For all the scrutiny Amazon has faced over the past few years, it shouldn't be surprising that their excess inventory liquidation policies might draw public criticism.
Nor is it necessarily misplaced. The process of excess inventory liquidation is frequently as wasteful as it is environmentally hazardous.
But Amazon's hardly alone in ineffective excess inventory liquidation policies. It's an unfortunate reality of being a retailer. Some products simply don't sell. But online retailers are more acutely aware of the hazards of retaining excess inventory than their brick and mortar counterparts.
Particularly if they're one of the largest retailers—both physically and digitally—in the world.
Why Liquidating Inventory Matters
It might make sense for retailers to sell off excess inventory at a fraction of the cost. Estimating net recovery value can be critical —particularly for new sellers who may not be certain of the potential of their product line.
Your net recovery value is based on the sale of your total eligible inventory after the cost of liquidation. But it's a time consuming process, particularly for shops who rely on afrequent rotation of merchandise to ensure fresh stock while still remaining competitive.
More than 30 percent of all online orders will wind up being returned. And it's been estimated that over 25 percent of those returns are eventually destroyed. A recent investigation from British network ITV News revealed that Amazon had marked over 124,000 unsold items to be destroyed in just one of their Scottish warehouses over a period of just seven days, prompting an outcry from lawmakers and environmental campaigners alike.
But for all the criticism, Amazon's commitment to sustainability isn't confined to highly publicized campaigns. It can be found at all aspects of the Amazon chain—including inventory management.
If you're an FBA seller, you can encourage that same sustainability and cut down on your own costs of estimating net recovery value of your excess inventory by taking advantage of a new program: the Amazon Liquidation Program.
What is Amazon's FBA Liquidations Program?
Amazon's FBA liquidations program is designed to help sellers reduce excess inventory which would otherwise be earmarked to be destroyed, in the process reducing their monthly storage fees.
Inventory storage fees are based on the average number of units stored at an FBA warehouse per month. And for a successful product line, it's a minor inconvenience.
But for excess inventory which doesn't sell, Amazon can charge a daily overage fee of $10 per cubic feet as well as additional long term storage fees for inventory which has been stagnant for 365 days. And those numbers add up—especially for seasonal product lines.
FBA Inventory Cost and Your IPI
FBA liquidations can indeed be costly. But the real cost for sellers isn't in monthly storage fees. It's in the impact on their Inventory Performance Index (IPI.)
IPI is a metric used to gauge FBA seller performance based on both sell-through ability, availability of stock and general sales over any given 90 day period.
Typically, a score higher than 450 is considered a benchmark; and many FBA sellers will have no difficulty reaching that threshold. But a consistently low score can affect your available storage space and ultimately, your eligibility to sell through Amazon FBA.
Despite the skyrocketing increase in Amazon's warehouses over the past two years, there's only so much room for unsold merchandise. And with almost 2,000 new sellers joining Amazon each day, the fight for physical space is a substantial one.
The Value of Amazon's FBA Liquidations Program
The FBA liquidations program allows sellers to get rid of unsold merchandise by liquidating their inventory through a partnered wholesale liquidation company. Amazon sellers can ultimately recover a portion of the net value from excess stock based on sales history and the average selling price of the listed item
While that recovered portion is reportedly minimal at approximately 5 to 10 percent of the average selling price, the cost of liquidating inventory can be a significant one—particularly for new sellers who are just finding out about FBA liquidations fees.
Amazon charges two separate liquidation fees for Amazon FBA inventory. The first is a processing fee of anywhere from $0.25 for each item under 0.5 lbs all the way up to $1.90 for each oversized and special handling item (including apparel, jewelry, footwear and watches) over 10 lbs. That doesn't include the 15 percent liquidations referral fee Amazon also applies to your order.
But with the Amazon FBA liquidations program, both fees are deducted from the final net value cost, allowing for you to retain at least some of your initial investment in FBA.
It's not an ideal solution for many Amazon sellers. But there's no such thing as guaranteed success with Amazon. And if you need to recover value while not eating entirely away at your profit margins, you may find it to be a worthwhile solution.
How Do I Apply for the Amazon FBA Liquidations Program?
As of this writing, the liquidations program is only available for FBA sellers located in the US, France, Germany, Italy and Spain; although Amazon anticipates the program will be available in the UK by the end of this year. Both recalled inventory and hazardous materials are not eligible for liquidation, as are defective, expired and damaged items.
In order to create an Amazon FBA liquidation order:
Open an inventory planning page in Seller Central.
Select the item to be removed manually from the Action tab on the selected item's drop down menu and choose Create removal order. Alternatively, click on Begin removal process if you're selecting an item from your Recommended Removal report in your Inventory Performance dashboard. If you're removing bulk inventory, a template from the Upload removal order documents page can be requested.
Click on Liquidations.
Type the quantity of the item to be liquidated, review and confirm your order. Once a liquidation order is confirmed, it cannot be canceled.
Excess Inventory: The Reality of Being an FBA Seller
There's no such thing as a fail-proof sales predictability—either on Amazon or in eCommerce as a whole. Today's top seller can easily become tomorrow's liability. And moving excess inventory can be trickier than you might think.
FBA liquidations aren't just an environmentally safe way of removing excess merchandise. It's a way for you to cut your losses on overstock and unsold items. It's a way for you to move forward with your Amazon business, not backwards
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