It’s September 1st and Q4 2020 is fast approaching. But the holidays and big-sale days like Prime Day are nothing like every year. Because of the pandemic, changed consumer behavior, surged demand and fulfillment disruptions, Amazon has skipped the traditional July-Prime Day and postponed it until October, which means it will be colliding with Black Friday, Cyber Monday and the Christmas rush.
As a common-seller-behavior, you might be thinking of stocking up on the inventory to prep for the unprecedented increase in demand, but have you given a thought about the inventory that has been sitting in the FBA warehouse for quite some time? During the worst months of COVID-19, Amazon literally banned the shipping and fulfillment of non-essential items as it struggled to deliver the high demand for consumer goods. For two months straight, most of the Amazon sellers were having a hard time moving their inventory out of the warehouse. Although Amazon has waived off the April 15th long term storage fees for inventory stored in the US and Europe, it wasn’t enough to offset the loss in sales because of the sudden policy changes. The pandemic had changed every Amazon seller’s lives practically overnight, but everything couldn’t be normal that instantly. The aftereffects were there and are still there; certain categories have still not gained momentum in sales, which is why you should be concerned with your long term storage this year more than ever. Otherwise, you would end up paying 4X what you usually do for inventory storage and that’s the last thing you want right now.
Long term storage fees: The what, when & how
What are long term storage fees?
Inventory that have been sitting unsold on the FBA shelves for more than 356 days will be charged a monthly storage fee called Long Term Storage Fees (LTSF) of $6.90 per cubic foot or $0.15 per unit, whichever is greater. On the 15th of every month, Amazon conducts an inventory cleanup and sends a courtesy letter informing the sellers about the units that are going to fall under the long term storage fees category.
How is long term fees calculated?
Amazon uses the First In First Out method across the whole Fulfillment network. For example, if you send 10 units of, let’s say a dress in February 2020, and you sell 7 of them within 4 months. Seeing the sales flow, you decide to send in 5 more in June 2020, so the total count is 7. However, on the 15th of February 2021, you will pay for 3 remaining units initially sent to the FBA centers in February 2020. The fees for the 5 units you sent in June 2019 won’t kick in until June 15th, 2020.
Why does Amazon charge long term storage fees?
Although Amazon is a giant and their FBA centers have a million-acres of storage space, that’s only so much seeing the increasing number of sellers. And if every seller just casually leaves their slow-moving inventory in the warehouses, Amazon will soon run out of valuable space and won’t have storage left for the deserving, high selling products. What’s more damning is that, despite the stringent FBA regulations and fees, Amazon never has “enough” space. Therefore, long term storage fees and other restrictions are placed upon sellers to ensure they don’t abuse Amazon’s warehouses and storage space.
Ah…the good ol’ days
There was a time when long term storage fees were incurred just twice a year on August 15th and February 15th, but in 2018, Amazon changed long term storage fees policy, saying that “Items that have been in a fulfillment center for more than 365 days will be subject to a minimum fee of $0.50 per unit per month.”
Millions of new sellers are joining every year on Amazon and FBA is their go-to for storage and fulfillment. Amazon can’t afford slow/not moving inventory and this is the reason why it smooshed sellers with monthly storage fees just so that no one takes their warehouses for granted. It won’t be right to hate Amazon for charging LTSF because it’s their business. But at the same time, it is necessary that you don’t waste hard-earned dollars on something dumb like LTSF. The strategies mentioned below can help you prevent LTSF so you can invest your money in bringing your product up and not on paying some stupid fees.
Actionable strategies to avoid LTSF in Q4 2020
The strategies and tips mentioned below are essentially made to make sure you don’t spend anything but less than you do in long term storage fees. In short, it’s all about choosing the lesser evil out of the two.
#1: Give your shoppers a price they can’t refuse
Sometimes high-end products also end up with long term storage fees, so instead of paying the monthly fees to Amazon, it is better you try to sell them off by offering great deals, discounts, or the best: reducing the price. Price reduction always works. There is a huge chunk of buyers who filter the search results based on price; they see your listing and get attracted to your great price and immediately buy your product. Not to forget, price is one of the major deciding factors for winning the Buy Box. You’ve got to sit and calculate the potential amount of LTSF fees you will have to pay versus the loss you will have to face with a price reduction. Please note that PPC and promotional offers will work only if your listing is retail ready, meaning it is optimized by experienced Amazon listing optimization services.
Fixing price is the go-to when it comes to avoiding long term storage fees, but if you are not in a position to do that, here are a few more ways.
#2: Get your product in front of more eyeballs
The SKUs are going to be charged anyway, so it’s worth spending some money on them and increasing their visibility. Use Amazon Sponsored Ads to improve visibility and increase your product’s exposure. If you are already using PPC and are not seeing any concrete results, try using different types of promotions such as lightning deals and coupons. These promotions can help your product get featured on the Today’s Deal page and this has been one of the most visited and popular pages on the Amazon website. The discounts will also help increase conversion once the customer arrives at the product detail page. It would be best to set up dedicated campaigns for these SKU and devise an aggressive PPC strategy with your Amazon Marketing Consultants.
Pro tip: On September 7th, it’s Labor Day and if you have any inventory sitting on the Amazon shelves for long, introduce a Labor Day discount and get rid of the inventory at the earliest.
#3: Removal & disposal – the no/low-fuss ways to deal with LTSF
To get rid of the inventory, you can either create a removal order, dispose of, or liquidate the inventory. Ironically, the price of removing, liquidating, or disposing of the item is quite similar to long term storage fees and this is for sure, not a coincidence. Nevertheless, let us take a look at each of them in detail:
- Disposing of inventory: You can pay Amazon and they’ll simply get rid of the inventory. This should be your last resort. Before disposing of/destroying the inventory, you should make every possible effort to at least break-even. This option might sound logical if you haven’t spent on the inventory much and the product is utterly unsellable in the retail or wholesale market.
- Removing inventory: It’s the most expensive option out of the three. Amazon sends it back to you and then you can sell it off at wholesale prices to another seller or an eBay seller.
- Liquidating inventory: Amazon will put up your inventory for auction and whole sellers will buy them. This option is also not ideal because the amount you get is not worth it, plus Amazon charges a hefty fee on that, so you end up with nothing.
Don’t try to boomerang Amazon. You might be thinking, instead of paying the fees, I’ll just make Amazon send back the inventory and then I’ll just reship them again. Problem solved! It seems like a great idea only if you were selling a few years ago. The retail giant has already dealt with these kinds of smart sellers and caught up on really fast. The policy states that if you decide to return the inventory to yourself, you cannot send it back any inventory to that SKU for the next 3 months.
#4: This is the free one
Amazon often rolls out free removal promotions to FBA sellers in order to remove items from the FBA warehouse free of charge. In fact, just recently, Amazon announced a free removal promotion in July where sellers can create removal orders free of charge! The promotion is still on and we anticipate it will be till the end of Q4. It goes without saying that any seller who has SKUs which are eligible for long term storage fees should take advantage of the scheme ASAP.
#5: A foolproof way to avoid LTSF is to be proactive and not let any such situation arise
Avoiding your long term storage fees can be as simple as sending just the right amount of inventory to the FBA warehouses. Once you are able to find the balance, nothing and no one can charge you long term storage fees. As a rule of thumb, you should never stock more than 2-3 month’s inventory in the FBA warehouses. If you are buying inventory in huge quantities, don’t send them one at a time. Send what you think will sell in the next 30 days. Look at the demand and then send more.
If you accurately predict the demand and send only the inventory that will sell out in 6 months, then you would never have to worry about long term storage fees in the first place. I know what you are thinking, how am I supposed to manage every little aspect of selling on Amazon when I have already got so much to do? That is why smart sellers hire Amazon consultants who do all the hard work and free you from the hassle of checking your inventory levels daily. Contact us now!