As the COVID-19 crisis caused considerable strain on everyone, Amazon is getting ready, months in advance, to provide better service to their buyers and selling partners in this coming festive season. As part of the preparation, Amazon has been rapidly building out their network of fulfillment centers to make room for more items. So shoppers will not only have more product selection but also enable faster deliveries. Taking this into account, Amazon can assist sellers to stay profitable and drive more sales this upcoming Q4.
Over the years, Amazon has been consistent in their commitment and investment in supporting selling partners. Amazon plans to invest more than $30 billion in building facilities, tools, services, training programs for merchants, and in creating more full-time jobs. The 33 new fulfillment centers in the US are expected to open later this year, which can increment top fulfillment center standard-sized product storage capacity by around 35 million cubic feet more than the previous year.
Since the outbreak began, it has caused significant supply chain challenges worldwide. Amazon had to come up with a quick resolution to help Amazon sellers who faced a variety of challenges around their supply chain, order fulfillment delays, and FBA temporary suspension of some products from third-party sellers, by hiring more than 175,000 employees to get back on track. The retail giant has also invested billions of dollars in COVID-related initiatives to help meet increased customer demand and protect the health and well-being of their employees as they prepare and ship the products to buyers. As a result, retailers have had record sales on Amazon and continue to account for more than 50% of units sold in our store.
As early as July, Amazon has started preparing for the fourth quarter (October-December) to meet sustained higher demand and to reduce their Retail product ordering to accommodate more products. This is the biggest and most important time for Amazon sellers when it comes to driving sales. With major traffic for Black Friday, Cyber Monday and the holiday season, this is the quarter when sellers make most of their annual sales.
With this peak in demand, Amazon has introduced the following three adjustments to guarantee preparedness to best serve all their selling partners and customers:
- Adjustment in Inventory Performance Index Threshold
One of the biggest changes Amazon recently introduced to their fee structure is the Inventory Performance Index (IPI). Amazon announced that effective August 16,2020 until the end of the year, the threshold is moving to 500 (up from 400). As with many of Amazon’s decisions for sellers, the IPI seems to largely revolve around Amazon’s overflowing warehouses and trying to get sellers to better optimize their inventory, especially during peak season.
Most of the sellers will not be affected by this adjustment. The majority of the sellers with IPI scores below 500 will have more storage space than the previous year.
The best way to increase the seller’s IPI score and minimize the FBA storage fees is to reduce unproductive inventory and keep the productive inventory at lean levels while ensuring merchants have enough on hand to minimize lost sales. So, in other words, the key factors in improving the IPI is to avoid having over-stocks at Amazon and improving the sell-through rate.
- Quantity Limits
Amazon FBA warehouses are bursting with inventory during peak season. Due to this reason, the company has recently begun limiting or restricting the unit quantity that can be shipped to the warehouses for certain ASINs to maximize selection for customers and to have enough space available for over three months of sales.
By placing limits on the amount of inventory in the warehouses, Amazon hopes to prevent a buildup of items that already have high inventory levels but low turnover. For sellers, it is in their best interest to stock items that sell quickly, as those that stay in the fulfillment centers for 6+ months will be charged a long-term storage fee, decreasing their overall profit.
Sellers can view quantity limits for their products on the Restock Inventory page and the Restock report.
- Free Removals Promotion
To provide a head start on improving inventory health and avoiding fees for products that have not been selling, Amazon is offering a limited-time, free inventory removal promotion. The company will waive fees for any removal order submitted for inventory in FBA warehouses starting July 14, 2020.
To create a removal order, please visit Inventory Age and select Create removal order from the menu next to any FBA item in your inventory.
Responding to the spread of COVID-19 cases in the U.S., Amazon has been committed to supporting their selling partners. They will continue to make changes and provide a framework for retailers in helping take corrective actions to better serve their customers and to ensure successful Q4.