How long should you hold stock for in your retail business? Someone once said never let a stock item have a birthday in your shop.
The total cost of holding inventory is a combination of direct holding costs (like storage space and labor) and the opportunity cost of the capital that was used to purchase the stock.
Imagine you have $10,000.
- You can either buy $10,000 worth of stock (inventory).
- Or you can put that $10,000 into a savings account that earns 5% interest ($500 per year).
If you choose to buy the stock, you give up the chance to earn that $500 in interest. That forgone $500 is the opportunity cost. It’s separate from the money you then have to spend on a warehouse shelf (holding cost) to store your new stock.
If your $10,000 in inventory is not generating at least a good interest result, you’re behind.
1. Identify and Categorise: Use your POS software to run a Stock Aging Report. This is your most important tool. It will show you exactly which items haven’t sold in 30, 60, 90, 180, or 365+ days.
2. Create a Markdown Cadence: Don’t wait for the birthday! Create a store policy for taking action. For example:
- 60 Days (No Sale): Review product placement. Is it visible? Is it merchandised well?
- 90 Days (No Sale): First markdown. A small discount (e.g., 15-20%) to encourage a sale and start recouping capital.
- 120 Days (No Sale): Second, more aggressive markdown (e.g., 30-40%). Move the item to a dedicated clearance section.
- 180 Days (No Sale): This item is officially “dead stock.” The goal is now liquidation, not profit. Bundle it with a popular product, reduce it to cost, or even sell it at a loss.
Why sell at a loss? Because the $20 you get back from a $50 cost item is $20 of fresh capital you can reinvest in a new product that will sell. Keeping the dead item on the shelf gives you a return of $0 and continues to incur holding costs.
3. Learn and Prevent: After you clear the dead stock, analyse it. Why didn’t it sell?
- Was the price wrong?
- Was it a poor product choice?
- Did you buy too many?
- Was it a seasonal item you bought too late?
Use this data to make smarter buying decisions in the future.
I see too many retail business owners ignoring the age of stock, allowing dead stock items to take up space on the shelves, not providing a return for the business. This is poor retail management.