New LTSF & Storage Requirements: Keep Inventory Moving
by Liz Adamson, on September 7, 2018
September is the start of Amazon’s new long-term storage fee (LTSF) schedule, with fees being charged monthly instead of twice a year. That, combined with Amazon’s new storage limits, means that sellers using the FBA program need to be paying more attention than ever to their inventory stored at Amazon fulfillment centers.
What are the new requirements?
Amazon.com, Inc. ("Amazon") is now using your Inventory Performance Index (IPI) to determine how many cubic feet of storage you can have in their fulfillment centers. The IPI can be found in your Inventory Planning dashboard. If you maintain score of 350 and above, Amazon will give you unlimited storage. If your IPI score is below 350 at the end of a quarter, Amazon will restrict your inventory storage for the following quarter. More information can be found on Amazon’s help pages.
This requirement is particularly important in September. If your IPI score is below 350 by the end of the month, Amazon will restrict your storage for all of Q4, which may prevent you from stocking up on seasonal items.
As for the new long-term storage fees, in the past Amazon’s inventory clean up took place February 15 and August 15, with fees as high as $22.50 per cubic foot for units older than 365 days. Beginning September 1, Amazon’s inventory cleanup is now the 15th of every month. The per cubic foot fee did drop to the following:
There is also a minimum fee of $0.50/unit for units older than 365 days. More information can be found on Amazon’s help page FBA long-term storage fees.
With these fees now being charged monthly sellers need to pay close attention to their Inventory Age reports and the estimated LTSF. If you have any units at the fulfillment centers that are 181 days or older, you will need to make some decisions or risk racking up thousands of dollars in excess storage fees. Some actions you can take include:
- Increasing sales velocity through advertising or promotions - I’ll go into more depth on this option in this article.
- Removing the units - after which you won’t be able to send more in for three months unless your inventory level falls below Amazon’s expected sell through
- Paying the fees - this is sometimes the best choice if your fees are relatively low and you expect you’ll be able to sell through the older inventory in the next month.
With these changes and the cost of storing inventory at Amazon’s fulfillment centers, it’s more important than ever to closely monitor your inventory, identify products that are not selling through as expected, and taking steps to correct the problem.
How do I keep inventory moving?
Inventory planning can be tricky business. From predicting how much a brand-new product is going to sell, to dealing with a change in market trends or new competition, even a very careful inventory forecast can be wrong. So what do you do when you have too much inventory and need to increase your sales velocity? There are several tools you can use in Seller Central that can help move more units.
If your product qualifies for a lightning deal, these can be great ways to move a lot of inventory fast. These are displayed on Amazon’s 2nd highest trafficked page. Visit the Lightning Deals page in Seller Central and view the recommendations to see what products qualify.
To run a lightning deal, Amazon will charge anywhere from $150 to $500 depending on when you run it. In addition, you will be required to offer at least a 20% discount and need to have enough units so that the deal can run for the full time period.
If your product is not eligible for lightning deals, another good way to promote your products at a discount is Amazon’s new coupon feature. With coupons, you can choose a $ off or % off, and an orange coupon will be displayed prominently on the product page, search-results page and any sponsored product ads you run. Your product is also included on Amazon’s coupon page. A compelling discount using this feature can help you move a lot of units.
To run coupons, visit Advertising > Coupons and follow the setup instructions. Coupons will cost you $0.60 per redemption, plus your discount.
Amazon’s promotion feature is not as visible in search as Lightning Deals or Coupons, but it’s a great way to encourage shoppers to buy additional units. You can advertise a % off just a single unit or require them to buy two or more, or even that they buy another item in your catalog. The promotion shows up just below the price on the product page.
Sponsored Product Ads
Whether or not you use any of the above tactics, you should be running Sponsored Product ads to create more visibility for your products. You can increase your product’s visibility with well-managed ad campaigns. You may even want to consider getting more aggressive on bids, depending on the cost of those bids vs. the cost of paying long-term storage or losing unlimited inventory storage for the quarter.
Headline Search Ads
These ads will give you even more visibility as a banner ad at the top of the search-results page. Headline ads are only available to brand-registered sellers and can cost a bit more, but the click-through rate can be quite high, so pairing these with a good discount can help move more units of your stuck inventory.
In deciding which route to take – using promotions, advertising, simply removing the excess units or letting them incur the long-term storage fees – you will have to run the numbers and decide which will be the more cost-effective for your business, both short term and long term.
All of this should be a wake up call that Amazon is not going to be your long-term storage center for products that just don’t sell. If you haven’t been monitoring your inventory metrics carefully, now is the time to start. When sourcing new products, do your homework and make sure the market can support another seller for that item. If you do get stuck with an item that just won’t sell, act quickly to minimize your losses. Above all, take advantage of the upcoming holiday season and make sure your products are visible in search and have compelling offers.