(DISCLAIMER: The following article is not meant to prioritize concerns of capitalism over concerns of global public health.)
In late 2019, COVID-19 (“the coronavirus”) was initially detected in Wuhan, in the China’s province of Hubei. As the virus spread throughout other parts of China and into other countries, manufacturing delays started to develop in parts of China where the factories supply the world with all sorts of products that eventually end up being sold on the Amazon marketplace. While Chinese New Year may have temporarily delayed the appearance of manufacturing challenges caused by increasing numbers of Chinese workers, those challenges are now becoming clearer, as US-based Amazon sellers are discovering that delays in manufacturing are likely to result in unexpected shortages of inventory available for sale.
For the seller that expects to run out of inventory on Amazon, much damage can be done to that seller’s product “sales rank” once that inventory does, in fact, run out. Today, products with better sales ranks are more likely to show up at the top of organic search results of customer products searches, so it is critical for sellers to work to maintain the sales ranks of their products. While Amazon has not officially released the formula that it uses to calculate the sales rank of individual products, I learned during my time at Amazon that sales rank was based on a blend of a product’s 7-day trailing sales volume and 30-day trailing sales volume.
Should a product be out of stock for more than 7 days, that will hurt the product’s sales rank considerably. When the product is out of stock for more than 30 days, the sales rank essentially goes to zero. For a product that has been out of stock for more than 30 days but is now back in stock, it is basically starting from scratch with no sales history to jumpstart its now null sales rank. So, while Amazon sellers may be faced with delays in overseas inventory shipments, the key is to avoid being out of stock for more than 30 days.
There are multiple levers you can use to manage inventory levels that are likely to run out, each path with its own set of tradeoffs.
- Cut Ad Budget/Traffic: if you are currently running Amazon advertising or using any off-Amazon traffic-building efforts for specific items soon to run out, slowing or cutting completely the traffic will reduce the number of customer visits to your product detail pages, and hence sales should drop. If you are using off-Amazon traffic that is generating higher conversion rates than traffic from Amazon advertising efforts (e.g., sales funnels or email marketing to existing off-Amazon customers), we would suggest turning down the off-Amazon advertising first. It is our experience that it is easier to regain the benefits of off-Amazon advertising rather than to regain Amazon advertising traffic on products that have had their Amazon ad budget deactivated. In all cases, you will need to increase your monitoring of paid search-driven sales and total sales during this period of delayed replenishment inventory.
- Increase Prices: simple economics at work here – raise prices, and demand falls. But things can get tricky on Amazon for a couple of reasons. First, if your product listings have competitive offers from other sellers, you will likely reduce your buy box percentage, enabling other sellers to sell their units while you await replenishment. Second, if you raise the price on Amazon but the product remains available on other sites (whether sold by you or other sellers), Amazon’s scraping technologies will likely find these lower prices, and immediately turn off the potential for you or other Amazon competitors with similarly higher prices to be buy box eligible on this product. Third, if you raise the price of your product, but you have provided the Amazon catalog with list price information that shows the list price to be lower than your newly increased price, expect Amazon will remove your buy box eligibility on the product.
- Remove Digital Assets on Your Listing: this action may seem suicidal, but if you have Brand Registry on your product, and can control the content on the listing, there is value in considering removing content such as bullet points, secondary images, infographics and videos – such an action will most likely reduce customer conversion on your listings, as customers are left unsatisfied in the content on the product page, and hence will be less likely to purchase. Should you take this unusual step, be sure to save your existing listing content somewhere so you can reload it once your inventory replenishment situation is resolved. And keep in mind that reducing the quality of your product listing is likely to hurt your brand equity with consumers. However, given how Amazon customers continue to favor unbranded search during their organic search of products, you will likely slow down the number of Amazon customers new to your product that choose to consider your products.
- Shift Inventory From Other Channels: to the extent you have reserve or emergency inventory of product, or inventory that you can take from other channels where the short-term loss of sales rank isn’t going to hurt you as much as Amazon, we encourage you to take the necessary steps to move product around. Obviously, other channel partners may not be happy that you can’t fill their purchase orders, but your business off-Amazon is likely to have less collateral damage than the impact of stockouts on Amazon.
During my many years both working at Amazon and with companies participating on the Amazon channel, I have seen that the Amazon algorithms are unforgiving to sellers dealing with external factors such as this current inventory replenishment challenge. Today, as you await your overseas suppliers to get back on track with your manufacturing orders, the current unfortunate situation caused by the coronavirus is an important reminder that we all need a “rainy day” contingency plan in place for our businesses. In the meantime, please wash your hands, and stay healthy.
About the author: James Thomson is a partner at Buy Box Experts, a managed services agency supporting brands selling online. Earlier, he served as the business head of Amazon Services, the division of Amazon responsible for recruiting tens of thousands of sellers annually to the Amazon Marketplace. He also served as the first Fulfillment by Amazon (FBA) account manager. Prior to Amazon, James was a management consultant and banker.
In 2015, James co-founded the PROSPER Show, a continuing education conference for large Amazon sellers, and in 2017 published the book The Amazon Marketplace Dilemma, designed for brand executives seeking to optimize their distribution strategy on the Amazon Maretplace. In 2020, James co-authored the book Controlling Your Brand in the Age of Amazon: The Brand Executive’s Playbook for Winning Online with Whitney Gibson of Vorys eControl. This book is designed for brand executives struggling to turn the Amazon channel into a positive component of their brands' overall growth strategy.
Edited by Erik Linask