Succeeding on Amazon is no simple task, especially when managing inventory for the world’s biggest marketplace. While an ample supply of products ensures you’re ready to meet customer demand, excess inventory can lead to the dreaded long-term storage fees that eat into your profits.
Brands need to understand the details of Amazon’s long-term storage fee policies and closely monitor their impact on the company’s financial bottom line. More importantly, sellers must be armed with practical strategies to manage inventory efficiently and clear surplus stock before it becomes an expensive liability. Begin your education in inventory management with this comprehensive guide to optimizing a critical aspect of your operations.
Amazon’s long-term storage fees
Amazon’s long-term storage fees are a substantial expense that sellers who want to manage their inventory and costs efficiently must account for. These fees apply to items stored in an Amazon fulfillment center for more than 180 days.
The Long-Term Storage Fee (LTSF) starts at a minimum of $0.15 per unit per month. This fee applies to items stored in an Amazon fulfillment center for 181 to 365 days. For items in the fulfillment center for over 365 days, the fee increases to $0.25 per unit. In addition, the cost can vary depending on the size and age of the product, with fees reaching up to $6.90 per cubic foot.
These long-term storage fees are imposed twice yearly, specifically on February 15th and August 15th. During these times, Amazon assesses your inventory, and if any individual SKU has been in the Amazon warehouse for over 181 days, you will be charged a long-term storage fee. If your inventory remains in an Amazon warehouse at the end of the month, Amazon also charges a monthly storage fee.
In addition to these fees, if you decide to remove a product from Amazon’s warehouse, you might need to consider removal fees ranging from $0.50 to $0.60 per standard-size unit.
To avoid or minimize these costs, sellers must effectively manage their inventory and ensure their goods sell within the given timeframe. Keeping a close eye on sales velocity and considering seasonal trends when sending inventory to Amazon is key. If necessary, sellers may want to create promotions or lower prices to speed up sales of slow-moving items.
These fees aim to encourage healthy inventory levels and faster delivery times. However, understanding these fees and timelines is crucial for sellers to operate successfully on Amazon.
The causes of excess inventory
Excess inventory is a common issue many Amazon sellers face, and it can result for several reasons.
One of the primary culprits leading to excess inventory is overestimating demand. Sellers often forecast demand based on historical data or market trends. However, this prediction is not always accurate. For example, a product that sold well last year may not perform as well this year due to changes in consumer preferences, the emergence of new competitors, or market saturation. Overestimating demand can lead to ordering too much stock, which ends up sitting in the warehouse, leading to high storage costs and potential long-term storage fees.
Seasonal fluctuations also play a significant role in inventory accumulation. During certain times of the year, such as holidays or summer months, specific products may see a surge in demand. Sellers might stock up on these items expecting high sales, but if the demand doesn’t meet their expectations, they’re left with unsold goods.
Slow-moving products are yet another cause of excess inventory. Some items may not sell as quickly as expected. This could be due to various reasons, such as pricing, lack of effective marketing, or the product not meeting customer expectations.
Supply chain disruptions can lead to excess inventory as well. If there’s a supply chain delay, sellers may order more products to prevent stockouts. Once the supply chain gets back on track, they can find themselves with more stock than they can sell.
Preventing excess inventory requires careful planning and proactive management. Sellers should regularly review their sales data and adjust their inventory levels accordingly. They should also account for the factors discussed above.
To manage seasonal fluctuations, sellers can use sales data from previous years to better predict demand. Sellers need to prepare for upcoming events or holidays that might affect sales.
For slow-moving products, sellers should analyze the reasons behind the slow sales. Adjusting pricing, improving product listings, or investing in marketing could be beneficial. If a product consistently underperforms, it might be worth considering discontinuing it.
To mitigate the effects of supply chain disruptions, sellers can diversify their supplier base and maintain a safety stock. However, they need to balance this with the risk of ending up with excess inventory.
Regardless of the reasons, managing inventory effectively is a delicate balance. Amazon sellers need to understand the factors that contribute to excess stock and implement strategies to prevent it. With a comprehensive plan, they can reduce storage costs and improve cash flow and profitability.
Purging problem products
Reducing excess inventory is sometimes necessary for Amazon sellers, especially when they are on the verge of incurring long-term storage fees. Sellers can take several proactive steps to reduce their excess stock.
Promotions or discounts are among the most commonly used strategies. Reducing a product’s price makes it more attractive to customers, which can help increase its sales velocity. Sellers could leverage Amazon’s deal options, such as Lightning Deals or Savings & Sales, to promote discounted items and attract more buyers.
Bundling is another effective method that sellers can use. This involves combining slow-moving items with popular ones into a single package. Not only does this provide value to the customers, but it also helps clear out excess inventory. However, it’s vital to ensure that the bundled products complement each other and provide value to the customer.
Advertising can be another powerful tool that sellers may use to reduce excess inventory. By increasing the visibility of their products, sellers can reach out to more potential buyers and increase sales. Amazon offers a variety of advertising solutions, such as Sponsored Products, Sponsored Brands, and Sponsored Display, which sellers can use to promote their items.
Liquidation is an option available to sellers, typically for items that have been in inventory for a long time and are not selling. Sellers can use Amazon’s liquidation program, where Amazon purchases the inventory at a negotiated price. While the returns might be lower than expected, this can be a quick way to clear out large quantities of stock and avoid long-term storage fees.
Strategic inventory redistribution is a unique approach that can help some sellers avoid long-term storage fees. Amazon offers an Inventory Placement Service, which allows sellers to send their inventory to a single receiving center, and then Amazon distributes the inventory across its fulfillment network based on anticipated demand. This can help reduce the likelihood of excess inventory accumulating in a single location.
There’s rarely a simple solution to deal with excess inventory. Instead, it requires a strategic and comprehensive approach. By combining promotions, bundling, advertising, liquidation, and strategic inventory redistribution, sellers can effectively clear their stock and avoid incurring long-term storage fees.
However, it’s equally important for sellers to continually monitor inventory levels and sales data to prevent the accumulation of excess inventory in the first place.
Identify storage challenges early
Recognizing storage challenges helps Amazon sellers effectively manage their inventory and avoid unnecessary costs. One of the best ways to do this is by regularly assessing and identifying excess inventory in their product portfolio.
Sales data analysis is essential to this process. Sellers should closely monitor their sales performance, looking at both the volume and frequency of sales for each product. Products with consistently low or declining sales may contribute to excess inventory fees.
Inventory turnover rates also provide valuable insight. This particular metric represents how many times a seller’s inventory is sold and replaced over a certain period. A low turnover rate could indicate that products sit in the warehouse too long, leading to excess inventory.
Historical performance is another crucial factor to consider. Sellers can identify trends and patterns by comparing current sales data with past performance. For example, if a product has a history of slow sales during certain periods, it might be worth reducing stock levels during these times to avoid excess inventory.
Setting thresholds is another strategy to manage inventory proactively. For instance, sellers can establish a maximum quantity for each product in their inventory. If stock levels reach this threshold, it signals to stop reordering until sales pick up again.
The primary reason to be proactive when monitoring inventory levels is that sellers face financial and operational risks when excess inventory accumulates, and long-term storage fees are incurred. Financially, these fees can significantly eat into profits. But they also tie up capital that could be used elsewhere in the business.
Operationally, excess inventory can lead to overcrowded warehouses, making it harder to manage stock and potentially leading to errors in order fulfillment. Additionally, products that sit in warehouses for extended periods may become outdated or even deteriorate, leading to waste and further financial loss.
Proactive strategies can increase sales velocity
Besides keeping track of the amount of product in the supply chain, sellers can use several proactive strategies to keep products moving.
One of these is strategic remarketing. This involves targeting customers who have previously shown interest in a product, using targeted ads or email campaigns to encourage them to make a purchase. By focusing on customers who are already familiar with the product, sellers can increase the chances of a sale and reduce their stock levels.
Another vital task is optimizing sales. Sellers should adjust prices based on demand, offer limited-time deals, or use upselling and cross-selling techniques to increase the average order value. By maximizing the revenue from each sale, they can move more inventory and reduce the risk of excess stock.
Leveraging online platforms is another effective method. In addition to Amazon, sellers can list their products on other e-commerce platforms to reach a wider audience and increase sales. Each platform has its own audience and selling strategies, so sellers must understand these before listing their products.
While Fulfillment by Amazon (FBA) is often the best approach for sellers, it’s important to remember that long-term storage fees apply to any inventory stored in an Amazon fulfillment center for more than 365 days. These are in addition to the standard Amazon FBA fees that sellers are charged to participate in the service.
However, Amazon does also offer rare exemptions for long-term storage fees. For instance, sellers can store one unit of each ASIN without incurring long-term storage fees. To qualify for this exemption, sellers must maintain only one unit of each ASIN in Amazon’s fulfillment centers. Obviously, this is unlikely to be a long-term approach that can sustain profitable sales, but it is still worth noting as an example of the complicated rules at play.
Let Amify modernize your supply chain
Amazon’s supply chain is a complex and ever-changing system, and staying on top of it can be challenging for businesses. Our modernized supply chain strategies and techniques are designed to streamline your operations, reduce stress, and improve your bottom line.
Amify’s team provides custom end-to-end solutions for all aspects of Amazon fulfillment and logistics. Save time and budget with our hands-on approach, and trust us to deliver exceptional customer service. Schedule a consultation to learn how we can help your company achieve long-term success on Amazon.