May 24th was a normal Monday morning like any other for FBA sellers, until they saw their storage limits had been slashed in half. While the inventory restrictions are an immediate pain point, the news may also be a canary in a coalmine:
If Amazon is tightening inventory restrictions ahead of Prime Day, we can expect that inventory restrictions will impact Q4 as well. Brands that are overly dependent on FBA will be poorly positioned to capitalize on Amazon sales opportunities. Investing in diversified fulfillment solutions, such as dropship, will be critical for overcoming the volatility in the marketplace.
Why did Amazon Restrict Inventory Limits?
An Amazon representative told Kaspien this move was in response to limited fulfillment center capacity. There is simply more inventory being sent to Amazon FBA centers than Amazon can handle.
Amazon quantity limits are affected by past and future sales, current inventory levels, new selection, and FBA capacity. Quantity limits are also affected by sellers’ IPI scores. IPI is impacted primarily by inventory movement. The faster inventory cycles through FBA, the better, so long as you never stock out. If inventory sits stagnant in FBA centers, a seller’s IPI score will suffer. Likewise, if a seller runs out of inventory, their IPI score can take a hit.
In 2020, Amazon temporarily restricted which product categories could send shipments into Amazon fulfillment centers. Amazon also increased the inventory performance index (IPI) threshold several times. Sellers who failed to meet the new score thresholds were subject to more severe inventory limits.
There was hope that Amazon would lift the restrictions in 2021. However, earlier in the year, Amazon transitioned from Amazon Quantity Limits to storage utilization quotas. Many brands saw even stricter limits with this transition, and the recent reductions only made it worse.
Fool me Once….
Amazon’s repeated inventory restrictions brings to mind an old axiom: Fool me once, shame on you. Fool me twice, shame on me.
At this point, it’s clear that brands need to be ready to pivot their Amazon strategy at the drop of a hat. Amazon makes unilateral decisions that negatively affect your Amazon business and without warning far too often to sit idly by. Your customers expect your products to be available on Amazon, and you need to take steps to meet that expectation, whether it’s through FBA or not.
So, what alternatives and supplements can brands use for FBA?
Dropship Directly to Consumers
Many people know of dropshipping as something a high-energy “entrepreneur” on social media talks about as a great side hustle for easy money. It can be that. But dropshipping can also be much more than that when applied at a larger scale.
This was seen clearly in early 2020 when Amazon imposed category restrictions for inbound shipments. Affected brands turned to Amazon dropshipping to continue selling even after FBA inventory ran out. There was even a period where Amazon prioritized FBM and dropship orders over FBA orders!
Dropship was crucial during this time. For example, in a three-month period, one of our partners sold an additional 2,134 units through dropship on top of their FBA orders! Without dropship, they would have simply lost those sales because their FBA inventory cap was too low.
Since 2020, dropship has consistently proved to be an invaluable safety net against volatile supply chains. And as this latest update shows, Amazon is still experiencing the aftershocks of that volatility.
Types of Amazon Dropshipping
Dropshipping, in its simplest terms, is when the manufacturer ships product directly from their warehouse to the end-consumer, instead of sending it to a fulfillment center.
For Amazon dropshipping, that translates to using Fulfilled by Merchant, or FBM, instead of FBA. An even better version of FBM is Seller Fulfilled Prime, or SFP. Let’s explore each of these a bit further.
FBM from Your Warehouse
FBM is exactly what it sounds like. Rather than an Amazon warehouse shipping orders to consumers, the merchant’s warehouse does. FBM requires the seller to have a warehouse in which they can store and fulfill inventory. It also does not come with guaranteed 2-day shipping. As such, Amazon favors FBA listings over FBM listings.
FBM from a 3P Warehouse
If you don’t own a warehouse, there are third-party logistics providers who provide similar services to FBA (including yours truly). You can partner with one of these providers to create FBM offerings, but they too will be treated as lesser options to FBA by Amazon’s algorithm.
SFP from a 3P warehouse
If the idea of Amazon favoring FBA over FBM irks you, you’ll likely be interested in SFP. SFP functions practically identically to the FBM model, except that the provider has been certified by Amazon as being able to consistently provide a Prime-equivalent shipping experience for Amazon shoppers.
The SFP program has been closed to new applicants for well over a year, so if you are not enrolled in SFP already, you’ll need to seek a third-party seller or third-party logistics provider who is.
The Benefits of Amazon Dropshipping with Kaspien
One downside to dropshipping on your own is that you are responsible for tax logistics and customer service. If you partner with Kaspien to dropship on Amazon, the sales pass through our Seller Account instead of yours, which means we’ll handle the taxes and customer service for you. We’ll also pay you on a weekly basis, unlike Amazon, which pays dropshippers twice per month.
Above and beyond that, we take a brand-centric approach to our partnerships. We’ll use dropship in whatever way serves your brand best. That could involve using dropship as a safety net, using dropship as a testing ground for new products to prove that we can drive success for them, and adding your full product catalog to the marketplace.
Co-sell with Another FBA Seller
Dropshipping is a great solution, and more brands are recognizing its value after the turbulence of 2020. However, it’s not the only solution for those impacted by Amazon’s inventory restrictions. In addition or alternatively to dropship (though it really should be in addition), you could authorize another FBA seller.
By adding another FBA seller, you effectively increase the storage space allocated to your products at FBA. From your customers’ perspective, there’s little in their shopping experience. They see the same the same listing, they get the same shipping speed regardless of FBA seller, etc.
From your perspective, you’re receiving another purchase order, which is always lovely. You’re also allowing another seller to access to your listing content and impact how your brand is presented to shoppers. That’s a big deal, so you should only partner with a seller you can trust.
Kaspien has been serving as brands’ trusted Amazon partner since 2008. Our commitment to true, mutually beneficial partnerships earns feedback like this, shared by SRAM:
Kaspien has been instrumental in our success on the Amazon platform with their commitment to SRAM. The time and energy the Kaspien team puts towards our brand’s needs extend beyond the SEO, marketing, and sales aspect of the business; they also ensure that we are communicating constantly and remain aligned and informed on our position on the Amazon Marketplace. We are proud to partner with Kaspien.
Sell on Amazon with Kaspien
If you’d like to explore Amazon dropshipping or FBA with Kaspien, reach out. For more Amazon news and strategy, subscribe to our weekly blog newsletter!