It’s official – Amazon Prime Day 2021 is scheduled to kick off at 3 a.m. ET on June 21. Recently, Channel Key discussed in detail what sellers can expect during this year’s event, based on several unique circumstances that are likely to influence consumer behavior. Another key factor, however, may have an even greater impact on your brand’s sales performance.
You may remember last year when Amazon saw a sudden spike in demand due to lockdowns and store closures. In response, they adjusted the Inventory Performance Index (IPI) threshold. As you know, every FBA seller on Amazon has an IPI rating of 0 to 1000. Amazon calculates your score based on how well you maintain inventory levels and drive sales. Essentially, Amazon wants your items in their warehouses to sell quickly. To incentivize businesses to better manage their inventory, Amazon penalizes those with low IPI ratings with storage restrictions and higher fees. Last year, Amazon raised the IPI threshold from 400 to 500, which caused a brief panic among many sellers. Later in the year, they dropped it back to 450. A similar situation is taking place now. In anticipation of another record-setting Prime Day, Amazon announced the IPI threshold for storage limits will change to 500 as of July 1, 2021.
Even more important is a new change to FBA restock limits. Announced in late April, FBA products are no longer subject to ASIN-level quantity limits. Instead, restock limits are set at the storage-type level. For many sellers, this means a significant reduction in how much inventory can be shipped to Amazon fulfillment centers. With the most anticipated e-commerce event of the year only a couple of weeks away, this setback presents a significant challenge as brands may struggle to meet their Prime Day sales forecasts due to FBA storage limits.
It’s no surprise that many FBA sellers have voiced concern over the change, which Amazon has repeated is designed to provide more shipment flexibility. In response to an Amazon Seller Forum post titled “Open letter to Amazon regarding Restock policy transparency,” an Amazon spokesperson released the following statement:
“We have confirmed that there is no technical error impacting restock limits. We continually assess and update restock limits based on many factors, including past and future sales, current inventory levels, new selection, and the capacity available in our fulfillment centers. If you are seeing a change in your restock limit, it is likely driven by your recent sales and future forecast. On average, sellers continue to hold approximately 3 months’ worth of inventory within our network.”
“We hear and understand your frustration. Restock limits are necessary to ensure all sellers using FBA have space for their products, and that we can efficiently receive your products. We will notify you if we make any substantial changes to restock limits.”
The Pros and Cons of 3rd Party Logistics Providers
While there is no current ideal solution to the FBA restock challenge, one option is to consider partnering with a 3rd party logistics (3PL) provider. For a quick overview, 3PL providers offer logistics services such as transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. Keep in mind, there are many types of 3PL providers. Some provide only basic warehousing and distribution, others offer additional value-added services like branded packaging, while turnkey providers essentially serve as the logistics arm of your company.
There is an important caveat to consider with this option. As most sellers are aware, Prime Day sales are exclusive to Prime members and include only Prime-eligible products. This means sellers need the Prime badge to take part in Prime Day. Unfortunately, FBM sellers are not eligible for this badge, which means even the most efficient 3PL strategy will not matter – at least for this sale. The only exception is if your brand is enrolled in Seller Fulfilled Prime (SFP), the program that allows brands to deliver directly to domestic Prime customers from their own warehouses. The bad news is that Seller Fulfilled Prime is not currently accepting new registrations (even if you get enrolled, the cost to execute SFP is relatively high because you need to offer 2-day shipping to 100% of the continental U.S. and 1-Day shipping to 20% of Detail Page Views).
Still, it might be worthwhile for brands to explore a 3PL backup strategy for future events like Cyber Week. Currently, there is no indication if or when Amazon will adjust the latest FBA restock limits.
Channel Key Takeaway
Regardless of how you look at it, Amazon’s new FBA restock limits present a challenge for brands during Prime Day 2021. With the event right around the corner, there’s simply not much that sellers can do to ensure enough inventory is in fulfillment centers. Channel Key is currently reviewing what products our clients have in FBA and prioritizing higher profit SKUs and top sellers. This requires a removal order, which will free up the space for those priority products. Additionally, if your brand has items in FBA with a low sell-through rate, Channel Key recommends offering heavy discounts on these products. This will make room for your top-sellers and improve your IPI score, which may lead to more inventory space just in time for holiday shopping. As for now, data shows that consumer spending is on the rise. This is good news for all Amazon sellers – not just during Prime Day, but for the rest of 2021.
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Channel Key is a full-service channel management marketplace consulting agency that has helped generate nearly $500M in Amazon sales for brands around the world. Complete 360-degree services include marketplace strategies, content development, marketing and advertising, catalog management, marketplace and fulfillment setup, ongoing consulting, and much more. To learn about how Channel Key can help increase sales for your business on Amazon, contact us today for a free consultation.