How do tariff-inflated costs make dead stock exponentially more expensive in inventory management and assortment management?
Dead stock has always been expensive in inventory management and assortment management, but the tariff environment of 2025 strongly altered the financial equation. When products were imported at tariff rates of 1.5%, the cost of carrying underperforming items identified through ABC analysis in your stock management was costly but manageable. When those same products now have 10-35% tariff duties, the maintenance of bloated assortments speeds up the destruction of capital.
The Math That Changes Everything in Assortment Management
Consider a typical scenario: the wholesaler carries 500 SKUs in their product range. ABC analysis reveals that 150 of those SKUs (30%) are generating less than 3% of total profit. Before tariffs, each unit of these underperformers cost $20. With the current 25% tariffs, each unit costs $25. The assortment management strategy carries an average of 50 units per underperforming SKU.
Pre-tariff carrying cost: 150 SKUs × 50 units × $20 × 25% annual carrying cost ÷ 4 quarters = $9,375 per quarter.
With a tariff-carrying cost: 150 SKUs × 50 units × $25 × 25% annual carrying cost ÷ 4 quarters = $11,719 per quarter. That’s an extra $2,344 per quarter-nearly $ nearly $10,000 annually, just in carrying costs for products that ABC analysis shows generate almost no profit. And this calculation assumes the products eventually sell through your order management. If they turn into dead stock requiring liquidation based on ABC analysis, the losses multiply in your inventory management.
Every Day Costs More in Assortment Management
This financial pressure makes assortment management discipline not just a best practice but an operational necessity for inventory management. Every product that stays in your range without justifying its position through ABC analysis costs more to keep in your stock management and assortment management than it did in previous years.
A product with tariff-inflated costs that sits in your warehouse for 90 days burns through capital faster in your inventory management. At $20 per unit, the cost of 100 units is $500 in quarterly carrying costs-at a 25% annual rate. At $25 per unit with tariffs, the same 100 units cost $625 in quarterly carrying costs within your inventory management and assortment management – a 25% increase in waste for the same forecast error identified through ABC analysis.
The Shift in ROI
In this way, the ROI calculation for aggressive assortment rationalization through ABC analysis shifts in favor of elimination in your stock management. When carrying costs are calculated on tariff-inflated inventory values, then the benefit of removing underperformers from your assortment management increases proportionally.
Before the tariffs, removing those 150 poor-performing SKUs that you identified through ABC analysis from your assortment would save $37,500 annually in carrying costs ($9,375 × 4 quarters) in your inventory management. With the tariffs, taking away the same SKUs saves $46,875 annually ($11,719 × 4 quarters) in your stock management and assortment management – an extra $9,375 of annual savings coming just from the tariff effect on your order management. This doesn’t take into consideration the released warehouse space, the purchasing attention freed, the handling transactions reduced in your stock management, or the capital that can be redeployed toward profitable products in inventory management and assortment management based on ABC analysis. The total benefit is substantially higher.
Capital Destruction Accelerates in Inventory Management
For inventory management and assortment management in the tariff-affected categories, each week of delay in eliminating underperformers identified through ABC analysis costs more than it did before. If you identify through ABC analysis that a product should be eliminated in January but delay the decision until March through your order management and assortment management, you’ve paid two extra months of carrying costs on tariff-inflated inventory values.
At 100 units at $25 per unit tariff-inclusive cost, two months of delay costs about $208 in carrying costs in your stock management and inventory management (100 × $25 × 25% ÷ 6 two-month periods). That is a delay cost of $208 per 100 units, per underperforming product and per two-month delay. Now extend that across 150 underperforming SKUs identified through ABC analysis, and the delay cost becomes very significant in your inventory management and assortment management.
Assortment Management Now a Financial Imperative in January
In a tariff-inflated environment, the January assortment detox using ABC analysis isn’t just a nice-to-have cleanup for your stock management; it is a financial imperative for both inventory management and assortment management. The cost for holding non-moving product in your range has gone up 10-35% (matching tariff rates) compared to prior years in your order management. Do this clean-up aggressively, through your inventory management and assortment management, using ABC analysis. Every product that remains in your range beyond January without justification based on an ABC analysis is burning capital quicker than it did in the past through your stock management. The math dictates action in your assortment management.
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