An inventory write-down is an accounting entry that lowers the value of inventory on your balance sheet to match what you can realistically sell it for. The technical name for that "realistic sell-for" number is net realizable value (NRV): the total cash you'd get from selling the inventory minus every cost it would take to actually move it (liquidation discounts, freight, platform fees, return costs, etc).
Accounting rules (called GAAP, short for Generally Accepted Accounting Principles) require a write-down whenever NRV drops below what you paid for the inventory. The loss shows up on your profit and loss statement (P&L), usually inside Cost of Goods Sold (COGS) or as its own expense line.
What this actually looks like at real DTC brands
We pulled the FY2025 10-K filings of three public DTC and beauty brands straight from SEC EDGAR and read the inventory write-down off the XBRL tag (so this is the audited number, not a guess):
- The Honest Company (HNST): $15.9M write-down on $72.5M of year-end inventory — 21.9% of the inventory on the books. Wrote off $0 in both 2023 and 2024. Single-year reserve catch-up.
- Olaplex (OLPX): $5.57M write-down on $60.2M of inventory (9.2%). Down from $15.2M in 2023, still working through post-fad overstock.
- Allbirds (BIRD): $2.75M write-down on $38.9M of inventory (7.1%). The 2022 cycle was $14.4M; mostly cleared out now.
So for public DTC and beauty brands at $200M–$700M revenue, the band in 2025 was roughly 7% to 22% of year-end inventory. The biggest tell is Honest: a multi-year clean balance sheet doesn’t mean you’re safe, it can mean you’re overdue. Two years of zero, then a $15.9M hit in year three.
Source: SEC EDGAR, FY2025 10-K filings (filed Feb–Mar 2026), US-GAAP XBRL tags InventoryWriteDown and InventoryNet. Pulled 2026-05-21.
How a write-down works
The rule has a long name, lower of cost or net realizable value (LCNRV), but the idea is simple. Inventory has to sit on your balance sheet at whichever number is smaller: what you paid for it, or what you can sell it for after every cost to move it.
Example: a SKU cost you $20 to land in your warehouse (including the unit cost, freight, duties, and 3PL receiving). The market shifted and you can now only sell it for $14 after platform fees and shipping. You write the value down by $6 per unit. That $6 hits your P&L as an expense, and your balance sheet inventory drops by the same amount.
Common triggers
- Slow-moving SKUs sitting in inventory for more than 12 months
- Discontinued product lines you're clearing out
- Damaged, expired, or returned-unsellable inventory
- Seasonal products at the end of their season (apparel especially)
- Excess units left over after a launch that didn't perform
The most common mistake
Putting write-downs off until you try to sell the company or raise money. The minute a buyer or investor starts their due diligence (the deep review of your finances), their Quality of Earnings (QofE) team runs the LCNRV calculation themselves. They flag the aged inventory, force the write-down, and lower your EBITDA. Lower EBITDA = lower valuation, directly.
Doing the write-downs every month as part of your normal close is cleaner accounting AND a stronger position when it's time to sell or fundraise (collectively called M&A: mergers, acquisitions, and fundraising). The losses are already taken on your terms, the inventory ages out cleanly, and there's nothing for a QofE team to "find."
Related Terms
- What is dead stock carrying cost?
- What is inventory shrinkage?
- What is COGS?
- What is days inventory on hand?
- What is the allowance for doubtful accounts?
Browse the full ecommerce finance glossary for every metric and money term a DTC operator needs.
Frequently Asked Questions
do i actually have to write down inventory or can i just leave it on the books?
You have to. GAAP requires the write-down the moment your NRV drops below what you paid. Leaving it on the books at full value is technically misleading. If you ever get audited, raise money, or sell the company, someone will catch it and force the correction. Take the hit now, on your terms.
write-down vs write-off, what's the actual difference?
A write-down lowers the value of inventory you still plan to sell. You keep it on the books, just at a lower number. A write-off removes the inventory entirely because it has zero value (donated, destroyed, stolen, or expired beyond recovery). Write-downs are way more common.
will a write-down hurt my valuation when i sell the business?
Depends on whether it's a one-time event or a pattern. If you discontinued a line or had a launch flop, a buyer's QofE team will usually let you add the write-down back to EBITDA, so your valuation holds. If write-downs happen every year because SKUs keep going stale, buyers treat it as a normal cost of doing business and refuse the add-back. Keep documentation of why each write-down happened.
what's a typical inventory write-down size for a dtc brand?
We pulled FY2025 10-K filings for three public DTC/beauty brands from SEC EDGAR and read the inventory write-down right off the XBRL tag. The band was 7% to 22% of year-end inventory. Allbirds (BIRD) wrote down $2.75M on $38.9M of inventory (7.1%). Olaplex (OLPX) wrote down $5.57M on $60.2M (9.2%). The Honest Company (HNST) wrote down $15.9M on $72.5M (21.9%) after reporting $0 in both 2023 and 2024 — a single-year reserve catch-up. Smaller private brands won't see numbers this big in dollars, but the percent of inventory is the apples-to-apples comparison.