3 Ways to Minimize Losses on Damaged Merchandise

by Craig Anthony

2 min read

While you can and should take steps to minimize product damage, at some point, every retail business ends up with damaged merchandise. That merchandise doesn’t need to go in the garbage, though, as there are still a few ways you can make some of your money back.

1. Insure Your Merchandise from Natural Disaster Damage

If your business maintains any inventory, then you need a property insurance policy to protect those items from damage due to natural disasters. While coverage varies depending on your specific insurance policy, property insurance typically protects against damage from fires, floods, or heavy snow that causes your roof to cave in. Check your policy for the exact details, and add coverage if there’s anything you’re missing. While can’t receive reimbursement through property insurance if your employees break something or if merchandise is damaged during the shipping process, maintain adequate insurance is still important. Without it, your business could suffer huge losses if disaster strikes, leaving most of your inventory in poor condition.

2. Sell Damaged Merchandise As-Is

Selling damaged merchandise at a discount allows you to recoup at least some of your losses. The type of product is an important factor in whether you can sell it as-is. Certain types of items, such as clothing, are fine to use even if slightly damaged. If it’s a product that presents a safety concern, such as a crib, then selling it in anything but perfect condition isn’t worth the risk. Consider dedicating a section of your store to clearance items, which can include damaged products that you’re selling as-is. Another option is a sidewalk sale, where you set up tables right in front of your store with clearance and damaged items.

3. Donate and Deduct Damaged Merchandise

When you can’t sell an item because of its damage, donation is an alternative option that can get you a break on your taxes. Charitable organizations are usually lenient regarding what they accept, but donations need to be in good condition for you to claim them as a tax deduction. Put together a list of the items you plan to donate, and then take pictures of all those items. Calculate an approximate value for every item. Some charitable organizations have price lists for common donation items which you can use as a guide if you’re not sure about the current value of your items, or you can hire an independent organization to appraise the items. After you make the donation, hang on to your receipt, the photographs you took, and any documents listing the value of the items. You can deduct the losses on your next tax return, and your documentation covers you in case of an audit. It’s never fun dealing with damaged merchandise. Make sure you have property insurance to protect your inventory. To handle losses that your insurance doesn’t cover, see if the items are in good-enough condition to sell or donate before you throw them out.

References & Resources

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