Amazon Excess Inventory: The Risks and How to Reduce It

Excess inventory is a common problem for any retail business, but when it comes to Amazon sellers, the challenges are even more complex and expensive. Amazon’s storage fees, strict performance metrics, and the fast-paced nature of the marketplace make excess inventory particularly costly. The costs of overstocked products on Amazon extend well beyond storage and opportunity costs, they can also harm your inventory performance score, limit your ability to restock fast-selling items, and lead to potential long-term financial losses on the platform. This article will explore why excess inventory on Amazon is especially detrimental and offer strategies to reduce it effectively.

Key Differences in Managing Excess Inventory: Amazon vs. Traditional Retail

While the concept of excess inventory is similar for Amazon and regular retail businesses, some key differences exist in how excess inventory is defined, managed, and impacted in the Amazon ecosystem. This creates a much higher cost of slow-moving inventory compared to products not dependent on the platform and leads to a whole new set of challenges:

Definition:

• Amazon excess inventory: Amazon specifically defines excess inventory as units that are more than 90 days old or have more than 90 days’ worth of supply based on current sales velocity.
• Regular excess inventory: Usually refers to any inventory that exceeds anticipated demand over a certain period, without a specific time frame in mind.

Storage costs

• Amazon: Sellers incur specific FBA (Fulfillment by Amazon) storage fees, which increase for long-term storage (over 365 days).
• Regular: Storage costs vary depending on the business’s warehousing situation and are often consistent.

Performance metrics

• Amazon: Excess inventory directly impacts the Inventory Performance Index (IPI) score, which can affect a seller’s ability to send new inventory to fulfillment centers.
• Regular: While excess inventory affects overall business performance, there’s typically no standardized scoring system across all retailers or industries.

Liquidation Options

• Amazon: Offers specific programs like FBA Liquidations and FBA Grade and Resell to deal with excess inventory.
• Regular: Businesses have more flexibility in choosing liquidation methods, including selling to inventory liquidators, discounting in their own stores, or donating.

Visibility and Calculation

• Amazon: Provides tools and reports specifically for identifying and managing excess inventory, including the Manage Excess Inventory page.
• Regular: Businesses typically rely on their own inventory management systems and processes to identify excess stock.

Impact on Search Rankings

• Amazon: Excess inventory can indirectly affect product rankings in Amazon’s search results due to lower sales velocity.
• Regular: Excess inventory has zero impact on product visibility to customers in the same way.

Seasonality Considerations

• Amazon: The platform’s algorithms consider seasonal trends when calculating excess inventory.
• Regular: Businesses must account for seasonality in their own inventory planning without standardized algorithmic changes.

While the basic concept of excess inventory is similar, Amazon’s specific policies, tools, and ecosystem create a more structured and potentially more consequential environment for managing excess inventory compared to regular retail businesses.

How Amazon Calculates Estimated Excess Inventory

Amazon calculates estimated excess inventory by looking at several factors including sales speed, demand forecasts, inventory age, and stock levels. By combining these metrics, Amazon identifies overstocked items that are likely to incur higher storage costs without generating sufficient sales.

1. Sales Rate: Amazon checks how fast your merchandise is currently selling.
2. Demand Forecast: They use predictive tools to estimate future demand for your products.
3. Inventory Age: Items stored for more than 90 days are considered excess.
4. Stock Levels: If you have more than 90 days’ worth of inventory based on your sales rate, it’s flagged as excess.
5. Inventory Turnover (ITR): A low ITR shows that inventory is not being sold efficiently, indicating excess stock.

Having explored the unique challenges and broad implications of managing excess inventory as an Amazon seller, let’s now focus on the tools and strategies available to help sell that surplus stock. We’ll delve into effective options for clearing excess inventory and maximizing its value. This discussion will equip you with practical solutions to address and resolve inventory issues.

How to sell Amazon Excess Inventory?

Amazon sellers have several options for selling excess inventory, some more unique to sell on the platform:

Offer Discounts

This can be one of the easiest tools available.  Sellers can reduce prices on overstocked items to increase sales velocity. Amazon’s FBA Liquidations Program: This program allows FBA sellers to recover some value from their excess inventory by selling it to liquidators at a discounted price.

Amazon Outlet

Sellers can list discounted products in this section of Amazon’s website to get rid of excess inventory quickly.

Lightning Deals

These are time-limited promotions that offer significant discounts on specific products. However, sellers must meet certain requirements to participate in these deals.

Sell to liquidators

Companies like B-Stock and Overstock Trader specialize in helping businesses mitigate excess inventory.

FBA Grade and Resell program

This allows sellers to sell FBA returns, overstocked inventory, and customer-returned items at a discounted price to Amazon.

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Conclusion

When addressing excess inventory, it’s important to evaluate the costs and benefits of each available method available to you. This includes accounting for any program fees and understanding how these methods might impact your brand and overall business strategy. Effective inventory management is key; regular monitoring of inventory levels can help identify potential overstock situations before they become problematic. By staying proactive and informed, you can avoid the pitfalls of excess inventory and maintain a healthy balance between stock levels and sales.

Many Amazon sellers are also seeking external solutions to manage their excess inventory more efficiently. Partnering with companies like Overstock Trader can be particularly beneficial. These services specialize in helping sellers offload surplus inventory from the platform, thereby minimizing additional storage costs and avoiding penalties for overstocked items. By leveraging such partnerships, sellers can mitigate the financial impact of excess inventory and streamline their inventory management processes.

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