The economics of running an Amazon retail business are tough. You invest large amounts of capital in inventory, but unfortunately, not all of it flies off your shelves. We counsel clients on how to keep bestsellers in stock and shed stale inventory, but the latter tends to make them nervous. “Won’t I significantly cut my profits by lowering the price of stale products?” is a common concern we hear.
Let’s break this down. Shedding stale inventory is crucial for 2 reasons (we took a page from Tyler Durden’s playbook):
1) The first rule of an Amazon retail business is that you must have adequate cashflow.
2) The second rule of an Amazon retail business is that you must have adequate cashflow.
The longer you hold onto inventory that won’t sell, the more it will weigh down your overall profitability. That’s money that can’t be put towards investing in better products, and unfortunately, you can’t pay suppliers or employees with stale products.
By reducing prices, you may end up breaking even or taking a loss, but we like to remind clients that Amazon success is about the big picture. Similar to a successful stock trader or poker player, “cutting your losses” is something you need to prepare for because it’s part of balancing an overall portfolio of products.
The goal is to invest in the correct, high demand inventory so exiting out of stale investments is a necessary part of the overall trading model. Even if you successfully identify your best sellers and keep them in stock, you’ll see a major hit to your overall profit if you ignore your stale inventory, especially if that inventory is sitting in FBA.
Now that we have you looking at the big picture, how do you identify which SKUs are stale in the first place?
Segment Your Inventory Strategy
Not all stale inventory is created equal. We recommend breaking up your inventory by time periods: 0-90 days (fresh inventory), 91-180 days, 181-270, 271-365, and 365+. Additionally, your strategy for items with MAP pricing would be different than ones without.
For items that are heavily aged, take a more aggressive tack – for example, selling at a loss or writing it off. For items that are slow moving, but not a lost cause, try lowering your price floor for a smaller profit margin or sell at breakeven.
Teikametrics’ FBA Insite platform automates this process for you. By knowing what percentage of your inventory is aged, along with filters for age intervals, supplier, unit count, and SKU count, you can clearly see what needs the most TLC.
With the hardest part out of the way, here are some tips on how to liquidate stale inventory.
How to Shed Stale Inventory
- Reduce the price
- Sell as a set to move more with each sale. (Only possible with FBM merchandise.)
- Return it. Ask your supplier if you can return stale inventory. Make sure to phrase the request in a way that emphasizes the benefits from both sides. Your success as a seller influences your purchasing ability, and a profitable long term relationship with your vendors is one where both parties come out ahead. If in FBA, will incur return fees.
- Write it off
- Donate it to charity
- Give away products that aren’t selling to customers to generate good will
- See if it can sell on other marketplaces, such as Ebay
- Resell in a “lot” to another retailer. Will incur return fees, if in FBA.
Interested in learning more about proper inventory management? This is an excerpt from our eBook, Mastering Inventory Management for Amazon. Download the full eBook for a comparison on effective vs. ineffective retailers, and learn about the two D’s of Amazon: Discipline and Data.