Fix Stranded Inventory on Amazon: Prepare for Q4

Transcript

Natalie: Thank you, everyone, for making the time today to join us for today's webinar. My name is Natalie Taylor, and I'm a content marketing writer here at Feedvisor. Q4 is a critical time for essentially all retailers and eCommerce businesses, but particularly for those selling on Amazon's marketplace. A significant number of sellers make a large portion of their annual revenue from holiday shopping events. According to Feedvisor data, nearly three quarters of Amazon sellers make up to half of their total sales for the year on Black Friday, Cyber Monday or Prime Day alone.

Natalie: Black Friday has repeatedly produced record sales for Amazon. And the event is no longer just a single day, but rather marks the start of a major four-day selling period that ends on Cyber Monday, which is another record breaking event for Amazon. So with Prime Day now behind us, the time is now to optimize your inventory management, to prepare for the spike in shopper demand and to maximize your sales for the busiest and most significant selling period of the year.

Natalie: Today, we'll be outlining actionable steps you can take to prepare your catalog for holiday sales, including how to determine which items you should order and which you should avoid reordering, strategies to reduce excess inventory and increase your sales velocity, implications of your IPI for storage privileges and tools you can leverage to automate your inventory management. There will be a short poll at the end of the webinar and plenty of time for Q&A. So if you have questions throughout the presentation, we encourage you to enter them into the space below, and we'll try our best to get to all of them.

Natalie: I'm joined by Marc Dunn, strategic account manager here at Feedvisor whose focus is to help Amazon sellers leverage data, to inform their business decisions using analytics and customized solutions to target their specific needs. We also have inventory management experts Liz Fickenscher and Sean Shanahan from eComEngine here with us today. Liz is the industry liaison at eComEngine, where she talks to merchants to better understand the seller's journey and offer them streamlined solutions for inventory management. And Sean is a customer success advisor at eComEngine, where he helps sellers maximize their RestockPro accounts for more profitable inventory management. And on that note, Marc, I'll pass things over to you.

Marc: Yeah. Thanks, Natalie. So as Natalie mentioned, I work here at Feedvisor over in our Seattle office, and I'm a strategic account manager for our large enterprise sellers. Inventory management, I'd say, is one of the most important and critical processes when it comes to selling online. So knowing how to balance levels so you don't run out of stock or end up with excess inventory is a constant challenge. And not only are your sales impacted, but also your expenses. Too low stock can lead to a sales decrease. However, excess inventory can lead to many hidden expenses, things such as obsolescence. Nobody wants last year's Halloween costume.

Marc: Loan interests, if you're borrowing to buy inventory. Opportunity costs of not investing into faster moving products. But when it comes to Q4, the biggest hidden profit killer I would say is the FBA storage costs. And these are not just the monthly fees, but also long term storage fees. During Q4, instead of the usual 69 cents per square foot, Amazon increases storage fees to $2.40. That's around four times more. And, of course, during Q4, you're probably going to have a lot more inventory at Amazon. So the impact of this cost is going to be felt further.

Marc: I've spoken with a few sellers that have 50, $60,000 in monthly storage fees during Q4. And, of course, this is on top of all the other expenses that they have. And don't forget about long term storage fees. Amazon's switched this to monthly fees. The rates gone down per month. However, at the end of the day, they are charging more, and this can quickly rack up a huge expense. As a reminder, how do you calculate the storage fees? Take your average quantity, times the volume in square feet, times the storage rate. Now paying the storage fees on good inventory is just part of doing business, but think about all that wasted spend that you might have.

Marc: So what I want to discuss is how to decide on what inventory to buy and what not to buy in light of the storage fees. And the best way to do this is by the 80/20 rule. Generally speaking, up to 80% of sales come from 20% of selling SKUs. And, in fact, I often see sellers with up to 40% of revenue of sales coming from your top 10 selling items alone. So it really start by prioritizing your actions on the key players and create a custom strategy around them. Once you have a strategy in place, we can then focus on replenishment of those items, especially during Q4.

Marc: So how do we do this? And the simple answer is really data. Break your inventory into the top moving items and your top profitable items. Here at Feedvisor, we have a portfolio analysis. We run this for sellers, and this can break down your inventory into sales and profit categories. So here it is. Over here, we like to focus in on the top right quadrant. These are your high-selling items, your high margin items. These are the items that are moving quickly, and they make higher than average profit margins when they do sell. These items, you want to remain in-stock on. You want to really focus on those items, especially during Q4.

Marc: On the top left of the graph... We'll just go back a slide, your low sales, high profit items. You've got less sales, but higher than average profit margins. Think about what you can do with these items during Q4. Can you lower costs to help the items move faster, advertise, things like that? On the bottom right, high sales, low profit. Are you making money or moving money? These are items that are moving fast, but you're not making much money. And of course, don't forget about those hidden storage fees and additional fees that you might have on inventory.

Marc: Then at the bottom left, the little quadrant at the bottom, your low sales, low profit. They don't sell very quickly. They don't make you much money. Better to move this inventory into faster moving items. And think about what you can do during Q4 on items that might be in this quadrant and things such as liquidation. One more thing is items that aren't even moving. They don't even appear on this scatter chart. So items with no sales and inventory, these are items sitting around not really doing anything. So using a portfolio analysis will definitely gain better insights into your inventory.

Marc: Next up, during Q4, we're going to want to monitor your velocity and focus on replenishment on the items that are moving. A nice way to do this is to break down your inventory via the velocity and the days of coverage. So we break down your inventory into velocity groups. So high, medium, low, and non-movers. Every business will have a slightly different number what defines a high velocity. Is it five units a day? Is it 10 units, 20 units a day? So break that down according to your business.

Marc: Then it's the days of coverage, what I've got here, DOC. We're going to look at how many days that you have. Generally speaking, you want to have around 30 days of coverage. Q4, you might want to have increased it slightly, just because of the lead times at Amazon might take them longer to process your orders until they're available for sale. Once we have that, we get a nice graph here.

Marc: The green are the first priority. As long as the profit margin is good, make sure you're focusing your replenishment efforts on these items. Yellow, would be the second priority. Monitor these items regularly. See if there's a change in the velocity that will impact the days of coverage. However, these are going to start having a storage fee. And then the red, most of these items definitely have a storage fee. Think about Q4, what you can do to move these items, to reduce the inventory. Things such as increasing aggressiveness, trying to target higher [inaudible 00:09:25] if they're competitive. Reducing your floor prices, liquidate. And, of course, advertising as well.

Marc: So monitoring and adjusting your inventory during Q4 is essential. And the last thing I want to mention is using Q4 to liquidate your bad inventory. Liz and Sean will be going into more details on how Amazon really punishes you for not taking care of the bad inventory, but it's always better to be a little bit more proactive. I'm sure you've got inventory sitting around at Amazon for way too long. Maybe a competitor came along and undercut you, or there's no more demand for that product. So a few pointers on what we can do to liquidate and which items to look at.

Marc: So firstly is the long term storage fees, items that are racking up those high storage fees. You've had them for 12 months without a sale. So it's probably costing you a lot more. So start thinking about liquidating these items during Q4 when a demand is up on an Amazon. Next is to check low sales, low margin items. So looking at that portfolio analysis. It might be a good idea during Q4 to clear these out and not replenish them. Then items with low or actually no velocity with high days of coverage, especially if they're not seasonal, then using Q4 to get rid of them.

Marc: And then finally at the end of the season, don't forget to liquidate. If you've got any seasonal items, if you've got too much inventory. Maybe you've got a Halloween item that just didn't sell as expected. At the end of October, even the last week of October, try to be proactive and start liquidating the items. When it comes to Christmas, then the last week of December, is going to be a good time to start... Not the last week of December, the week before Christmas will be the right time to liquidate those items.

Marc: The last thing you really want is the items to be sticking around in Q1, Q2. Not only that they're costing you money, but you're going to have to then deal with them at a later stage. And I'm not sure if you know about recalling items from Amazon, but it's not usually a good idea when it comes to that.

Marc: So I've spoken about how to know your inventory by the portfolio analysis and how to replenish during Q4. And now I'm going to hand it over to Liz and Sean, who will go into more details on how Amazon grades you via the Inventory Performance Index.

Sean: All right, thanks so much, Marc. Great presentation. So part of building a healthy Inventory Performance Index and making sure that you're not penalized with storage limits is to practice smart inventory management year round. And that's what we tell our sellers. Practice smart inventory management to avoid these inconvenient stockouts and other complications from interfering with your Q4 sales. In addition to loss of sales, your inventory management practices can result in certain restrictions to your storage allocation and can impact your overall seller health. This is because of the Inventory Performance Index, a metric that factors in a number of categories to gauge your overall performance as a seller. And I'll pass it over to you, Liz, to talk about what the IPI is.

Liz: Thank you, Sean. And thanks, Marc. If Marc hasn't scared you all enough with the long term storage fees and the storage fees in general, then I'm hoping to not scare you more. So what is the Inventory Performance Index? Seller Central says it is a single metric to gauge your overall performance over time. And your IPI score is based on how well you drive sales by stocking popular products and efficiently managing online inventory.

Liz: Your IPI score combines the past three months of sales inventory levels and costs into a single rolling metric that's updated weekly. So that gives you some good opportunity to actively and proactively manage your IPI. And it's not exactly a punishment. There's logic behind the Inventory Performance Index beyond Amazon's own needs. You really do want your sales performance and your inventory management performance to be good. You want your items to move on time. You want to reduce stock outs. You want to reduce stringent inventory. All of the stuff that we're going to go into.

Liz: I did put a little graph on this slide. When you go into your Inventory Performance Index and look in Seller Central, or your dashboard, you're shown to either be in the dark green, which is excellent, good, which is light green, fair, which is yellow and poor, which is red. So that's what the Inventory Performance Index is. And let's take a look at what Amazon views as a good Inventory Performance Index and what needs work.

Liz: An IPI above 550, Amazon says that indicates that your business is excelling. And below 450 indicates that immediate action should be taken to improve the score. So taking the steps you need to to improve your IPI score prior to Q4 will ensure that you have the maximum amount of storage and therefore the maximum amount of sales in Q4. Because there are guidelines for this quarter's IPI and storage. Keep in mind that the IPI goal range might not always be the same every quarter. When this metric rolled out, it was at Boost 2018 in New Orleans. And Amazon representatives that were speaking about it said that the IPI goal range might change based on Amazon's available space at the FBA warehouses.

Liz: So the reason this metric exists is both so Amazon can keep FBA warehouse shelves stocked with items that Amazon buyers want to buy during the holiday season, and they also want to make sure that, as a seller, you're selling your items quickly enough and you're seeing profit. So that's the main point behind the Inventory Performance Index. So it's not necessarily Amazon slapping your hand. It's working with you as a seller to try to get you to a point where your items are moving smoothly and they have space on the shelves at FBA for all the items that are coming in in Q4. So over 550, awesome. Under 450, time for action. And then Amazon breaks down when you really ought to be worried. So, Sean, why don't you take us through that?

Sean: Sure thing. So the real time to be worried, and the time that you will start seeing limitations on your storage is when you drop below that 350 score for your IPI. So sellers who maintain an IPI of 350 or greater will have unlimited storage for standard size, oversize apparel and footwear items. Once you dip below 350, that's when you could see possible limitations. So the six weeks before the end of a quarter, and right now we're getting into that range for a Q3, sellers with an IPI score of less than 350 will be notified of their potential storage limits.

Sean: If their score is still less than 350 during the last full week of the quarter, the limits will apply for the next quarter. And then sellers without an IPI score will receive unlimited storage until enough data is collected to generate a score. So, again, note the fact that we're edging in on six weeks until the end of Q3, which means there's definitely time to get your score up, but now is the time to check in, make sure it is above that 350 line and take steps to keep it there. Or if you are under the 350 line, now's the time to really get your score up. So let's look at the categories that inform your IPI and what to do to address problems in those categories.

Liz: Thanks, Sean.

Sean: I'll pass it to Liz.

Liz: We just had a comment come in from [Char 00:18:04]. Hey, Char. That said that some sellers got emails today about storage limits. So if you got that email today, now is the time to start working on your IPI to get it to the point where it's above 350 so that you don't have those storage limits in Q4. Because then it's hard to, obviously, it's hard to make sales, but it's going to be hard to keep your IPI up in Q4 too. So then you don't want that same storage limit or a different storage limit being carried over into Q1. It's a bad avalanchey type problem that you don't want.

Liz: So IPI criteria, it's all laid out in Seller Central. It's really easy to understand. The first one is you're supposed to reduce excess inventory to increase profitability. So Amazon's suggestion is that you track your inventory carefully, mind your total estimated storage costs. You don't want excess inventory and Amazon doesn't want unmoving inventory to take up space on warehouse shelves, like we talked about before, especially not during Q4. So sell-through rate, increase your sell-through to balance your inventory weeks of cover. Track the ratios between units sold and your storage limits average to identify opportunities for greater traffic and conversion. Marc talked about that.

Liz: For sell-through rate, that's something that you should... Sorry about that. If your products aren't selling fast enough, what can you do to make them move faster? So I think that Marc talked about thinking about pricing. Think about promotions. Think about what you can do to balance your inventory weeks of cover. The third thing that's mentioned is stranded inventory, and I recommend that sellers look at that every day. If not every day, then really, really often.

Liz: I read that starting in June, Amazon was going to give you 30 days to fix a stranded inventory issue before the item becomes unsellable, and you'll have to remove it from FBA warehouses. So you really don't want to take that chance, especially if it's just something like a listing update that you need to make, or if there's a change that you need to make to an image or something like that. Try to fix those things as they come up. And then that's not a thing that you really have to worry about when you're getting down to the wire prior to Q4.

Liz: In stock, too, that should be an ongoing thing. The inventory management dashboard in Seller Central makes restock recommendations, but I've talked to a lot of sellers that generally hide those recommendations and use an inventory management software tool instead because you can get more detailed with your item cost, your profitability and other data points that you know if you should or want to restock a particular item.

Liz: So, Sean, why don't you introduce Joe? We've got some information from Joe about what our actual RestockPro users, their behavior during Q4 that I think will be helpful for you.

Sean: Thanks, Liz. So folks meet Joe, our product manager for RestockPro, and we have a quote here from him. Basically observing that with our customers inventory is 69% higher in October than April. Our customers tend to have really great Q4 sales and to get more product into FBA warehouses and ready to move by October. To do that, they start ordering now, if not sooner, to get items in faster and avoid wait times checking items in at the warehouses.

Sean: This lead time all depends on where your products come from, and you have to factor into that shipping time, manufacturing time and the amount of time it takes to prep item, if that's part of your process. Then you have to figure on the amount of time it takes to get to Amazon's warehouses and processed in there. And I'll give you back to Liz for some tips on Q4 preparedness.

Liz: Thanks, Sean. So remember that Amazon is not out to get you with the Inventory Performance Index. It does really exist so that your sales can stay consistent or better and that there's enough space in FBA warehouses for all the items that Amazon shoppers want to buy. And remember that Amazon is a customer-centric company. So they're thinking about all of the people that are flocking to the Amazon Marketplace to shop for those four important days during the holiday, for most of Q4, or for the people who shop early, if you're one of those people that shop early. We've got somebody here at eComEngine that I think finished Christmas shopping in June or earlier. I admire that. I'm not like that.

Liz: So you can improve your IPI. And while you're doing that, you're also going to be improving your sales performance. And that's exactly what you want, not just in Q4, but in every quarter, right? So to recap, understand your IPI score, take action to improve it. There's actually more education out there. We also read an article from our friends over at Full-Time FBA, and they said that what they learned in the most recent iteration of Amazon's conference to sellers is that if you tackle these problems in the order they appear... So this order: reduce excess inventory, increase sell-through, fix stranded inventory and keep popular items in stock. That's the best way to improve your IPI score quickly.

Liz: So reduce excess inventory first. Increase sell-through first. Hopefully you're fixing stranded inventory on a regular basis, and hopefully you're keeping popular items in stock by paying attention to your sales velocity. You're paying attention to your profitability and the other things that you need to do to make sure you don't run out of stock on the things that people really want to buy.

Liz: So when the IPI rolled out, we realized that RestockPro helps you with two out of the three IPI buckets. If we can flip over. So RestockPro can help you reduce excess inventory, increase sell-through and keep popular items in stock. And that was pretty cool for us to realize that we could help you with this new metric that Amazon introduced. It's not so new anymore. And you guys have been working on it for a really long time.

Liz: But now that Q4 is approaching, it's kind of a big deal. So Sean's going to walk through this screenshot with you, but I do recommend in addition to understanding your IPI score and taking action to improve it, approach your inventory management with logic. Don't just blindly follow what's in Seller Central or necessarily follow without thinking what's in an inventory management tool that you might be using.

Liz: You have to really think about your inventory. Think about your items, and think about what makes the most sense for you as a seller and what makes the most sense in Q4. Like Marc said earlier, nobody wants your old Halloween costumes, except maybe me. I might want the old Halloween costumes, but last year's Halloween costume. But we also recommend that you automate the processes when you can. And now if you don't use an inventory management tool, now's a pretty good time to start. So let's turn it over to Sean so that he can kind of talk through how RestockPro addresses those three buckets of your IPI score.

Sean: All right. Thanks, Liz. So we've got a neat little screenshot here, basically drawing attention first to some colored flags in RestockPro, right? When you're going to replenish something, you need to see first what's running low, what's about to run low, to avoid those stockouts. So if that top item has a red flag, that means it's running below your minimum threshold. You definitely want to restock it based on that criteria. Some of the items below it aren't flagged. Those are just things you might be keeping an eye on, even though they aren't being recommended to restock just yet.

Sean: Now, like Liz was saying, you want to approach your replenishment decisions with logic and have a good source of information to make those decisions. So looking over towards the middle, you've got other buckets. You can see your sales numbers in a variety of different historical periods to see how fast the item is moving. You can also see your profitability. And make sure that, like Marc said earlier, where is this item falling on that graph? Is it a high velocity, high profit item? Or on the other end of the scale, is it one of those low velocity, low profit items that may be something you want to get rid of?

Sean: So we've got a lot of other data points in here as well. You can see how much you have at Amazon, right? The quantity on hand there, how much you've got inbound. And if you're starting to send in a bunch of shipments now to stock up for Q4, you'll probably... if you are a user of RestockPro already, you'll definitely see that inbound number jump up on items that are in RestockPro. and then you can-

Liz: I love when a plan comes together, don't you?

Sean: That is a great quote to put in.

Liz: So we are offering to attendees and people who registered for this webinar, we're offering a free demo and a 30-day free trial, which is a little bit longer than our standard free trial. And that can be obtained just by emailing me or going to our demo page on our website. But my email address is on the last page, and I'm excited to find out if there are questions.

Natalie: Yes, all right. Well, thank you, Marc, Liz and Sean. We really appreciate you taking the time to share your expertise. And now, as you all know in the audience, no two products in your catalog will have the same exact supply and demand patterns. So you're going to want to be sure to avoid treating all of your SKUs the same.

Natalie: Here at Feedvisor, we leverage a combination of artificial intelligence and human expertise to optimize every aspect of your Amazon store and to help you price competitively across your entire Amazon catalog. We're very excited to have recently launched our new ProductSphere pricing technology. It's the first and only AI-based dynamic pricing technology that provides real-time pricing based on a 360-degree view of each product's unique, competitive landscape.

Natalie: So through AI power technology and machine learning algorithms, ProductSphere pricing maps the relevant competition by identifying competing complementary and substitute products on a SKU-specific level. So technology pinpoints who you're competing against in search, effectively prices your products against those other items in real time, and tracks the influence of those price changes on demand. Establishing a dynamic pricing strategy and utilizing pricing technology can help you outpace your competitors and move through slow-moving or stagnant inventory. If you'd like to learn more about our new ProductSphere pricing or any of the other ongoing initiatives we have here at Feedvisor, please connect with us.

Natalie: Now let's get into the Q&A, but before that, you should see a brief poll appear on your screen right now. Okay. So first question, is there a percentage of sales that you find acceptable to pay in storage costs? Marc, Liz or Sean, anyone is welcome.

Liz: I'm going to throw that one to Marc.

Marc: Okay. I think I was on mute. Can you guys hear me?

Liz: We can.

Marc: Great. So, look, I wouldn't say necessarily a percentage per se, but really looking at the items that are moving. Items that are moving, then the storage fees definitely a cost of doing business. In fact, Amazon even offers discounts. So your top moving items, instead of paying the 69 cents, it's around 17 cents for those top items. So as long as items are moving, I'd say that it's okay paying the storage fees. And, again, taking a look at that days of coverage. Once you do have a lot of days of coverage or excess inventory, then they're the ones to start reducing and focusing in on.

Natalie: Okay. Thanks, Marc. Next question. Any suggestions to reduce excess inventory? I sell products with an expiration date, and there are a couple of particular products that I just can't get to move. I've tried ads and such. I got an email about Amazon's new outlet store. I'm thinking about giving that a shot. Any ideas?

Marc: So I guess looking at different ideas to liquidate. I'd say Amazon's got a sessions and conversions report that you can access. And what that will do is it will take a look at how many people are coming to your listing. And from that, you can decide what to do. So you mentioned expiry, so that's definitely something that you'll need to tackle earlier, rather than later. We've got a repricing method that will slowly reduce the price based on your velocity. So you can set how many, when you need to liquidate that item in by, and then decide to reduce the price on it on a regular basis to try to sell that.

Marc: But again, if no one's coming to the listing, because there's no sessions, then it doesn't matter how low the price is. If people aren't seeing it, it's not going to do much. So that's when advertising comes into play, and you might want to devise an advertising strategy to try to move those items via more exposure. And that's another method. And, again, then it comes down to monitoring in the future, monitoring your inventory so it doesn't keep happening.

Natalie: Thanks, Marc. Our next question is focused on your IPI. And so with that, we're just going to launch another quick poll on your screens. Liz and Sean, I'll direct this question to you. Is it easier to keep your IPI up during Q4?

Liz: Well, that depends. Usually, yeah, absolutely. Because there's more demand, so there are more shoppers on the Amazon Marketplace in general. So there's more opportunity as long as you're making sure you don't have too much inventory, making sure you're fixing stranded inventory. And making sure you're staying in stock, making sure that you're not keeping shelves on for too much time, that your velocity is good. As long as you're practicing smart inventory management throughout the quarter, then it's likely that your IPI scores going to improve even more.

Natalie: Great. Yeah, by the results of the poll, it looks like a majority has their IPI between 450 and 550, though there is a good chunk that is less than that. So Liz and Sean, I have another question for you. My IPI is really low. Can I fix it before it's too late for Q4?

Liz: Absolutely. Like Sean just said, if you got an email today about your potential storage limits, that means that you have until the last full week of Q3 to bring up your IPI. So by focusing on the things that Marc went over, I think that he gave some... I actually texted Sean and said, "This dovetails so nicely because all the things that Marc was suggesting will actually help you improve your IPI."

Liz: So as long as you're paying close attention, reducing any excess inventory you have, increasing sell-through on items you have. Fix all your stranded inventory. There's no reason that that should be a bad mark on your IPI. And keep your popular items in stock. You should be able to bring it up to an acceptable level, 350 or above, in the next couple of weeks.

Natalie: Thanks, Liz. We have one more question. If Amazon is reading your inventory levels on products that have no stock, what do you do with seasonal items that you don't want to get rid of the listing, but you won't stock for a few months?

Liz: Marc, let's try to tag team that one. I would say that probably if it's a seasonal item, I don't know that you're actually going to get dinged if it's not in stock. I don't know... Marc, would you suggest that they mark those seasonal listings as inactive during the time that they're not going to be active, or would you suggest that they try to sell through that stock, and then try to restock it at the season that it's appropriate? What would you recommend?

Marc: I'd definitely say to make sure that you're selling through the inventory. If it's going to be a few months, then you might want to keep that inventory around. If it's going to be more than six months... And that's something to really pay attention to, because if you do decide to recall inventory, then just deciding to... monitoring when you can resend that inventory back.

Marc: When it comes to, say to Halloween items, and at the end of the season, you're not really going to sell as many costumes so start recalling early. However, if you do have items that might start becoming popular again come Q2, then you might want to have them stick around.

Liz: Awesome. And in terms of the listing itself, keep an eye on it. But if it's not contributing, and you should be able to tell if it's contributing to your IPI, but you can mark the listing inactive if you want to. But I don't necessarily know that you need to do that.

Natalie: Okay. Well, thank you. And that's about all the time we have for today. Thank you, Marc, Liz and Sean for your expertise. And thank you to everyone listening in. I hope you took away some valuable insights and strategies that you can implement as you prep your Amazon business for Q4.

Natalie: For anyone whose questions we didn't have a chance to get to today, we'll be sure to follow up and get in touch with you. And we'll also be sending out a link to the webinar recording later this afternoon. So with that, please feel free to reach out if you're interested in learning more after the presentation. Thank you, and enjoy the rest of your day.