Last week, Amazon announced changes to FBA in preparation for the busy Q4 holiday season.
It seems that they are trying to get ahead of some of the issues faced at the start of the COVID-19 pandemic. On one hand, supply chains have been greatly impacted, with fulfillment centers prioritizing certain products over others and many overseas inventory orders taking longer than usual to fulfill (if they’re fulfilled at all). On the other, consumers are buying online now more than ever.
For Amazon and other eCommerce sellers, this means your inventory management has likely taken a hit — whether you’ve experienced a long-term stockout or noticed an increase in excess inventory due to changes in demand.
Since Q4 is already one of Amazon’s busiest sales seasons, the eCommerce giant wants to help protect its FBA sellers from issues like these. So what changes are they making and how will they impact your business for the Q4 holiday season? Here, we break it all down.
Change #1: Increase in Inventory Performance Index (IPI) Threshold
Effective August 16, 2020, Amazon is increasing its IPI minimum threshold from 400 to 500.
As a reminder, the Inventory Performance Index, or IPI, measures your in-stock inventory, excess inventory, sell-through rates, and stranded inventory. In other words, how well you manage your inventory.
If you have too much inventory that isn’t selling fast enough or at all, you’ll get a lower score. If you have the “right” amount of inventory at a given time — i.e. enough to fulfill orders plus a small cushion for sudden demand spikes — and strong sales volume, your score will increase.
Sellers with a low score — i.e. below 500 starting August 16 of this year — will be subject to storage limits and fees. But Amazon says that the majority of sellers will likely not be impacted. According to their announcement, “most sellers with IPI scores below 500 will have more storage space than last year.” This is likely due to their recent investment in opening new fulfillment centers. In fact, they’re on track to open 33 new fulfillment centers in the US this year, increasing storage capacity by nearly 35 million cubic feet.
What this means for you now: Log into Seller Central and take a look at your Inventory Dashboard. This is where you’ll see your IPI score as well as your rating for each IPI factor. Take a look at your score now and, if you’re below 500, see where you might need to make adjustments so that you can meet the new minimum threshold come August 16th.
While there is no clear-cut solution for increasing your IPI, it all comes down to housing enough inventory to fulfill orders and maintaining steady sales. So, start by checking your inventory levels, listings, stockout history, and sales performance — then make changes as needed to adjust. If one such change is to order more inventory or launch a marketing campaign to boost sales, learn how you can get Amazon daily payouts for your Amazon sales. You may also be qualified for Payability Instant Advance which a capital advance on future sales in just 24 hours with no credit checks. Payability Instant Advance provides a lump sum of capital that is remitted back over time, similar to Amazon seller loans.
Change #2: ASIN-level Quantity Limits on Products in FBA
Amazon wants to ensure that customers have a wide selection of items during the peak holiday season. As such, they are limiting how much inventory you can store for a given ASIN to make room for a variety of product types.
The good news is, according to their statement, “most products will have enough space available for over three months of sales.”
What this means now: Go to the Restock Inventory page in your Amazon Seller Central account and then to the Restock Report to see what the limits are for your products. From there, you can determine how much inventory you’ll be able to store in an FBA warehouse during peak season.
Remember to also consider your sales velocity and sales volume for the Q4 season — in other words, take a look at any available data from previous years to get a sense for what you can expect to sell this season.
This information, coupled with your product limits, will help you figure out how much to order — as well as when to place your order. If you need cash to cover these inventory orders, Payability is here to help — you could get the cash you need as soon as tomorrow without a single credit check.
Change #3: Free Removals Promotion
As of July 14, 2020, Amazon is waiving fees for the removal of inventory from their fulfillment centers. So, if you have products that haven’t been selling well, you can place a removal order for free. Not only will this help you avoid storage fees on excess and/or stranded inventory, you’ll be able to create more space for inventory that actually sells well.
What this means now: If you could benefit from a free removal order, visit Inventory Age and choose “Create Remove Order” from the menu next to the FBA item in question.
Amazon mentioned this promotion is for a limited time, but they did not specify an end date. So your best bet is to take advantage of it now while you know it’s still running.
Keep in mind, however, that this fee waiver is for removal orders only — not on storage fees themselves. So, if you don’t take advantage of the free removals promotion and end up with stranded inventory, you’ll still be charged storage fees (and they might be higher if your IPI is low). If you are looking for a new fulfillment option, check out these FBA alternatives.
Pro Tip: Payability can get you paid the next day, every day so you can invest in other efforts to move the inventory that hasn’t been selling and buy more of what is.
Next Steps
We will continue to monitor these and any other changes Amazon announces as it prepares for the busy holiday shopping season ahead. At the end of the day, Amazon is making these changes to optimize their inventory management and ensure that customers get the products they want as they’re doing their holiday shopping.
If you need to make adjustments to your inventory management efforts so that you maintain a high IPI, strong selling velocity, and low storage fees, you might need to start investing in inventory orders and marketing campaigns now. If you need more cash to do so, Payability is here to help with accelerated daily payouts of your Amazon sales and capital advances for inventory and marketing. Since approval is based on your marketplace account health and sales performance, there are no credit checks and you can get approved in just 24 hours. See how these Amazon sellers use Payability to grow their businesses faster and on their own terms.
