SHOULD I LIQUIDATE, REMOVE, OR DISPOSE OF MY EXCESS INVENTORY?
You love your amazon product and have no idea why it’s not selling. You invested your savings, marketed it to the best of your knowledge (but didn’t use Revstep to manage your AMZ account), and have hundreds or even thousands of units racking up expensive long-term storage fees. What should you do?
The last thing we want to do as business owners after sacrificing so much to present our product to customers on Amazon is to destroy our inventory. But as you might know, Amazon’s long-term storage fees (LTSFs) can get mighty expensive. Sometimes it’s better to stop losing money and destroy your inventory so you can live to see another Amazon day. LTSFs are like termites that eat the money tree you build your Amazon tree-house in. It’s dangerous to keep that tree; sometimes you need to clear the land and replant a new kind of money tree. What does this cost?
If you haven’t seen this chart before, it’s good to know what you’ll be paying Amazon just to throw away your over-stocked products. In a previous Amazon business we had over 2000 standard sized units of an abysmal boys legging product. They didn’t sell despite our best efforts, so we considered disposing of them. The disposal fee would have been 2000 * .30 = $600. It’s like a kick in the gut on top of the production and shipping cost to get them to Amazon! Keep this $600 fee in mind as we talk about recalling these same units.
Send it back and re-list it later! This is probably the first thought you have when Amazon sell-through slows and your Inventory Performance Index (IPI score) is below the acceptable threshold. Amazon has steadily raised the sell-through requirement (IPI), which if you don’t meet, will result in less space available for inventory storage. If this score is mismanaged, inventory storage costs can become a financial albatross around your company’s neck.
In the case of my 2000 units, if recalled, they would come back to the office in 30-60 days in small shipments of 2-20 units per package. The returns are not organized by size or color and Amazon often shorts the return orders. You must be very detailed about receiving and organizing each package. This is not a problem if your quantity is small or each unit represents an expensive item. Our 2000 units were cheap and had many sizes and colors which represents a lot of time waiting for the return, organizing, and knowing when and how much to send back for another try! If it didn’t work the first time, you must think about why it will be different the second time in order for the removal order to make sense. The cost for removal is the same cost as disposal.
NEW OPTIONS FOR LIQUIDATION
If disposal feels like a waste and removal feels like a hassle, then you should consider Amazon liquidation. Amazon has negotiated with reliable liquidators to remove the hassle of reselling your overstocked units or items that can’t be sold as new. They will take care of liquidating your stock with a single click of a button. According to Seller Central, “By liquidating inventory, you recover a portion of your inventory cost (net recovery value) while avoiding the cost of monthly and long-term storage fees. The net recovery value should appear in your account within 60 days, and no later than 90 days, after your liquidation order is submitted.”
Instead of paying LSTFs and $600 to remove or dispose of my 2000 units, we could actually get paid something instead. I’m liking this new feature in seller central. I have seen mountains of clothing removal orders that never make it back into Amazon. On the other hand, I have seen 40 pallets of removal orders of a seasonal summer fan (one sku only) that was removed during winter and sent back in during the spring, which ended up making good profit despite the removal fees. There is not a single right answer for Amazon sellers struggling with excess or returned inventory. Let’s get into the cost of liquidation!
Amazon calculates a net recovery value for your products based on your average selling price (ASP) when considering the following factors:
- Your sales history
- The average FBA selling price on Amazon
- The sales history of the specific ASIN
“Based on contracted rates, wholesale liquidators will purchase this inventory for a gross recovery value, which is about 5% to 10% of its ASP. Amazon will then deduct fees and pay you the net recovery value. Amazon imposes minimum ASP restrictions for product eligibility so that FBA Liquidations remains a positive transaction for sellers net of fees (see Product eligibility below).” – Amazon’s Seller Central website
Liquidators will give you a contracted purchase price and Amazon will deduct two separate fees from each item you liquidate.
- Referral fee is between 15-17%. Yes, you still have to pay the referral fee!
- Processing fee based on size and weight in the chart below.
Liquidation hurts so good. It is certainly better than getting poked in the eye with a sharp stick! Here is an example Amazon gives:
In my boy’s legging case, we could have discounted and have sold them at an average of $14. Mirroring this chart, we would get $14*7.5% = $1.05 – 17% = $87 – $.25 = Net Recovery Value of $.62. While this sounds like a lousy return, let’s compare the cost associated with each option outlined here:
- Disposal: 2000*$.30 = -$600
- Removal: 2000*$.30= -$600 (plus re-listing and shipping expense)
- Liquidation: 2000*$.62= +$1,240
We hope you never find yourself with low IPI scores and excess inventory. If you do, you need to think strategically about the future of the items in question. Do you want to keep promoting these items in the future? Are they seasonal and does it make sense to remove and send in during different seasons? Do you have the warehousing and organizational capacity to receive the units back and keep Amazon honest when they short you? Can you improve your marketing strategy if you decide to recall the items back to your office?
Good luck selling out there and if you’re overwhelmed, please give us a call at Revstep so we can help you achieve your Amazon potential in North America and in Europe!