Deadstock blocks warehouse space and ties up much needed capital that can force you to close your business. With these three pieces of advice, you will be able to avoid deadstock and source high-demand products.
As an eCommerce seller, you always dream of that one product that will sell regardless of the season or asking price. The bitter reality is that up to 21% of your inventory will not sell, thereby leaving overstock or deadstock behind.
What is the reason for overstock? Usually, it boils down to insufficient market and (or) product data when purchasing inventory and outright false data.
Don’t worry: there is a solution for it.
Why are we talking about eCommerce Deadstock?
It is important to make perfectly clear why overstock is negative and what its impact is on a business regardless if you sell online or run a brick-and-mortar shop.
Let’s start with the obvious: you paid good money on your inventory. If you cannot sell this inventory, you have capital sitting around that you cannot spend on other things. To make matters worse, you incur costs for storing your inventory and sometimes you have to pay more for long-term storage making it very costly to keep deadstock. Finally, all your efforts that go into marketing the products are in vain costing you time, money, and energy.
The more time and energy you spend managing deadstock, the less time you have available for other important business tasks. In dire times, many hopeless sellers reach out to “overstock specialists” or other consultancies that promise to help clear part of the deadstock, but in most cases, it doesn’t work too well and incurs additional costs and further increases the financial stress for the seller.
To get to the point, you are missing out on eCommerce opportunities because of deadstock and it costs you time, money, and energy. As a result, overstock can quickly become a major issue threatening your business.
Preventing eCommerce Deadstock
The following three tips should help you minimize the share of deadstock in your storage, and in the best case, prevent it from occurring in the first place. Some tips are more obvious than others, but each of them will help you better understand how to approach your deadstock issue.
1. Don’t listen to your Gut Feeling
We all this gut feeling sometimes that we cannot describe. While it should go without saying that you shouldn’t rely your sourcing decisions on your gut feeling, many eCommerce sellers do exactly that. As mentioned earlier, imperfect information and/or wrong data are the quintessence of overstock which coincidentally is also the underlying influences that influence our gut feeling.
If your gut feeling and past successes form the foundation for your sourcing decisions, you might want to stop it or find a way to burn through your budget faster. It’s up to you.
2. Be careful with the Interpretation of Historical Data
Historical data can only provide so much information. While it can help you better understand the demand trend of a product over time, historical data is mostly misleading when it comes to future projections.
Now hear me out! Data is key to understanding how a product will perform. But historical data is useful when looking at bestsellers with a consistent demand, and not products with changing demand. How often is a bestseller overstock at the same time? Correct, never.
3. Question every Recommendations
Let’s be honest: suppliers don’t care how fast you can sell their product to your customers. In the end, suppliers have the same goal as you do: maximize sales and increase the customer base. The only difference is that you are their customer.
What does this mean for you? Anytime a supplier recommends you a product, you should be cautious because they most likely recommended the same product to all of your competitors they are doing business with as well. Additionally, these recommendations are motivated by a desire to increase sales and are unlikely to be based on actual market or product research.
So, How Do I Source the Right Products?
Sourcing products is easy, but selling them in a timely manner is not.
To be more precise, you have to research thousands of products, examine your existing inventory, and analyze product markets extensively to find the right products for your sales mix.
Doing business in a highly dynamic market like the eCommerce sector demands that you juggle multiple tasks at the same time, leaving you with little time to form an educated business decision on which products are worthwhile to add to your sales mix. So, how do you handle such a situation properly?
Short answer: You look at data. Longer answer: You use the time and energy you have as efficiently as you can by looking at actionable data that can lead your product sourcing efforts and reduce your overstock significantly. Once you are stuck with deadstock, it is exponentially harder to see a return on your investment since the only ways to get rid of it are to sell it at a loss or trash it completely. Therefore, avoiding deadstock is the key to your success.
In the next three sections, I will go deeper into what kind of data you should look at to trade your stock successfully. The sales velocity is influenced by multiple variables, such as the market’s demand level and the price. Concurrently, we can see from our data that 67% of the products researched by our users are either low in demand, are purchased from a supplier at too high of a cost, or both. This means that most products should be avoided!
1. Market demand
The first question that should cross your mind when considering a new product is “What does demand for it look like across different markets and platforms like eBay and Amazon?”.
Here is the data for eight different marketplaces, with figures for the market price, profit, competition, and demand. As you can see, all of these figures vary depending on country and marketplace.
Now, don’t be blinded by a high market price because, without enough demand, it won’t generate acceptable revenue. In some cases, it might be recommended to sell in a competitive market with lower prices if the demand is higher. Thus, thorough market research is not only smart but an essential step to achieving your goal of increasing your sales velocity and profits.
Start understanding your domestic market first before looking at other marketplaces. Most sellers begin selling there because they already have some knowledge of the market’s dynamics allowing them to position themselves for success. Going for bigger marketplaces for the sake of market size will ultimately lead to failure.
From there, you should consider data for other global markets. Sometimes, international marketplaces have higher demand and profit opportunities for products you cannot sell on your home market even after accounting for taxes and logistic costs. Not only can expanding to international markets help you sell your existing deadstock, but they also may have great business opportunities.
From a rational standpoint, we can always say that there is at least one competitor in the market; however, sometimes it is more difficult to find who your competitors are. One reason for this is because there are many competitors and you cannot distinguish between those who directly compete with you, those who are not, and the scammers. This makes competition analysis an important task in maintaining a successful eCommerce business.
In recent years, there was an increase in fraudulent sellers offering products at unrealistically low prices that never got shipped. Not only did it damage the product’s market demand, but as a result, legitimate sellers had to lower their prices too. If you offer one of these products, you should be confident enough that your reputation and seller ratings will outweigh the negative impact scammers have on the demand.
To be honest, I am still shocked at the number of sellers that avoid a thorough competitor analysis. A comprehensive competition analysis will not only help you better understand your market supply-side but also allows you to make purchasing decisions that are based on reliable data.
Another reason why knowing your competitors is crucial is because more and more manufacturers are starting to sell on eBay’s marketplaces directly to consumers. This allows them to offer their products for lower prices, which means that if you attempt to compete with these sellers, it will shrink your profit margins and may force you out of the market soon.
The same threat also exists on Amazon as Amazon can be the main seller. What competitive advantage do you have compared to Amazon? Correct, none. You might be able to secure some market share if Amazon suddenly had issues and runs low on stock, but this is highly unlikely. Therefore, the risk usually is too high to take it even into consideration.
Costs are one of the most important figures you will need for making a sourcing decision. But as you probably know, there are many uncertainties when it comes to consistently calculating your costs because they are always changing depending on the product, shipping, payment method, marketplace, and other aspects. This labyrinth of costs can be very confusing and it doesn’t get any better when adding international shipping into the mix.
If you don’t understand all of your costs, you expose yourself to the risk of pricing your product incorrectly which will ultimately lead to lower or no profit at all. This is discouraging, especially when the inventory decision looked so promising in the beginning.
Similarly, you should be cautious when it comes to double-checking recommended prices. Most sellers in the eCommerce landscape will tell you that you should go with the manufacturer’s suggested retail price (MSRP).
Independent of your product’s category, your greatest priority when it comes to making a purchasing decision should always be to double-check and triple-check recommended prices. This becomes even more important when selling tech goods or related products. Here the prices drop significantly just a few weeks or months after release.
It’s a no-brainer, that your highest goal as an online seller is to clear your inventory, right?
This means, that sitting on dead inventory threatens your livelihood as an eCommerce seller.
Now, before you jump to wrong conclusions and start purchasing every product you are being recommended because you think “one of these will sell surely”, you should consider what data is most important and do your research. The last situation you want is a fundamentally flawed eCommerce strategy leaving you with overstock. Irrational actions will only accelerate your downfall while data-based decisions will help your business thrive.
My best advice is to take one step at a time and look at the data. Now ask yourself: “Does it reveal everything I need to know to make the best purchasing decision possible?”. If you cannot answer this question with 100% certainty, you need to revisit your product and market research.
If you’re already stuck with slow-moving inventory or deadstock despite previous product market research, I would recommend that you start your research from scratch. Chances are that your previously used data was inaccurate or is outdated in the meantime. Both will distort future predictions, leading to wrong business decisions on your side.
Lastly, patience is a virtue. Some sales don’t happen overnight but rather take time to develop. Nevertheless, with a comprehensive research as a foundation, sales will come.