Retail Dogma

Stock Obsolescence: How to Proactively Manage it?

One of the things that you will certainly come across after you have been retailing for more than 2 years is stock obsolescence. Products go through a lifecycle, and at some point they just become obsolete.

Retail companies usually adjust the value of the stock they hold the further it ages until it reaches a point where it is considered “dead stock” and is written off completely. This is to account for the real sale value of the inventory on their balance sheet.

Stock obsolescence

What is Stock Obsolescence?

Stock obsolescence happens when inventory has been sitting on a company’s books for a very long time (e.g 2 years) without being sold, which renders it unsalable.

A D V E R T I S E M E N T

The rationale behind it is this: If these products have not been selling after all this time and all the promotional events that any typical product goes through in their lifecycle, then these products will likely never be sold and should be considered obsolete.

Why should I care?

It might seem like a trivial accounting issue, but actually stock obsolescence can affect your profitability, since the amount written off will be recorded as an expense. The cost of this stock gets written off once it hits the time limit specified in your provision norms and this amount will be recorded as an expense and the asset value equivalent to it will be taken off your balance sheet.

Retailer &  Founder of Retail Dogma, Inc.

Rasha has 14 years of retail & ecommerce experience. She has started an ecommerce business in 2008, and later worked at H&M, Bath & Body Works, Victoria’s Secret and Landmark Group. She’s lived in 4 different countries, speaks 3 different languages and holds a BSc in Pharmaceutical Sciences and an MBA in Strategic Management & Marketing.