Maintaining inventory on Amazon during Q4 should be a huge priority for brands in the ecommerce space. In 2020, there will be additional FBA inventory restrictions, making the challenge even more difficult.
On the right: Project Manager, Jesse Chembars
“Stock-outs during Q4 cause a lot of damage to your Amazon business,” says Jesse Chembars, Bobsled Project Manager.
“Holiday shoppers have a limited window, they can’t wait until your product is back in stock, and so they will purchase from a competitor instead. On top of the lost revenue, when you do get inventory back in stock, your Best Seller Rank (BSR) will be damaged, and this will hurt both your organic rank and paid campaigns.”
What Happened To FBA When Covid First Hit?
Before we talk Q4, let’s look back for a moment.
- When Covid hit, supply lines and delivery methods were impacted, and Amazon prioritized ‘essential’ categories for FBA fulfillment.
- Amazon traffic skyrocketed, especially for certain ‘quarantine friendly’ product categories.
- Many brands selling on Amazon were unable to replenish FBA inventory for a significant amount of time, and these brands scrambled to find other fulfillment solutions in order to keep up with shopper demand.
- Brands who could not find an alternative fulfillment solution that resembled FBA saw a massive sales dip during this period of Amazon imposed FBA restrictions.
“The core lesson from this experience: ecommerce shoppers have come to expect fast and convenient shipping at all times, and they will not be ‘brand-loyal’ if there are significant stock-out issues across popular online channels,” says Jesse. “Ensuring that there is a fulfillment contingency plan for Q4 in case of more Amazon imposed FBA restrictions is an absolute necessity.”
Known Issues Facing Sellers Utilizing FBA In Q4
- Amazon’s announcement on July 13, 2020 let sellers know about upcoming inventory restrictions for Q4 which include:
- Sellers will be limited to only allow for 3 months of inventory on-hand
- Sellers need to increase Inventory Performance Index (IPI) metrics above 500
- Sellers below 500 will be subject to limits effective August 16, through the end of the year.
- Brands and sellers need to focus on improving IPI scores if they are below the threshold.
- Quantity Limits:
- Brands who operate with lean inventory may face supply chain struggles during peak sales seasons. Ensure inventory positions maximize the 3 month coverage window.
- Brands who compete with other sellers may be negatively impacted by quantity limits at the ASIN level.
- Amazon states that they will make adjustments whenever possible to quantity limits, but this may come too late in Q4 for many sellers.
- Though new Fulfillment Centers (FCs) are being built, it’s clear from the updated IPI standards that Amazon is concerned about valuable warehouse space.
- FBA Inventory processing times are typically longer in Q4, and this year, because of all the additional friction, we would anticipate even longer processing times.
“Brands with seasonal or giftable products are in a tough spot. Amazon is only allowing for 3 months of FBA inventory on-hand. Meaning if you have a quiet Q3, you can’t send much inventory for Q4, even if that’s your peak period. Amazon has claimed they will adjust quantity limits in certain situations, but this may come too late in Q4 for many brands.”
- Jesse Chembars, Bobsled Project Manager
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Unknown Issues Facing Sellers Utilizing FBA In Q4
Jesse has outlined several unknowns that could be on the horizon as well.
- Will Amazon continue accepting FBA inventory across every category during Q4, or will they be forced to prioritize essential categories, similar to March and April of this year?
- What will be the extent of inbound shipping and processing delays during Q4?
- How flexible will Amazon be in respect to adjusting quantity limits during Q4, especially if BSR has dropped considerably due to stock-outs?
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How Your Brand Can De-Risk For Q4
“I’m urging my clients to consider March and April of this year a ‘dry run’ for Q4,” Jesse says. “Brands that rely heavily on Amazon Q4 revenue to prop up their entire business simply can’t afford to get the fulfillment piece wrong this time around.”
Here are several ways you can prepare your Amazon business for Q4.
- Data Analysis. How important is Amazon vs other sales channels (such as the online Walmart marketplace)? What are your top performing and most profitable ASINs on Amazon? There’s a good chance you will have to make some tough prioritization decisions regarding products and channels for the greater good. Getting clarity on your sales data should be the first part of your Q4 inventory management plan.
- IPI Score. Brands should be doing everything to get their IPI Score above 500 before August 16. Doing so will make inventory management in Q4 a lot easier.
- Send the maximum amount of FBA inventory ASAP. Ensure inventory positions maximize the 3 month coverage window. There will likely be processing delays during Q4, so send inventory to Amazon as soon as possible.
- Prepare for FBA getting shut down during Q4. Amazon’s fulfillment system is about to undergo its biggest test. Even if your category was deemed ‘essential’ earlier this year, there’s no guarantee it will in Q4. Brands that rely solely on FBA should prepare to utilize FBM, SFP, or 3rd party logistics partners such as Deliverr to prepare for potential disruptions.