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Prime Day is coming fast, and for most Amazon sellers, it’s one of the biggest retail events of the year. This year’s estimates place Prime Day on June 21st and 22nd, less than a month away. For most sellers on a normal year, that means preparing by sending more inventory into their fulfillment networks — primarily, FBA.
Unfortunately, while Prime Day comes every year, recent changes at Amazon, particularly around restock limits, have left even veteran sellers confused. Amazon sellers in the subreddit r/FulfillmentByAmazon posted about “Massive cut in restock limits. Many sellers seeing a 20-50% reduction seeing overnight,” and a petition signed 1,300 times called on Amazon to “Not Suddenly Decrease FBA Storage Space.”
So, let’s talk about what’s happening with FBA, how to prepare for Prime Day this year (and subsequent years), and how to supplement FBA with FBM to back up your business and keep your sales moving.
Amazon introduced restock limits in the early days of the pandemic in an attempt to make room in warehouses and account for increased demand.
Since then, those limits have consistently fluctuated as Amazon expanded warehousing and increased FBA capacity. With Prime Day approaching, Amazon has added new restock limits, which came into effect on April 22nd for most U.S. sellers. Additionally, restock limits at the storage-type level replaced ASIN limits.
These restock limits use past and forecasted sales to calculate utilization to sell-through ratio. This is essentially the ratio of stock sold between when an item is added to a shipment (not when it’s received by Amazon) and when it’s sold by Amazon.
To review this in your account:
Restock limits are distinct from storage limits, which simply define how much cubic space your ASIN can take up. Although restock limits apply regardless of IPI score, storage limits take IPI into account.
For example, if your IPI score was over 500 as of May, you may not have storage limits for Q3 2020 — although all bets are off these days. If it’s under, you should expect some storage limits.
In theory, restock limits allow sellers to maintain 2 months of stock with Amazon. However, calculations start from when items are added to shipments, not when they’re received by FBA. Additionally, they’re maintained based on forecast sales, which sellers are claiming aren’t always accurate, or properly calculating prospective Prime Day sales. Therefore, while sellers sent in record levels of stock for Prime Day, many find themselves now over the limit.
This is especially important considering:
While these changes are intended to free up Amazon warehousing to allow everyone to send in inventory, they have hit many sellers hard. That’s especially true for organizations that normally purchase and allocate months of stock in advance, using Amazon for warehousing.
With many seeing 20-30% stock cuts overnight, sellers are scrambling to find warehousing and alternative solutions. Other sellers note that decreases in stock capacity mean they can no longer meet peaks, such as Prime Day without going out-of-stock.
Even more ominously, with the new algorithm in place, a stock out won’t just mean lost sales, incurred costs, and reduced search ranking in the Amazon algorithm – it’ll also mean an even further reduced restock limit (since sales were lower).
For many sellers, that could turn into a self-defeating cycle, where sales continue to drop because stock limits are just too low to meet demand.
The inventory performance index (IPI) is a metric used to measure your inventory performance over a period of time. The IPI score refletcts how productive and efficient you are in managing FBA inventory.
Amazon computes this every Monday based on your performance data over a 3 month duration. Scores above 450 IPI are considered good and mean sellers will pay fewer storage costs, and have more storage space. Amazon will also use this score to set storage limits as we mentioned above.
We’re advising all our customers to take steps to increase their restock limits. For example, sellers can issue removal orders for slow-selling products, cancel non-urgent shipments, and take steps to reduce the time from shipment to Amazon acceptance with FBA prep. However, that isn’t enough
Many sellers are now stuck with large quantities of stock they have to warehouse until it sells. While most are moving items back to their own warehouses or to third-party warehouses, that all creates risks and added expenses.
Fulfilled by Merchant (FBM) is an ideal solution for sellers who have found themselves with more inventory than they know what to do with (providing they can leverage a cost-effective fulfilment partner).
FBA sellers can easily sell via FBM alongside their existing listings by duplicating that listing and adding a new SKU. Tip: It’s always a good idea to add “FBM” to the SKU so it’s always clear which items are which.
In most cases, your best strategy should be to leave as much of your high-volume stock with FBA as possible, while keeping some in your FBM network ready to kick in as a backup.
Then, move low-volume or slower stock to FBM, which you can then sell yourself, without it cutting into your restock limits. That’s important, considering current restock limits are based on total throughput – your limits are designed to be two months of stock across all your products.
Here are some steps you can take now:
Tip: MyFBAPrep does FBA prep and can help you fulfill with FBM, which means you can send all of your excess inventory into our network, and replenish FBA as your restock limits free up.
FBA is changing, and quickly. FBA storage space is in demand, and restock limits are leaving many sellers wondering what’s next. However, these changes don’t have to negatively affect your sales. Having an FBM alternative in place ensures uninterrupted selling no matter where FBA shifts.
Selling FBM is a backup plan that also allows you to keep slow moving stock out of costly Amazon warehouses, which could benefit you in more ways than one.