Dead stock is inventory that is no longer selling at a rate that justifies holding it. It costs more than the money already spent: it occupies space, consumes working capital that could buy stock that moves, and loses value while you decide. The purchase price is sunk, which is the fact most stores reason badly about.
In more detail
The trap here is a sunk-cost one and it is nearly universal. The money spent on dead stock is gone whatever you do next. Refusing to discount it because of what it cost does not recover that money; it converts it into space and capital you also cannot use.
The only forward-looking question is what the stock is worth now and what the space and capital could earn instead. Answering that honestly usually points to clearing it sooner and at a bigger discount than feels comfortable.
Dead stock is also a diagnostic. A pattern of it points at over-ordering, a supplier minimum that does not fit your demand, or buying decisions made on enthusiasm rather than on sell-through.
How it is calculated
Months of cover = current stock ÷ average monthly sales
A line with cover far above your reorder cycle is a dead-stock candidate even if it is technically still selling.
Worked example
A product cost 12 per unit and you hold 300 of them. It has sold 4 units in the last six months, so cover is measured in years rather than months.
The 3,600 spent is gone. The forward question is what 300 units of space and the capital they represent could do instead. Clearing at 5 recovers 1,500 and frees both; holding for a better price recovers nothing this year and costs storage.
The figures above are invented to make the arithmetic legible. They are not a benchmark and should not be cited as one.
Where people get it wrong
- Pricing the clearance from the original cost. That number is sunk and is not information about what it is worth now.
- Waiting for the season to come round again. Occasionally right, usually a way to postpone a decision for a year at full carrying cost.
- Not defining it. Without a threshold, nothing is ever formally dead and nothing gets cleared.
- Clearing it without asking why it exists. The same buying decision produces it again.
Common questions
When does stock count as dead?
Set a threshold rather than judging case by case: no sales in a defined window, or months of cover above a limit you set. Anything from 90 to 180 days without sales is a common starting point, adjusted for seasonality.
Should I discount dead stock or hold it?
The original cost is sunk and is not relevant to the decision. Compare what it is worth now against what the space and capital could earn instead. That usually argues for clearing sooner and deeper than feels comfortable.
How do I stop accumulating it?
Look at what the dead lines have in common. It is usually over-ordering on a supplier minimum that does not match your demand, or buying on enthusiasm rather than on measured sell-through.