Amazon recently announced it will raise seller fees during peak season to contend with inflation rates. From October 15, 2022 – January 14, 2023, sellers who use Amazon’s FBA program will be charged $0.35 per item sold in the US or Canada.
The Challenges of FBA During High Volume Seasons
The holidays are known for high order volume, specifically between late November and mid-December. Of course, volume surges can happen at any time of year, planned or not. Because Amazon is a marketplace with algorithms to serve customers new products, sometime sellers will see an uptick in order volume without putting significant effort into their product pages.
For Amazon sellers, order volume increases, planned or unplanned, are a great thing until you run out of stock. Ecommerce inventory management becomes a major focus for brands during the holiday shopping rush.
Tips to getting more accurate inventory forecasting, specifically for the holiday season.
The Problem with Stockouts on Amazon
In any other DTC environment if your brand starts to pick up consumer interest there are ways to protect yourself against stockouts. If your order volume is increasing faster than you can fulfill or keep inventory in stock, you can always turn off marketing or promotions.
There are ways to balance out the supply and demand and pivot your strategy, so you don’t lose customer interest when you don’t have enough inventory.
“What inevitably happens, either because of legitimate 3PL constraints, and or just working capital issues, sellers run out of inventory. So you have these products which have just started to take off, that then all of a sudden, their shipping times become much, much longer. It’s one of the biggest turn offs to customers.”
With an Amazon store, on the other hand the stakes of a stockout are much higher. There’s a uniqueness to the Amazon ecosystem where, if you’re out of inventory you start to lose positioning on the platform. But the bigger issue is losing customers. If a customer finds a product with “delivery in three weeks, five weeks, six weeks,” it’s not likely they’re going to buy it, and it’s less likely you’re ever going to get that person back.
Curious which marketplace is right for your brand? It might not be Amazon. Here are top tips for selling on multiple marketplaces at once.
Challenges of Managing Inventory with Amazon FBA
When your order volume surges, sellers need to supply Amazon with enough inventory to be able to fulfill orders quickly (customer require 2-day or same-day shipping). What makes inventory planning challenging for FBA sellers is that Amazon tends to limit inventory during the holiday peak season.
An experienced seller will be good at replenishing their Amazon inventory without going over their max storage allotment. There are a few tactics to do this well; some sellers manage this themselves, but many use a reputable 3PL to coordinate shipping inventory to Amazon to mitigate this conundrum.
In order to plan your inventory accordingly it’s important to understand the tradeoffs of overstock, deadstock, and stockouts.
- Stockouts or exhausted inventory will negatively affect your customer retention. As stated above, a stockout on Amazon can lead to major repercussions: negative customer experience, bad reviews, losing positioning on the platform, and more.
- Overstock and deadstock will negatively affect your storage fees and your relationship with Amazon. If you send too much inventory to the Amazon distribution center, they may turn your entire shipment away. This results in extra transportation costs, headaches, and the potential for stockouts if your inventory is expected to sell out.
No matter how you manage your inventory flow, during peak seasons you’ll likely need to make some quick decisions—it’s inevitable to have some unplanned ebb and flow of products. Being informed and planning ahead for various scenarios is the best way to prepare. Customer satisfaction is important, but if pleasing the customer means cutting into your margins it might not be worth it. Even if your margins go down, you need to be smart about your decisions. Is it really profitable to keep that person or that sale? Do I have chances to sell them other products in the future? Should I forgo shipping all together? Can I find a way to get inventory into the into the port some other way?
If FBA isn’t right for your brand, here are a few alternatives to Amazon FBA that may suit you much better.
Ways a 3PL can Help Manage Your Amazon FBA Inventory
Working with a 3PL with Amazon FBA experience will help ensure a smooth experience. Find the right 3PL who can help you manage your Amazon inventory. Ways to keep this relationship working for you include:
- Stay in touch with your 3PL often about promotions, sales, or any reason you may see a new surge in order volume.
- Ask your 3PL each quarter about their SLAs. If they’ve had challenges getting orders out on time, you need to know in order to ensure it doesn’t happen to you.
The right logistics provider can make a tremendous difference in your Amazon inventory management. Don’t let your partners be the reason you’re low on inventory.
Don’t let peak season surcharges get the best of your transportation budget. Learn how to prepare for peak season surcharges and shipping fees.
What About Using Another Amazon Fulfillment Method?
One way to mitigate any issues with the FBA model is to also setup your store with Fulfilled by Merchant (FBM). In the event that your inventory runs out at Amazon you can more easily switch over to FBM and fulfill out of your warehouse, or your 3PL.
Why wouldn’t you always be an FBM seller? It’s a choice that makes sense for some sellers, but you don’t get the Amazon buy box (which is the primary buying option on the right side of the Amazon product detail page, where customers can add items for purchase to their cart) which is a huge incentive for converting customers and increasing cart size. It’s estimated that 80% of Amazon website sales are through the buy box!
To learn more about the different Amazon fulfillment methods read Selecting the Right Fulfillment Option [includes a helpful infographic]
How Should Amazon Sellers Prepare for the Holidays?
Expect delays and extra fees. The peak season surges affect everyone, even Amazon. As much as they work to get packages to customers faster than anyone else, they will still get slowed down by high order volumes. Setting up Fulfilled by Merchant (FBM) as a backup plan is a good insurance policy in the event of stockouts.
Sellers should plan for capacity constraints as well. There have already been longer transit times between warehouses this year and they will either continue or worsen.
For sellers, it all comes down to how you think about your fulfillment wholistically. The best advice is to communicate with your partners, communicate with your customers, and make backup plans for when issues arise. Plan in advance with your 3PL provider—you should have access to your inventory, be able to get it to Amazon quickly, and then be able to understand what the rules and limitations are so that you don’t get blind sighted by extra fees or delays.