator.
- Watch days inventory outstanding. A rising number is an early warning. See the guide to days inventory outstanding, or check your figure with the cash tied up in inventory calculator.
- Test new products in small batches before committing to large orders.
- Be careful with volume discounts. A lower unit price isn't a saving if half the order never sells.
- Plan the exit for seasonal stock before the season starts.
FAQ
What's the difference between dead stock and excess inventory?
Excess inventory is more stock than you need for expected demand, but it will still sell eventually. Dead stock isn't expected to sell at full price at all. Excess inventory left too long often becomes dead stock.
Is obsolete stock the same as dead stock?
Obsolete stock is a type of dead stock: products that can't be sold as intended because they're outdated, expired, discontinued or replaced by a newer version.
How long before stock counts as dead?
There's no fixed rule. Many stores use 90 days without a sale as a trigger to review a product, but seasonal and slow-moving categories may need a longer window. Pick a cutoff that fits your sales cycle and apply it consistently.
What does overstocking mean?
Overstocking is buying more inventory than you can sell in a reasonable time. It's the most common cause of dead stock, usually from ordering on gut feel, chasing supplier volume discounts or misjudging a trend.
Can I write off dead stock for taxes?
Inventory that has lost value can often be written down or written off, but the rules depend on your country and accounting method. Talk to your accountant before disposing of stock.