Even the best-run companies have to deal with excess and obsolete inventory from time-to-time. Products that don’t sell as well as their competitors or aren’t sold due to any number of reasons. Perhaps your Amazon product research was just a little off this time.
Manufacturing Net estimates that even in a successful company, 20-30% of inventory often ends up obsolete.
In this guide, we’re exploring how to manage excess and obsolete inventory for ecommerce sellers and within Amazon, the world’s biggest ecommerce platform.
It is fair and accurate to say that a huge level of stock is sitting in warehouses at all times. In 2019 it was found that US retailers were holding approximately $1.36 of inventory for every $1 in sales. These mind-boggling statistics show the level of inventory companies are dealing with.
Amazon is under huge pressure to make changes to their policies and avoid excess inventory. If you sell using the FBA program, you already face fees if your items take up warehouse space for longer than expected. Don’t be surprised if Amazon, and other warehousing and fulfillment companies, further increase their fees in the coming months and years.
The first step is identifying your excess and obsolete inventory, and this isn’t always easy.
Amazon will warn you if you have stock that is going to incur fees, but the best sellers are able to stay ahead of the curve. Software solutions including JungleScout mean you can “calculate how much inventory you should reorder and when, helping you analyze metrics and boost sales.” The software also shows when you are likely to have an excess based on demand.
The earlier you can identify a problem, the quicker you can act. Sounds like a lot of effort, right? According to studies, managing inventory successfully can cut your business costs by up to 10%.
Once you’ve identified your inventory issues, and that a product is not selling as expected, what are the next steps to take? Liquidation is an option, and we will discuss this in more detail below. However, it should be a last resort.
For Amazon sellers, there is always the option to automate. Here’s what the FBA FAQ says about setting up automated removals:
“If you set up automated removals by the 15th of each month for inventory that is subject to long-term storage fees, that inventory won’t be charged long-term storage fees. To set up automated removals, go to the Settings menu in Seller Central and select Fulfillment by Amazon.”
Automated removals offer a temporary fix in terms of getting around the fees that Amazon would otherwise charge for keeping your stock in their warehouses. However, it doesn’t really tackle the problem head-on. You will still need a way to store, sell on, or dispose of the inventory in question.
Amazon’s fee examples show the benefit of shifting the stock that you are worried about. The below example covers a toy with an 11 x 8 x 2 inch size. You can see that a long-term storage fee is over $7 for just 10 units. Don’t let stock stay in their warehouse for over a year, especially if you have your own space that you can use
|
Toy: 11 x 8 x 2 inches |
Storage duration |
Applicable cubic-foot fee |
Applicable per-unit fee |
Billed long-term storage fee (the greater of the two) |
|
1 unit |
More than 365 days |
$0.70 |
$0.15 |
$0.70 |
|
2 units |
More than 365 days |
$1.41 |
$0.30 |
$1.41 |
|
10 units |
More than 365 days |
$7.03 |
$1.50 |
$7.03
|
Amazon’s shift to other business models is still dwarfed by the profit of their online sales, and the brand has a huge responsibility when it comes to ensuring their stock doesn’t go to waste.
If you’re an Amazon seller, you can also make use of the schemes introduced to try and reduce waste and generally make business run more smoothly, with less wasted inventory.
One such scheme is Amazon Outlet. This is a scheme designed specifically to help you to sell through older inventory. The customer gets a cheaper product, you get to shift the stock and avoid fees, and Amazon doesn’t have to store the product in their warehouse anymore. Everybody wins.
Amazon is clear about what qualifies: “An Outlet deal is a promotional offer with a minimum discount of 20%.”
Of course, you can mark down the price of your stock yourself, without the need for the outlet program. However, the addition of some promotion from Amazon can give sales a much-needed boost to help you to sell through the remainder of your stock, or get back on track. It doesn’t have to be an “end of the line” sale either. These reductions could boost sales, get more reviews, and bring a product effectively back from the dead.
Getting your products to sell is often a better option, even if you can only break even. Don’t be married to the idea that you have to turn a profit on every item. In fact, in some instances, if a product has performed badly, a small loss might save you the hassle of long-term storage fees.
There may come a time when you just want to get rid of your inventory. If you have a large excess, you may not have the time and resources to dedicate to trying to advertise and tweak pricing to sell through the products.
Fortunately, some companies specialize in helping you to do this, and there are even options for Amazon sellers within the Amazon FBA program.
For many of these options, you will need to create a removal order and have your products shipped back to you, or on to a third-party company.
Image source: https://www.inboundlogistics.com/cms/article/the-logistics-of-liquidation/
As you can see from the graphic above, there are options that bring you very little return on your investment, but liquidation can be a way to raise some funds from the stock you wish to get rid of.
Amazon sellers can use a wholesale liquidation plan within their seller account. Amazon will move your products on to another wholesaler, and usually recoup a fair amount of the value of the products. They refund you a percentage based on the “ASP” or “average selling price”.
This takes into account:
Wholesale liquidators will then agree to buy the product for around 5% to 10% of its ASP. Amazon also deducts fees from this. Don’t expect it to be a big moneymaker.
Those with more time can also work directly with wholesale liquidators. You’ll need to transport your products from Amazon’s warehouse to your liquidators, which does make this difficult, but you may recoup a higher rate.
Some suppliers are better than others when it comes to allowing returns. Some manufacturers will know that they can sell the items elsewhere, so they will consider refunding a fraction of the cost.
You will often have to take a big hit, and not recoup a high percentage of what you actually paid for the products. However, getting rid of the dead excess products for either a credit note or a smaller refund can be an option with some suppliers.
If you’ve reached the point where you don’t feel like you can recoup any money from your products and you simply want them gone, it can be time to either recycle or donate. For instance, if you have clothing items, you could reach out to a clothing charity and see if they are interested in taking on the products. Some charities may even have the funds to pay for delivery.
Amazon will destroy your items if you wish. This avoids the long-term storage fees. Destroying stock has come in for a lot of criticism. Try to recycle or donate if you can, but in times when this just isn’t viable, you can tell Amazon to destroy via your FBA account.
Amazon sellers also have to deal with FBA removal and disposal fees. These start at $0.25 per item, but heavier items can be significantly higher than this, causing an added cost just to avoid the price of storage. It’s not the best system for the environment, or for your bottom line, but in limited cases it may be the only viable option.
Intelligent and accurate inventory management and forecasting play a key role in managing stock. However, sometimes, sellers may reach the point where they need to get rid of an excess to avoid warehousing fees and to move on to other products.
There comes a time where it might be the best option to liquidate or even destroy stock. The priority for sellers should first be on recouping value, as well as trying to do what is environmentally correct.
Fortunately, even for a product that is not selling well, you have a number of options to try and avoid warehouse fees and the rigmarole of poorly-managed stock.
