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Struggling with Inventory Management? Check Your Strategy
Inventory has been a recurring problem for the past two years. This past season, inventory has been increasingly difficult to move, leaving no room for new or more relevant inventory. This is a problem across retail as excess merchandise is weighing heavily on profits across Walmart, Target, and more.
Knowing when items need to be replenished or closed out is crucial to continued success on Amazon. What strategies can you take to help move out the old to make room for the new, and how can you prevent having a catalog of SKUs that just won’t sell? Continue reading to find out.
3 Inventory Management Strategy Adjustments You Should Be Making in Q4
There is a considerable rise in demand on Amazon between Q3 and Q4 every year, according to Feedvisor data. It can be hard to prioritize the hundreds, if not thousands, of products in your catalog. To take advantage of this time, you need to adjust your strategy to focus on the sections of your inventory that generates the most or the most consistent profit by applying the 80/20 rule.
It is estimated that, on average, 40% of revenue comes from your top 10 best-selling items. Because of this, using the 80/20 rule will help you stay on top of key strategy decisions, including your inventory, by concentrating your efforts on the 20% of your catalog that generates 80% of your profits.
- Seasonal items will be in high demand and will sell at a higher price for a limited time. Focus on stock coverage based on sales velocity. Run weekly, if not daily, checks to make necessary adjustments during the seasonal period. If you see your stock is about to run out, raise the price to slow down the velocity and liquidate at the end of the “seasonal” period.
- Perennial items should have a healthy range of pricing with incremental growth in demand. You can have a higher ceiling price on this group to increase your profit margins, and inventory should be replenished every 2-4 weeks.
- Stale items should include long-tail items that aren’t generating a profit. It’s better to get rid of or liquidate these products, especially for FBA sellers, as any non-moving inventory is only draining your resources.
For each strategy below, focus most of your time and resources on the top 20% of your catalog and on how to liquidate, phase out, or optimize the unprofitable items in the 80% category.
1. Prevent Stale Stock by Prioritizing Estimated Stock for Seasonal Items
If you take any advice from this blog, make replenishment part of your regular routine, especially with your seasonal items.
It is recommended to review your top 20% selling items on a weekly basis to keep up with re-orders. It should be looked at even more closely for seasonal items with even higher demand and a limited time frame for selling.
Find the estimated sales velocity, the measure of the rate of your sales per month on Amazon, to slow down your re-orders as you reach the end of your selling period for your seasonal items. Near the end of the seasonal selling time frame, adjust your strategy so you can liquidate seasonal stock that will not sell throughout the year. You can do this by:
- Adjusting your pricing
- Increasing your adverting budget
- Utilizing Amazon’s deals and coupons
- Combination of all the above
2. Use High Sales Periods to Phase-Out Low-Performing Stock in Your Catalogue
Need more room for new or seasonal items in your catalog or your storage? Use holidays or high-sales periods like Cyber 5 to get rid of stale items.
Gather a list of your low-performing and high-in-stock products and dive into the reasoning behind why these items are not selling. Is it a problem with traffic, conversion, or competition?
If an item is just not receiving enough views, you can utilize advertising to boost the traffic.
If your item has a low conversion rate, it could mean that your Buy Box share is low or your listing needs to be better optimized.
If your problem is due to a change in competition, adjusting your price is the first step you can take to improve your sales.
After you pinpoint your problem, you can adjust and analyze if you still want to get rid of this product or if the adjustments made were able to meet your revenue goals for that specific SKU. A tighter margin may be necessary to create more space for higher-profit items.
Remember that adjusting your price or your advertising budget will influence the others. Check-in on your SKUs after making changes to your advertising and pricing to set a target out-of-stock day or a replenishment date if the product revenue improves with these changes.
A competitive analysis tool allows you to easily identify competing, complementary, and substitute products on a SKU by SKU level to track and outpace competitors. Using a competitive analysis tool like Feedvisor that gives you billions of data points in real time, and allows you to make more informed adjustments rather than reacting to the actions of a few competitors. This helps you ensure you’re capturing the maximum profit margin or sales velocity goal.
Further Reading: The Importance of Inventory Management
3. Don’t Be Scared of Liquidation When Managing Your Inventory
The right liquidation strategy can solve surplus or low stock problems. Both a surplus and low stock have hidden expenses such as storage fees, obsolescence, loan interest, and alternative costs of not investing in new products, and they even impact your Inventory Performance Index score (IPI).
Excess inventory is one of the biggest influences on your IPI score on Amazon, a critical measurement for FBA sellers. An item is considered “overstock” when the FBA inventory exceeds a 90-day supply, meaning you need to be checking in on your stock often to maintain 30-60 days’ worth of inventory at a time.
Unfortunately, after weighing the pros and cons, sometimes selling at a loss with aggressive price markdowns is necessary to keep your IPI score high and avoid storage fees. The best thing you can do is reduce your excess inventory for items that just aren’t selling.
To begin liquidation, you can get basic recommendations in the “Manage Inventory Page” on Amazon, or you can use a software like Feedvisor that gives you more personalized recommendations with real-time alerts to when your items are going out of stock as well as demand forecasting to help you better predict future inventory levels.
If you don’t have a demand forecasting technology, you should be manually monitoring your inventory levels on a regular basis to make future liquidation decisions. To decide whether or not you should be liquidating an SKU from your catalog, you should consider the following:
- Units ordered
- Profit margin
- Buy Box share
- Sales rank
- Current demand
- Seasonality trends
Further Reading: How Long-Term Storage Fees Effect Inventory Management
As with any business, it is important to prioritize impact over effort. By breaking down your focus into low effort, high effort, low value, and high value, you can prioritize your inventory management strategies to best meet your business goals. Ask yourself the following, are you allocating your time and resources appropriately? Do you need support with technology or outside services to make sure you are meeting these goals?
To maximize your Q4 performance, you need the right technology, so you can spend your time and resources on making the best decisions quickly. Maintaining logistical and operational aspects like inventory management can quickly become overwhelming without technology reminding and supporting your efforts.
Feedvisor gives you the insights you need to mitigate the impact of supply chain and inventory challenges alongside its repricing and advertising optimizations based on real-time data. See for yourself how Feedvisor can help you avoid inventory management challenges by signing up for a 14-day free trial.