On July 13th, Amazon announced that it would be restricting warehouse storage for third-party vendors during the highest volume sales period of the year. Going into Q4, thousands of third-party sellers will have enough room for what Amazon says will be worth three months of stock.
Here’s what you need to know to optimize your smaller storage space during the holiday season.
What is an IPI score?
Amazon determines how much inventory space a seller receives based on their Inventory Performance Index (IPI). You can find your score on the Inventory Dashboard in Seller’s Central. A seller’s IPI score is on a scale from 0 to 1000, with the higher the score the better. In the case of this year’s limited storage, only sellers with an IPI score below 500 will be subjected to the restrictions.
How to improve your IPI score
Amazon refuses to release how they calculate a seller’s IPI, but it has revealed four factors they use when determining your score. These include:
- Selling off extra inventory
- Increasing your sell-through
- Increasing your sales
- Make sure your inventory is sellable
Based on these elements, sellers need to focus on keeping their inventory moving consistently in order to up their score. This can mean stocking up on staple items, finding ways to quickly offload less popular products, and ensuring that your listings are not stranded.
Stranded inventory occurs when you have items in storage that do not have an active listing.
While we don’t know the exact formula for Amazon’s IPI calculation, we can calculate sell-through rates. To find your sell-through rate, you simply need to divide your units shipped over the past 90 days by the units available in the past 90 days. For example:
items shipped / items available
So, for example, if you shipped 80 units of one product and you had 100 of those items in stock, your sell-through rate would be .8 or 80%, which is fairly high. Your goal should be to move inventory as much as possible to increase this rate and possibly increase your score.
However, it can take time to adjust your IPI score and you may be stuck with the restrictions for the entire quarter. If that’s the case, there are some other strategies you can look at.
Decide if you want to shift some items to FBM
You may decide to take some products out of Fulfillment by Amazon (FBA) and go the Fulfilled by Merchant route (FBM). Given Amazon’s fees, this may be beneficial. And since Amazon has waived their removal fee, it is now easier and more affordable to remove items from FBA storage.
If you decide to opt-out of FBA, there are three possible alternatives:
- Stay completely FBM and use your own team and warehouse facilities
- Fulfill your orders through FBM, but apply for Amazon Seller Fulfilled Prime through following Amazon’s warehouse standards
- Use a third-party fulfillment service like FedEx, ShipBob, or Torque.
Keep an eye on storage during sales to replenish in a timely manner
If you’re lucky, your products will be flying off the shelves. But with the inventory limits, you may not be able to hold as much stock as normal. If this is the case, you need to find a way to automate buying or frequently check your inventory levels to restock. Given the longer shipping times, you may decide to order more frequently in order to stay stocked.
Consider special sales for low-performing items
You may have a few items you thought would be big hits but they aren’t selling well. This means they are clogging up your inventory. It may be worth it to cut your losses, offer the lowest discount possible just to move the product. Doing this will make room for items that actually sell well and will increase your IPI score.
This may mean increasing your marketing budget slightly to push items out faster. You can optimize your efforts by making product-specific landing pages, selling to your email list, automating your email sequences, and using customer-facing tools like chatbots.
Go lean for Q4 Success
What does the Amazon Q4 restrictions in storage mean for sellers? You need to go lean to succeed. Amazon sellers that prioritize moving products, whether that means only stocking popular items or providing steep discounts for slow-moving items, will find the limitations less challenging.