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How to Prepare Your Amazon Business for the Holiday Season [Webinar Recap]
Stay on top of the latest e-commerce and marketplace trends.
The fourth quarter is a critical time for all retailers and e-commerce businesses, 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. In fact, nearly three-quarters (73%) of Amazon sellers make up to half of their total sales for the year on Black Friday, Cyber Monday, or Prime Day alone, according to Feedvisor data.
Black Friday has repeatedly produced record sales for Amazon, especially given that 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 — another historically record-breaking event for Amazon. With Prime Day 2019 now over, and with just six weeks until the close of Q3, the time is now to optimize your inventory management to prepare for the spike in shopper demand over the hectic holiday season.
In this webinar, Feedvisor’s Amazon experts and eComEngine’s inventory management experts team up to break down the importance of Q4 inventory management, actionable steps you can take to prepare your catalog and streamline your processes, and how to improve and maintain a healthy Inventory Performance Index (IPI) for unrestricted storage privileges and increased holiday sales.
Know Your Inventory
Indeed, inventory management is a critical process that impacts numerous aspects of your Amazon business. Knowing how to balance your inventory levels to avoid both stockouts and overstock is essential to not only your sales but also your expenses. Low stock levels can lead to a sales decrease, while surplus inventory can result in hidden expenses such as obsolescence, loan interest, or opportunity costs of investing in slow-moving products.
Marc Dunn, strategic account manager at Feedvisor, addresses the biggest Q4 profit-killer — FBA storage costs. During the fourth quarter, Amazon raises its storage rate to $2.40 per square foot from its standard rate of 69-cents per square foot. Plus, the company charges long-term storage fees (LTSF) of an additional $6.90 per square foot for items stored for longer than 365 days.
Calculate your storage fees by multiplying your items’ average quantity by volume in square feet, multiplied by the storage rate. To avoid wasted spend on slow-moving inventory, Dunn emphasizes the importance of knowing your inventory, including what items you should buy and what items you should avoid reordering.
The 80/20 Rule
You can gain a comprehensive understanding of your inventory by using the 80/20 rule: Focus on the top 20% of your catalog, which generally yields 80% of sales and profits for your business. In fact, 40% of your revenue often comes from your top 10 selling items, so you should start by prioritizing your actions on these key products and creating a custom strategy around them.
To do this, you must break down your inventory into top-moving items and high-profit items. As part of Feedvisor’s optimization and intelligence platform, the portfolio analysis categorizes items as such:
- High Sales, High Margin: items that move quickly and make higher-than-average profit margins. These are items that you want to ensure remain in stock 100% of the time.
- Low Sales, High Profit: items with reduced sales, but higher-than-average profit. Ask yourself if you can lower costs on some of these items to move them faster.
- High Sales, Low Profit: fast-moving items, but lower-than-average profit. Decide which items are worth keeping and which items you should not replenish.
- Low Sales, Low Profit: items that do not sell quickly and also do not yield much profit. Use Q4 to liquidate these items and invest in other fast-moving items that turn a higher profit.
Q4 and Your IPI
Practicing smart inventory management year-round is crucial to avoiding inconvenient stockouts and other complications that will interfere with Q4 sales, cautions Liz Fickenscher, industry liaison at eComEngine. In addition to loss of sales, your inventory management practices can result in certain restrictions to your storage allocation, which can impact your overall seller health and Inventory Performance Index (IPI) — a metric based on a number of factors that gauge your overall performance as a seller.
The IPI is based on excess inventory, sell-through, stranded inventory, and in-stock inventory, and essentially determines how well you drive sales by stocking fast-moving products and efficiently managing on-hand inventory. Your IPI score combines the past three months of sales, inventory levels, and costs into a single rolling metric that is updated weekly.
An IPI score above 550 indicates that your business is excelling, while a score below 450 indicates that the seller must take immediate action for improvements. In addition, the IPI metric is now used to limit storage access for sellers with a score below 350. Those with an IPI of 350 of greater will have unlimited storage access for standard and oversized items and those with a score below 350 will be notified six weeks before the end of a quarter of potential storage limits, which are analyzed on a quarterly cycle. This is particularly important for the weeks leading into Q4 as storage limits for sellers with an IPI below 350 during the last full week of the quarter will be carried over to the following quarter, explains Sean Shanahan, customer success advisor at eComEngine.
Improve Your IPI
Taking the steps to improve your IPI score prior to Q4 will ensure that you have the maximum amount of storage — and the maximum amount of sales — for the holiday season. There is still time to improve your IPI score before Q4 begins. Look at your slow-moving, excess, and sell-through inventory to determine how you can get those ASINs to move faster ahead of Q4. In addition, focus on resolving your stranded inventory before it becomes unsellable, in which Amazon will require you to remove it from FBA warehouses.
While it may feel like Amazon is punishing sellers for their IPI scores, the metric exists so that you can keep a pulse on your inventory health, maintain consistent sales, and ensure there is enough space in Amazon’s FBA warehouses for all the items shoppers want to purchase over the holiday season. By improving your IPI, you will also be improving your sales performance. Automating your inventory management can streamline your processes and make more informed inventory management decisions that will improve and maintain a healthy IPI score.
To summarize, preparing for the Q4 holiday season requires preparation and year-round monitoring of your inventory levels and account health. The time period where you are ramping up for Q4 and the weeks that follow is critical for analyzing your inventory position in order to effectively capitalize on holiday demand.