(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.
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.
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