What to do about slow-moving and dead stock

Every product on your shelf is money you have already spent. When it sells quickly, that money comes back within days and you can spend it again. When it sells slowly, the money sits on the shelf, doing nothing, while the bills still need paying.

That is the real cost of slow-moving stock. It is not the product you cannot sell. It is the better products you could not afford to reorder, the gap on the shelf where a fast seller should be, and the space you cannot use. Many small shops have a surprising amount of money tied up in a few corners of the stockroom.

Slow stock is also a warning light. It tells you that your buying has drifted away from what customers want. Finding it early is cheap. Finding it when the date has passed or the season has ended is not. This guide covers how to spot it, how to measure it, and what to do. If you are not recording sales and stock yet, begin with how to track inventory in a small shop.

The two terms sound alike but call for different actions.

• Slow-moving stock still sells, just too slowly for the amount you hold. A case of twenty-four that takes four months to clear is slow-moving. It can often be fixed by selling it down and buying less.
• Dead stock has not sold for a long time, with no sign it will. Seasonal goods after the season, discontinued lines, wrong sizes and anything past its date all end up here. It can only be cleared, returned or written off.

A product can move from the first group to the second quietly. The goal is to catch it while it is still only slow.

How long is too long depends on the product. A week without a sale is worrying for fresh bread and unremarkable for a spare part. Pick a rule for each kind of product you sell, such as "no sale in 60 days" for packaged goods, and use it consistently.

You probably have a feeling about which products are slow. Check it against numbers, because feelings favour the products you notice, and the dead ones are usually the ones you stopped looking at.

1. Find the last sale date

   For each product, note when it last sold. Anything with no sale in your cut-off period goes on a watch list.

2. Compare quantity to sales rate

   Look at how many you hold against how many you sell a week. If you hold a year of stock for something that sells weekly, it is slow however recently it sold.

3. Check the shelf, not just the records

   Walk the shop with the list. Dusty boxes, faded packaging and things you cannot remember buying are all signs.

4. Rank your products by sales

   Sort by units sold in the last quarter. The bottom of the list is where slow stock hides. Your best sellers are at the top and are the ones to protect.

A sales and profit report that shows best sellers and slow movers makes this a one-minute job. Without one, a spreadsheet of units sold per product does the same, with more effort.

Two simple measures turn a hunch into a number.

Sell-through

Sell-through is the share of the stock you had that you sold over a period. The formula is units sold divided by units available, where units available is what you started with plus what you received. If you began a month with 20, received 10 more and sold 15, then sell-through is 15 divided by 30, or 50 percent.

Days of stock

Days of stock tells you how long what you hold will last at the current pace. The formula is quantity on hand divided by average units sold per day. If you hold 60 and sell 2 a day, you have 30 days of stock. If you hold 60 and sell 1 a week, you have about 420 days, which is well over a year.

Here are six products from a small shop, checked after a quarter.

Add up the cash tied up. The two fast sellers hold $264 and turn over in about two weeks. The four slow and dead lines hold $394, and they will take months or never to turn over. The shop has more money sitting in four slow products than in its two best.

What you could free up

Suppose you sell the gloves and shades at cost to get out of them, and cut the cables and mugs to about 8 weeks of stock each. That means holding 16 cables (2 a week for 8 weeks) and 8 mugs. You would free up 24 cables ($60) and 28 mugs ($84), plus the full $186 from the dead lines if you recover cost. In all, about $330 back as cash, ready to buy more rice and oil, which actually sell.

Even if you only recover half the cost on dead stock, you are $240 better off in cash than you were, and you have shelf space back. These figures are for illustration, but the pattern is common: a few lines hold a lot of money.

The aim is to turn stock back into cash without wrecking your margin on everything else. Start gently and step up only if nothing moves.

1. Move it to a better spot. Slow stock is often just badly placed. Put it at eye level, near the till or beside a fast seller, and watch for two weeks before cutting the price.
2. Mark it down in small steps. Try 10 to 15 percent first. A deeper cut can follow after a couple of weeks. Small cuts protect your margin and often work.
3. Bundle it. Pair a slow item with a fast one at a combined price, such as a cable with a phone case. The slow item rides along on the one people come for.
4. Run a clearly marked clearance spot. One shelf or basket labelled for last pieces and discontinued lines keeps the discounts from cheapening the rest of the shop.
5. Sell it for cost or a little below. If it will not clear at a profit, recovering the money matters more than the margin. Cash back lets you buy something that sells.
6. Return it to the supplier. Ask whether unsold or slow stock can be returned for credit or swapped. Some suppliers will, especially if you ask early and keep it in good condition.
7. Give it away or write it off. If it is expired, damaged or useless, stop paying to store and count it. Record it with a reason and move on.

Work out your floor price before you start. A product that cost $3.00 and normally sells for $4.50 can drop to $3.00 and still return your money. Below cost, you take a loss, which is sometimes the right call for dead stock but should be a choice, not an accident.

Clearance cures the symptom. The cause is almost always an order that was too big or a product that never earned its place. Fix the buying, or you will be back here in six months.

• Reorder to your sales rate. Order enough for the lead time plus a small buffer, not what the supplier suggests. The method is in how to set reorder points.
• Test new products small. Buy a small amount of anything untried. If it sells, buy more. A case of 24 is a bet. A pack of 6 is a test.
• Be wary of bulk discounts. A lower unit price is only a saving if you sell the lot before it tires, expires or loses its season. Work out the days of stock first.
• Set lower minimums on slow lines. Hold less, reorder more often, and accept slightly higher unit costs in return for cash that is not stuck.
• Drop what does not earn. If a product has been slow for two quarters and you have cleared it, do not reorder it. Use the space for something customers ask for.
• Track what customers ask for and you do not have. Requests you turn away are a free guide to what to buy next.

Remember the other side of the balance: not all slow stock is a mistake. A product that sells rarely but is expected, or that brings people into the shop, may deserve a place. The test is whether you hold a sensible amount. One or two of something that sells twice a month is fine. Forty is not.

Waiting until it is dead

Slow stock gets cheaper to clear the sooner you act. Owners wait in the hope that it will pick up, and a year later they are discounting 70 percent.

Cutting the price too deep, too fast

A huge first discount gives away profit that a smaller one would have kept. It also trains regulars to wait for sales. Step down gradually.

Judging by the selling price, not the cost

Cash tied up is measured at cost, since that is what you paid. A shelf of products that look worth $500 might be $300 of your money. Use cost when you judge the damage.

Ignoring the shelf space

A slow product on the best shelf pushes a fast one onto a worse one. Space has a cost too, even if it never shows up in your books.

Reordering by habit

Ordering "the usual" every week keeps slow stock topped up. Check the quantity on hand before each reorder, and order only the shortfall.

Mistaking a stock-out for slow sales

A product with no sales last month may simply have been out of stock. Check that it was on the shelf before you call it slow. See where your stock goes for how missing or mis-recorded stock can mislead you.

• Choose a cut-off for "slow", such as no sale in 60 days for packaged goods.
• List every product with no sale in that period, and walk the shop to find any you missed.
• For each, work out cash tied up: quantity on hand times cost.
• Calculate days of stock for the biggest of them.
• Pick a clearance step for each: move, mark down, bundle, return or write off.
• Set a date to review the results in two weeks and take the next step if nothing moved.
• Cut the reorder quantity or minimum for each slow line you keep.
• Remove any product you will not restock from your reorder list.
• Put a review of the slowest 10 products in your diary every month.

Shopkeepa is built so slow stock is easy to see. Because every sale and stock movement is recorded, reports show best sellers and slow movers, plus low and out-of-stock products and the value of the inventory you hold. Where you have entered costs, you can see how much cash is sitting in stock.

When it is time to clear or remove something, expired or damaged stock is taken off with its reason, so the record stays honest. Minimums and the restock list help you order to your real sales rate. Read more about sales and profit reports. Shopkeepa is in development, and early access shops will help shape it.