As a high-growth seller or brand, you might think success in Q4 is all about your marketing strategy, ad budget, or exclusive holiday product drops. But if that’s the case, you’d be wrong.
If recent e-commerce history has taught us anything, it’s that the number one thing that will separate the winning brands from the rest this Q4 is actually a lot less sexy — it’s your inventory prep.
As we all know, the last three months of the year hold the most excitement for e-commerce marketplace sellers. And despite recent Amazon results proving to be a little less robust than predicted during the height of the pandemic, Q4 is still an undeniable force for growth.
In fact, according to its Q4 2021 earnings report, more than 130,000 Amazon sellers surpassed $100,000 in sales between Black Friday and Christmas Day alone.
But just because sales have increased rapidly year after year, doesn’t mean success for sellers is guaranteed. After years of Inventory Performance Index (IPI) changes, neverending supply chain disruptions, and climbing storage fees, there’s no time like the present to reevaluate your options for storing your inventory to stay in stock this holiday season.
The scoop on storing your Q4 inventory:
- Managing Q4 inventory has never been tougher (or more important)
- Overcoming IPI whiplash and rising storage fees
- Better ways to plan and store your Q4 inventory
Want a running start with your Q4 sales? Download our free ebook on Why Inventory Planning for Q4 Starts Now for six simple steps to help crush your Q4 inventory prep!
Managing Q4 inventory has never been tougher (or more important)
If there’s one time of year you definitely do not want to go out of stock on Amazon, it’s during the long-awaited peak year-end sales season.
Now that we are officially in the second quarter of 2022, it’s already past time to start planning your fourth quarter inventory. For many sellers, that can be a hard pill to swallow. But don’t worry.
If you haven’t finalized (or even started 😬) your Q4 inventory strategy yet, there’s still time to start executing a profitable plan. Problem is, sellers are facing never-before-seen challenges when it comes to managing inventory and fulfillment — especially during peak seasons.
With everything from volatile FBA restrictions to the rising cost of goods and excruciating port delays on their plates, the struggle for sellers is real.
Here’s just a handful of the challenges experienced over the past year (or less):
- Globally, there were 11,642 supply chain disruptions in 2021.
- Cost rises are tipped to increase the price of goods by 1.5% in 2023.
- Waiting times at Western US coasts have reached 25 days.
Every day, sellers wake up to a seemingly endless list of inventory and supply chain headaches.
And yet, recent years have largely been good to online retailers. The boom in online shopping brought on by the pandemic helped usher in compound increases in sales for many stores — and even completely new brands found success almost overnight.
Now is simultaneously a time of great momentum and great uncertainty. Which also means it’s the perfect time to take action and develop a plan for a killer Q4.
If you’re ready for your best Q4 yet, don’t miss these 5 Steps to Prep Your Store for the End-of-Year Sales Rush!
Overcoming IPI whiplash and rising storage fees
If you’re here, you’re already painfully aware that the key element used by Amazon to calculate a Fulfilled by Amazon (FBA) seller’s inventory restrictions is the Inventory Performance Index, or IPI.
While Amazon remains tight-lipped about what exactly goes into the IPI score, common knowledge is that it looks at a range of variables, including:
- Excess inventory
- Sell-through
- Stranded inventory
- In-stock inventory
Amazon’s seller rules state that vendors with an IPI score of less than 400 will be subject to storage space constraints as of January 1, 2022.
But for years, sellers have been consistently finding themselves stuck with rigid restock limits preventing them from shipping products in. And the challenges with inventory limits don’t stop there.
Last year alone, Amazon FBA sellers were hit with:
- A 20%-65% drop in inventory storage.
- A last-minute shift in the Christmas receiving deadline from December 11th to the 2nd.
- A 4.4% increase in storage costs.
It’s been a lot to keep up with. In most cases, sellers are forced to either overstock and risk losing margin to additional storage costs or understock and risk losing sales due to stockouts.
And with Amazon’s fulfillment costs projected to continue growing year on year, sellers simply can’t rely on FBA the way they used to. Already this year, Amazon has announced it will be charging merchants with an additional 5% fuel and inflation fee starting April 28.
So, what’s a seller to do? Well, Santa has his own checklist for Q4 prep, but ours is a little different. Let’s get into some of the latest tools and tactics to help guide you through a successful holiday season.
Sometimes a little looking back can be a great way to prep for what’s next. For even the biggest success in Q4, check out our recent article on What We Learned this E-commerce Holiday Season: And How to Adjust for 2022.
Better ways to plan and store your Q4 inventory
Fact of the matter is, Amazon is just as overwhelmed as you are. Even if they wanted to, they simply don’t have the workforce, space, or supply chain to offer more leeway to sellers.
So, yes. Battling inventory limits is a pain and finding affordable ways to store your Q4 inventory is just as tough — but you don’t have to take these challenges lying down.
Sellers of all shapes and sizes are finding ways to shorten long lead times, bypass inventory restrictions, and position their brands for a highly profitable Q4. Here are some of the latest tips and tactics.
👍 Nice List: The top 5 dos for Q4 inventory
- Leverage local warehouses. Finding a reliable third-party storage facility to help slowly make the move from FBA to Fulfilled by Merchant (FBM) or to simply secure reliable pre-fulfillment services before sending products to Amazon, can be a great way to stay in stock while reducing storage fees. If possible, start by negotiating storage space with your suppliers until you’re able to vet and secure a trusted partner you can grow with.
- Experiment with shipment sizes. Costs for fulfillment and storage are two forms of FBA fees that vary by size and weight. And sure, your product measurements are already stored in Amazon’s system, but that doesn’t necessarily mean they’re set (or even accurate). Make sure Amazon isn’t estimating your merchandise to be larger than it is. Then, try running scenarios using different shipment sizes to see how the marginal cost evolves with each added pallet.
- Leverage Q4 product bundles. Selling your items in bundles is another great way to lower your shipping and storage fees when you enlist the help of a 3PL. (Note: Amazon treats each bundled item as its own ASIN, so you likely won’t be able to capture the fee-saving power when you bundle virtually or via MCF.)
- Adjust your ad velocity and pricing. If you think you may be at risk of going out of stock this Q4, it can help to monitor patterns in the cost of various products by using sites like CamelCamelCamel to help keep prices competitive when you need to sell more, and slowly increase them as your quantities decrease. Similarly, keeping a close eye on your advertising and marketing velocity can help you stay free from Q4 stockouts.
- Keep improving your IPI score. We get it. Working on your IPI score feels like an effort in futility. But once we’re past the Q4 rush, FBA may stabilize and become a more reliable option for your store (even, if only slightly). Regardless of any future changes that may come, it’s important to keep your finger on the pulse with the IPI.
👎 Naughty List: The top 5 don’ts for Q4 inventory
- Don’t rely solely on past sales data. The problem with using past sales data to predict future inventory is that it typically includes the very stockouts you don’t want to replicate. In inventory optimization circles, this is a phenomenon referred to as “false zeroes”. To avoid repeating the same mistake, replace those stockouts with the number of sales you likely would have made, if you’d managed to stay in stock.
- Don’t store inventory in Amazon fulfillment centers for more than 90 days. If possible, aim for smaller, more frequent shipments to Amazon to avoid long-term storage fees or enlist the help of a 3PL.
- Don’t neglect your Buy Box positions. If you’ve been losing the Amazon Buy Box for quite some time now, focus on resolving any issues well ahead of Q4. Keeping a steady stream of inventory is crucial to maintaining your Amazon rankings, so any efforts to improve inventory management today are likely to pay off tenfold during the holiday season.
- Don’t put all your eggs in the FBA basket. As brands head into peak holiday seasons, Amazon has been known to reduce the inventory levels allowed by their fulfillment centers by as much as 40%. To avoid running out of inventory in Q4, many sellers are using FBM either in combination with FBA or alone. If you’ve been on the fence, now might be the time to make a change.
- Don’t forget to double down on what’s already working. If you’ve established small wins with inventory in the past, now is not the time to discount those efforts. Experimentation is the name of the game when it comes to maintaining a cost-effective storage strategy for your Q4 inventory, so don’t be afraid to think outside the FBA box and do more of what’s already working.
Stay stocked up for a monster Q4
Clearly, there’s a lot to think about when it comes to creating a successful strategy for managing your Q4 inventory. The good news is, if you’re here, you’re already taking steps to overcome the challenges and position your store for a killer holiday season.
When you’re ready to elevate your inventory strategy, SellersFi can help.
Whether it’s securing the inventory you need (long before you need it) or investing in a new product or marketing idea, we are continually inspired by our e-commerce clients who go out into the world and make their dreams happen.
Find out more about how we help sellers make the most of Q4 or check out our free demo to learn about our transparent e-commerce funding options designed to help you scale your store.
