How to Reduce Excess Inventory for Your Amazon Business

When you consider inventory carrying costs and other storage fees, not selling is expensive! As if there weren’t enough pressure to increase sales, mounting storage costs against declining product demands means if your products don’t sell, you pay for them twice.

But no one short of a fortune teller can predict how many items you’ll sell in a given period. At one point or another, practically every Amazon seller is stuck with excess inventory, and if they don’t act fast, the storage costs will outweigh the profit.

In this guide, find out three of the best ways to reduce inventory and spare yourself from unnecessary storage fees. But first, let’s look into the dangers of product surplus and the necessity of smart Amazon inventory management.

Why Amazon Inventory Management Is Crucial

Inventory carrying costs refer to all expenses related to storing unsold goods. On the surface, these are the obvious fees: storage rental space, warehouse maintenance, handling, taxes and insurance. But there are also more subtle costs:

• Opportunity cost. Technically defined as "the loss of potential gain from other alternatives when one alternative is chosen;” in retail the opportunity cost includes, among other things, all the other products you could have acquired and sold instead of the ones collecting dust.
• Deterioration and obsolescence. Despite some noteworthy exceptions, most products lose value over time. Sometimes they become obsolete. Other times the demand just drops, maybe because the trend has passed.

If you’re using Fulfillment By Amazon (FBA) to fulfill orders, inventory management costs even more. This seller’s guide to FBA fees outlines the fees you’re expected to pay and how they change over the course of the year. Spoiler alert: the more unsold inventory you keep at an Amazon fulfillment center, the more you pay every month. They even charge by cubic foot of space, so if you’re selling large products — or rather, not selling them — you pay even more than average.

What all this amounts to, whether you’re using FBA or not, is that when items don’t sell, you’re paying more than just the acquisition price.

How to Manage Excess Amazon Inventory

1. Amazon Outlet

Some FBA sellers have a built-in solution for excess inventory: Amazon Outlet. This is a section of the Amazon marketplace that acts as the site’s “bargain bin,” with tons of products sold at discounted rates to encourage sales. Amazon Outlet features Outlet Sales (products sold at reduced cost) and Outlet Deals (entire promotional deals, such as Overstock Deals).

Listing on Amazon Outlet is free, although there are conditions:

• You must be a Professional seller with a rating of 3.5 stars or higher.
• Products must be in FBA centers.
• Products must have a sales history and a 3-star product rating or higher.
• Products must be in “New Condition.
• No Subscribe and Save products.

Moreover, Amazon recommends eligible products for Outlet; you can check to see if any of yours qualify on the Manage Excess Inventory page of your account. Because these suggestions are automated, they sometimes change day to day, so it’s worth it to check back regularly.

2. Quantitative Inventory Forecasting

Inventory forecasting means predicting how much of each item you’ll sell in a given time period, so that you can order sufficient stock with minimal excess. This, of course, is easier said than done.

To improve accuracy, retailers have developed forecasting methods based on quantitative data. Rather than ordering new stock based on gut feelings or quick guesses, you take a look at the cold, hard numbers — specifically the sales data from previous years, modified by your future plans and current trends.

Quantitative inventory forecasting works best when you have a least one year of sales data to draw on. Shopping trends seem to repeat year-by-year and shopping behavior seems to change by season. In other words, if you’re planning your Q4 inventory, it’s better to use last year’s Q4 data than this year’s Q3 data.

Despite its intentions, this method, too, is not foolproof. You can’t always predict what will happen based on what did happen previously. However, when it comes time to order more stock, you have to start somewhere, and proven data is always better than guesswork.

3. Inventory Management Software

If all this pre-planning and number-crunching is too much, you can always use inventory management software to do the heavy lifting for you. By analyzing your personal sales data, software handles quantitative inventory forecasting the way it’s supposed to be handled: mechanically, and with little room for human error. If you’re using FBA, software like eComEngine’s RestockPro gives you daily recommendations on reordering decisions so you always make the right choice at the right time. Considering that you can also manage all of your inventory and shipments from one central CMS, software like RestockPro handles the tedious tasks to give you the power and information you need to focus on the more important ones.

Rather than focusing on a single way to reduce excess inventory, try them all. They’re not mutually exclusive, but rather complement each other. For example, quantitative inventory forecasting, whether done by hand or automated using RestockPro, can help you prevent excess inventory before it starts, while selling off your surplus through Amazon Outlet is a great safeguard in case some of the forecast predictions fall short.

It’s also important to stay involved yourself. Even if you’re using software for forecasting, it still won’t account for any future campaigns or deals you may have planned. Keep an eye on your stock levels for the best results.