How to identify dead stock objectively.
Dead stock is usually defined as inventory that has not had a sale in N months. The threshold varies by industry: 6 months for fashion, 12 months for general retail, 18-24 months for hardware and industrial. The right number is one that captures genuine non-movement without false-positiving on legitimately slow but real items.
A useful operational definition: any SKU with zero sales in the threshold period AND remaining stock above zero. Run this query monthly per branch and you have a dead-stock register. Sort by remaining inventory value descending — the top 50 SKUs usually account for 80% of the dead stock value, the same Pareto pattern as everything else.
Why dead stock is more expensive than it looks.
The original purchase cost is sunk. The ongoing cost is the carrying cost: cash tied up earning nothing, shelf space that could hold turning stock, count time during cycle counts, transfer time between branches, expiry risk for anything dated. Industry estimates put carrying cost at 20-30% of inventory value per year — meaning a SKU sitting unsold for two years has cost you 40-60% of its value just to keep.
There is also opportunity cost. Working capital tied up in dead stock cannot fund the new SKUs that might actually sell. A retailer with USD 30,000 in dead stock effectively has USD 30,000 less to invest in fresh inventory — a real and ongoing tax on growth.
The four exits for dead stock.
Exit 1: discount and clear in your own shop. 20-50% off, prominent placement, time-bound. Recovers some revenue, frees space. Best for items still relevant to your customer base. Exit 2: liquidator or wholesaler. Sell at 10-30% of original cost in bulk to someone who serves a different market. Recovers cash quickly, no merchandising cost.
Exit 3: charitable donation. Some categories qualify for tax write-off depending on jurisdiction — most countries permit donations to approved charities at fair value, which for dead stock is generally cost or below. Exit 4: write-off and dispose. Last resort for items with zero recovery value — damaged, spoiled, expired. Posts the full cost to Inventory Loss and physically removes from inventory.
- Discount in own shop: best for retail-relevant items, 60-80% recovery
- Liquidator/wholesaler: best for bulk, 10-30% recovery, fast
- Donation: tax benefit, best for retail-relevant items, depends on charity acceptance
- Write-off: last resort, 0% recovery, frees space and cleans books
A worked example: hardware retailer.
A Dallas hardware retailer has 240 dead SKUs across 4 branches, total book value USD 80,000. Analysis: 60 SKUs (USD 45,000 value) are still sellable — discontinued models that work fine but customers want newer versions. 120 SKUs (USD 25,000 value) are slow but not dead — bumped from dead list with explanation. 60 SKUs (USD 10,000 value) are genuinely dead — superseded, broken packaging, or wrong category.
Action: discount the 60 sellable items at 30% off in a "clearance" section; recovers about USD 32,000 over 90 days. Sell the 60 dead items to a hardware liquidator for USD 3,000 (30% of book). Total recovery: USD 35,000 on USD 55,000 of stock. Loss booked: USD 20,000, but USD 55,000 of cash and shelf space recovered for productive use. Carry that productively for one year at 25% return = USD 13,750 of additional gross profit. The liquidation pays back inside two years.
The journal entries for write-down.
For discount in own shop: no special entry. Sale at the discounted price posts as normal — Debit Cash, Credit Sales (at discounted price), Debit COGS at WAC, Credit Inventory at WAC. Margin compression is reflected naturally in gross margin reports.
For liquidation: post a sales invoice to the liquidator at the agreed price, posts COGS at original WAC. The gross loss flows through automatically. For donation: Debit Inventory Donation Expense at fair value (cost or below), Credit Inventory at WAC. For write-off: Debit Inventory Loss / Inventory Write-Down, Credit Inventory at WAC. All four create an audit trail with reason code, photographs (recommended), and management approval.
Preventing dead stock from accumulating.
The best dead stock management is not creating dead stock in the first place. ABC analysis (covered separately) helps — C-class items get tighter scrutiny on reorder. Sales velocity tracking flags slowing items before they go dead. A "do not reorder" status on slowing SKUs prevents stale items from getting topped up.
A monthly aging report by branch — stock split into 0-30 days, 30-90 days, 90-180 days, 180-365 days, 365+ days — gives the buying team visibility before items become dead. Items aging into the 90-180 bucket are the early warnings that should drive markdowns or transfer rebalancing across branches.
How nonari handles dead stock.
Nonari produces a dead stock report per branch with configurable thresholds (6/12/18/24 months no sale). The report shows remaining quantity, current WAC, total book value, last sale date, and total sales over the lookback period. Sort by value descending to focus the attention where it matters.
The report supports multi-branch pooling — sometimes a SKU is dead at one branch but actively selling at another, and a transfer fixes the problem before any markdown is needed. For genuine write-downs, Nonari supports a write-down workflow with photo attachment, manager approval, reason code, and automatic posting to Inventory Loss with a clear audit trail. The dead stock register is recalculated nightly so management always sees current state.