With an Amazon FBA business, nobody likes to waste money on something that isn’t going to eventually make money. But we all do it. We all spend money on inventory that we think will bring back a return on our investment (ROI), only to have it sit in the FBA warehouse without a sale. And it sits. And sits. And sits. Until finally, there’s nothing to do but call it what it is: “dead” inventory.
Right now I’m betting you have some dead inventory that is slowly sucking money from your regular disbursements through monthly storage fees and slowly sucking your time by repeatedly repricing it month after month, to no avail. At some point, you need to pull the plug on that inventory, take it off life support, and move on to better selling products.
Recently, I posted the following update on the Full-Time FBA Facebook group page:
This post prompted a group member to ask the following question:
What a great question! In the rest of this blog post, I’ll share with you how I determine what inventory I’m declaring dead and how I was able to remove that inventory for free.
First, let’s look at the question of dead inventory versus long tail inventory. In this instance, the definition of “long tail” means an inventory item that has a high enough ROI that you are willing to wait a long period of time before you get the sale on Amazon. This type of inventory can be very profitable if you originally purchase it for a low price (think less than $2 at a garage sale or thrift store) with a high ROI. If you can buy lots and lots of these types of items, you can build a very nice pipeline of inventory that over time will give you good profits.
The problem is when the pipeline gets clogged and you have inventory that doesn’t move. At some point you have to determine if certain items will ever sell, or if they’re only going to sit there on the warehouse shelves, creating digital clutter in your Seller Central inventory. At this point, I would consider it dead inventory.
From time to time I like to go through my inventory and see if I have dead inventory that I need to deal with. I have two methods for searching Seller Central to find potential dead inventory:
1. Search through your oldest inventory items.
1. Log in to Seller Central.
2. On the top left of the screen, click “Inventory.”
3. On the left sidebar, under “show my inventory,” click on “Active.” This will show you what items are currently in stock (no need to remove something you don’t have in stock anymore).
4. The default setting is to sort your inventory by Merchant SKU, so change that to sort your inventory by date created. This will show you the items that have been in a FBA warehouse the longest.
2. Search through your highest sales rank items.
1. Log in to Seller Central.
2. On the top of the screen, hover over “Reports” and click “Fulfillment.”
3. On the left side of the screen under Inventory, click “show more…”
4. Under Inventory, click “Inventory Health.”
5. Click on the Download tab.
6. Click on “Request Download.”
7. While the report is being generated, the status will read “In Progress.”
8. After the report is completed, click on the Download button.
9. The download will be a TXT file, but you’ll need to open it in a spreadsheet program like Excel.
10. Select the entire spreadsheet and sort it by the sales rank column in decending order.
11. The spreadsheet will now show you the items in your inventory that have the highest sales ranks.
Once I’ve searched and sorted my inventory in one of the above methods, here’s how I make the determination of long tail inventory versus dead inventory:
- Look at the current low FBA price of the item and look at your price for the item. Are you the low price? Are you way above the low price? If you reprice to become the lowest price, would you be able to make any money on the item after fees, or at least break even after fees? You want to decide whether you can drop your price to recoup your capital or whether you would have to drop your price so low you would end up owing Amazon money after the fees.
- Look at the current sales rank and look at the CamelCamelCamel sales rank history for the item. Do you think the sales rank will get better during a different season of the year? Does CCC show that this item just isn’t selling any more? Or selling any more at this price?
If the sales rank of an item is too high and doesn’t look like it will recover AND the profit of the item is so low that I wouldn’t source that item if I saw it again in the store today, then to me that item is dead inventory. It is a prime candidate to be destroyed or returned to me from the Amazon FBA warehouse.
Think about how long an item has been sitting in an Amazon warehouse and how often you have already repriced this item trying to get the next sale. If you have tried to do everything you can to get this item to sell and it hasn’t sold, then consider whether it’s time to move on from this inventory.
At this point you might be saying, “Well, how long is too long? Give me a definite number of weeks, months, or years to know how long I should wait before deciding this inventory is dead.”
I wish I could give you a definite number, but that number is different for each seller and for each piece of inventory. Here are a list of factors you should think through to decide for yourself how long to wait for a particular item to sell:
- Your business model (mostly fast turns? mostly long tail? balanced?)
- The number of items in your entire inventory
- The number of this particular item you have available
- Your available capital
- Your available time (Do you have more time than money? Do you not mind repricing and waiting?)
- The number of other sellers
If you think through the above factors and come to the conclusion that the only thing an inventory item is doing for your business is causing you monthly storage fees, if repeatedly lowering the price hasn’t given you the next sale, and if CamelCamelCamel shows that the price and sales rank will probably not recover, then you should decide whether or not it’s time to create a removal order for the item.
To create a removal order, simply go to Manage Inventory, and click on the arrows next to the Edit button for the item you’re wanting to remove. Then you can choose what type of removal order you want to create.
When you create a removal order, Amazon will do one of three possible things with your selected inventory:
- Ship it to the address you choose.
- Destroy it.
- Liquidate it (on select inventory items)
You can have Amazon ship an item back to your address, or you can have them ship it to another address of your choosing. I have items shipped back to me that I can then donate to a local charity, sell in a garage sale, use around my own house or business, or give to someone as a present (raise your hand if you’ve done your kids’ birthday shopping in your own inventory!). We’ve also had inventory items shipped directly from the warehouse as gifts for our nieces and nephews in other cities. Here are the Amazon guidelines concerning removal orders.
If you decide to destroy an item, Amazon may incinerate it, donate it, sell it as a lot, or sell it as Amazon Warehouse Deals. I tend to destroy items that I don’t think I could have a use for at my home or business, I don’t wish to donate locally, or I don’t think will sell at a garage sale.
Do you have dead inventory that you need to take care of? Have you come up with a plan to make the most of Amazon’s free removals this April? Let us know what you think about this topic in the comments.