Amazon.com sometimes speaks in vague ways. For example, sellers on the platform recently received a message saying: “From April 22, 2021, FBA products will no longer be subject to quantity limits at the ASIN level. Instead, restocking limits will be set at the storage type level, giving you more flexibility in Manage your shipments.
In plain English, this would have meant that Amazon now places limits on its warehouses based on how much storage space they’ve used, not how many items you have. This changed the current policy imposed by the company in July 2020, which imposed strict controls on the number of units of new product that could be sent to its warehouses. The new move marked a major shift and, of course, had a huge impact on Prime Day’s performance for some brands.
While many speculate on the reasons for these changes, the strategic implications are clear: Amazon is increasingly behaving like a traditional retailer.
To understand what I mean, let’s start with a little history. Prior to last year, Amazon Marketplace, known in the industry as Amazon 3P, did not operate as a regular store. It was more like an open-air endless market, where sellers could simply set up table after table, row after row, stretching as far as the eye could see. The idea was not to manage inventory efficiently, but to get as many sales as possible – to be a shop for everything.
Yes, there were storage fees, but brands quickly developed a strategy around it. They stockpiled a large stock of long-tailed items in the hope that they would not lose more money on fees than they made on sales. In this scenario, brands listed as many ASINs as possible to reap as many sales as possible, no matter how rare that might be.
The rationale behind this approach began to unravel as Amazon increasingly tightened inventory restrictions. The pressure is now on brands to increase productivity, reduce inventory levels and generally start treating the platform as a traditional retail channel rather than a proper warehouse.
This isn’t necessarily a bad thing. The great warehouse in the sky made everyone lazy. If you’re an effective brand today, you don’t need to sit out for more than 90 days out of stock, no matter what Amazon tells you. It should be more flexible and timely, improve working capital, make better investments, increase flow velocity and productivity. However, achieving this requires three main tasks:
- Organize your assortment. Instead of hoarding items to hedge your bets, you need to organize a variety that resonates with consumers on Amazon. It’s a good idea to modify long-tail items, remove them entirely, or otherwise sell them. This makes it easier for consumers to navigate your offerings, while allowing you to focus your time and resources on marketing and promotion, the things that matter most. Doing so should open the floodgates to your bestselling products.
- Flow in time. Today’s inventory management systems are sophisticated enough to anticipate demand and ship the product only when needed. Instead of following Amazon’s “set it and forget it” strategy, it’s time to be smart about what you have in stock and when.
- Still innovating and launching new products. While Amazon is now restricting the number of items you can put in its inventory, that doesn’t mean you should stop launching new products. Brands need innovation to grow, so it’s not time to stop developing the next product your customers will love.
The simple fact is that, by design or necessity, Amazon is starting to act like a smarter retailer, and brands need to follow suit. For many of them, this will not be easy, but they will embark on a complete transformation from a largely passive marketing strategy to one that is necessarily active and predictive. Such a shift can certainly be painful, but it will also bring welcome maturity that will make brands more agile, efficient and profitable, which is never a bad thing.
Tim Hershey is Chief Retail Officer at Netrush, an online retailer that partners with premium brands to provide the teams, technology, strategy and infrastructure needed to grow on Amazon.