Amazon Restock Limits ⎜ James McConnell ⎜ EP 122
Ryan Cramer: What's up, everyone? Welcome to my corner of the internet. I'm your host, Ryan Cramer, and this is Crossover Commerce, presented by PingPong Payments, the leading global payments provider, helping sellers keep more of their hard- earned money. Hey. What's up, everyone? Thanks for tuning in to another episode of Crossover Commerce. I'm your host, Ryan Cramer, and this is episode 122 of this beautiful show I like to call Crossover Commerce. This is my corner of the internet, where I bring the best and brightest experts in the Amazon and e- commerce space to bring their insights to the most important aspects of your selling online journey. Again, that can be anything for Amazon, online selling. We're going to talk about logistics, advertising, whatever that might be. We're going to try to cover the whole gauntlet, international growth. That might be the case as well, but we're going to cover today logistics, but the biggest question I wanted to ask today is has Amazon's restock limits actually turned your business upside down, creating more and more just headaches and nauseating problems that you have to solve. That might just be the new normal nowadays with Amazon and trying to figure out what's the next wave of logistics and trying to figure out how to get inventory into Amazon's warehouses, but also how to fulfill inventory to your customers at the end of the day. If you don't have product in inventory, you just don't have anything to sell, and that hampers growth. So, we're going to get into the bottom of that today, but today's episode we're titled it Amazon Restock Limits, simple, straight- forward, but it's a very complex issue we're going to cover today for sure. But as always, Crossover Commerce is presented by PingPong Payments. Now converting over$ 150 million a day for over now one million customers worldwide. PingPong has actually converted$ 90 billion to date in cross- border payments. So, if you have an issue with paying your suppliers, manufacturers, distributors, VAs, whoever that might be, or just even receiving funds on multiple different marketplaces internationally or even on Amazon, did you know that you can actually save more money? Put that to your bottom line and actually save to invest in more inventory, or logistics, or warehousing, or even just hiring more people. Go ahead and check out PingPong today to help save you money and click on that link below. It's free to sign up. That link is in the comments section, definitely check it out for sure and sign up with PingPong Payments. Let them know that Crossover Commerce said so. But anyways, this show is about not just myself or PingPong, but it's about the guests, and the best and brightest people in the Amazon industry. If it was just me talking, that would be one thing, but the reason why this show is so successful is because of the network of people out there willing to share their insights and their strategies on Amazon, and because of that I want to bring in James McConnell. He's actually while he was 12 years old he was playing with Lego, he began his e- commerce journey by selling them on Bricklink, and seven years into his ventures in e- commerce he actually started using the Amazon marketplace and FBA program for its scalability. Makes sense to me. He started like many in books and retail arbitrage and scaled it into online arbitrage and wholesale. That being said, while he graduated summa cum laude in 2019 with a bachelor's in logistics and supply chain management from North Texas, he actually most recently was scrambling for storage space solutions as a seller during the pandemic in 2020. That also makes sense to me, but he then innovated, came up with Marketplace Prep, which is a third- party logistics company. So, because of that, wanted to bring in James. Him and his team have actually looked at the data, the analyses as both a seller and a third- party logistics company, but because of James' e-commerce experience I wanted to bring him in to make sure that we understand what's going on with Amazon. If you have questions, obviously of course you can answer those live, but let me go ahead and bring in and welcome to Crossover Commerce, James McConnell Jr. of Marketplace Prep. James, what's going on, man? How are you?
James McConnell: How is it going? I really appreciate you having me on, and look forward to discussing this craziness that Amazon has given us.
Ryan Cramer: Isn't that the new normal now? It feels like everything is one week or another we're going to hear new news. You almost want to say no news is good news, but that's not the case in e- commerce. There's always something that's going on today. But yeah, it's been fantastic having you on. You were actually referenced pretty highly in terms of knowing about what's going on, but you have led and let data talk to you, which is always obviously super important. So, that being said, your background is very fascinating, before we jump into the deep end. You're a seller. You are a third- party logistics service provider. How did you get into the space? What kind of led you to these decisions?
James McConnell: Absolutely. So, obviously e- com, a lot of us are in e- com in some sort of manner, and that comes with lots of challenges, whether you're a private label, whether you're wholesale, whether you're RA. I mean, it doesn't really matter. Each business model has their own challenges, but there's one consistent trend with all of them. Wholesale people may not be advertising, or PL people may not have to worry about going through catalogs of product, but everyone has to ship stuff. Even if we use FBA, we all recognize oh, there's FBA requirements, there's labeling, there's how your boxes are packed. I mean, gee- whiz, you don't want your pallets being rejected at Amazon. So, combine that with obviously my experience in the logistics side of things. I've worked for a few companies as well, everything from reverse logistics to inventory planning, to a bunch of other stuff. I just kind of have a knack for I guess the operation side of business. You ask me about the fun marketing or PPC side of the business, I couldn't tell you squat, that's why I refer friends. But when it comes to operations, inventory management, logistics, supply chain, warehousing, all that stuff, I certainly don't know everything, but I have kind of specialized my areas in okay, what does prep look like, what does FBA shipments look like. For most people, all those little things are like okay, that's kind of just there's one way to do it. Well, I can tell you right now, I can build a shipment like 10 different ways and they do get 10 different things. So, that advantage now saves not only me but all my clients a huge amount of money, possibly a huge amount of time, and I wanted to apply that and say, " Hey, what's a 3PL that actually understands not only warehousing but also Amazon?" Because you can kind of get one or the other. You can get people that understand Amazon but they may not understand warehousing very well, or they understand warehousing, like these big 3PL companies, but when you want to send something to Amazon you've got to write them like an SOP that they have to follow just to send something to Amazon. We kind of know both, and that's kind of where I said hey, I think I can solve a lot of pain points for certain types of sellers and saying, " Hey, you're currently splitting between five different warehouses on every shipment. What if we can go to one warehouse, or what if we can shorten the time between from you buying your product and getting it checked into FBA?" We all know check in times, they can be pretty rough, especially in Q4, versus us. We've gotten it down, and we're booking our own trucks now, and all of our clients that ship LTL kind of benefit from that. So, you can imagine the economies of scale. Economies of scale has not really been applied to our industry.
Ryan Cramer: Well, you're now speaking my language, because from your background, even just being in Lego, it sounds like you're a big puzzle problem solver, right? I would see you as more of an analytical person, which not a lot of people in this space want to get into this cerebral part of the world, because it is very difficult a challenge, right? You said I can package something 10 different ways and get 10 different outcomes. That's scary and very daunting a task, if you will. So, with that being said, why is there not more people out there like you who are trying to problem solve this regards? Because I would say this side of the business is more like 10% of what's being talked about, and then maybe 90, 95% is optimization of your listing, PPC management, and then maybe just product research and keyword research.
James McConnell: I can tell you right now that one, it's not a fun part of the business. So, most people crosstalk PPC, okay, that's going to increase your sales, bigger numbers, bigger this, bigger that. Well, what we're doing is saying we're not going to increase your sales by shipping it faster, but what we are going to do is say what if we shipped it faster and now you don't have to hold three months of inventory, now you only have to hold two months?
Ryan Cramer: Right.
James McConnell: Well, if your months of inventory is $100, 000, I just saved you$ 100, 000.
Ryan Cramer: Absolutely.
James McConnell: That's huge. In addition to that also is saying hey, people think about logistics, oh that's kind of just part of doing business. Well, it doesn't mean you can't reduce the cost of that. If you're saying hey, our average, I don't know, logistics cost before FBA is, I don't know, $ 5, 000 a month. What if you can cut that down to 3, 000 or 2, 000 or less? It doesn't seem like a huge amount, but now that's applied to every single product you sell and every single transaction benefits, just you're reducing cost, you're increasing your margins. Because it's not like oh, I've serviced, I don't know, $ 10 million in ads or something crazy like that. Well, obviously I haven't. I don't really have a metric for that. I mean, I could say like we've prepped thousands, and thousands, and thousands of units, but it's not fun to talk about, but the problem is is people got a wake up call this year and last year. Where before the IPI score came out you really didn't have to care about inventory. Yeah, you had long- term storage fees, for most people that was a pretty easy target to hit. Then the IPI score came out. Now they're like okay, you have to watch your inventory a little bit. Now these restock limits come out, and last year with COVID, now you had to make it a critical part of your business, you couldn't ignore it anymore. That's why I've seen a lot more people kind of reaching to me and saying, " Hey, I need help with this." Because they always had to care about marketing, they always had to care about sourcing. They didn't always have to care so much about inventory turnover or their supply chain because, I don't know, can I send a container to Amazon? Sure, no problem. Well now, good luck.
Ryan Cramer: Exactly. Well, so you brought up a couple, a lot of actually great points, and just want to give a quick shout out for people who are watching today obviously. Rana, just always a great friend of the show, always talking about great things in the space. Then he mentioned that you're a logistical and analytical wizard. So, we're going to put that to the test today, but also thanks Lisa for watching on LinkedIn as well. So, if you have questions, obviously you can put it on the comments section and let us know if you have questions for James or myself, or if you have something specific that you want to ask James, definitely feel free to do that. But that being said, James, you said wake up call in 2020. Let's prep this by what that wake up call was. Sellers now if you were a top 100,000 seller you had almost unlimited storage space, correct? You can, like you said, send containers. Amazon would just accept it and they would just accept it. You would sell through it eventually, but most sellers could actually just at scale, whatever they could afford, could put containers upon containers in Amazon's warehousing, pay those storage fees. It was cheaper than maybe a 3PL or a logistics warehousing and they would know that they would go through it because that's they're good sellers. That being said, now we're starting to see lots of different effects. These are the top of mind that are coming, issues that sellers are having. Launching new products, can't launch as many new products, maybe a tenth or half of what they wanted to do or projected to do. You can't offer as great deals such as Prime Day because your inventory limits might have gone down, so you can't actually sell through as many units, therefore affecting your margins, so on and so forth. You're also affecting the ability to logistically get in goods for things that are important, like Q3, Q4, and stuff like Prime Day, which is a one or two off day as well and just trying to figure out more steps in the puzzle instead of hey, once my goods are done, send it to an FBA warehouse and it'll get there when it gets there and then it gets checked in. I just want to get there quick enough and that way I can start selling it. But now all those things are kind of an issue, right? We're putting multiple barriers in the place of growing entrepreneurs and growing sellers. What's the number one pain point if you are maybe the people are crying, I say crying about, but that's an overexaggeration. What are people crying about the most?
James McConnell: Yeah. So, I think the biggest issue is not so much that changes are happening. We know Amazon changes every hour, it seems like, but it's the fact that people don't understand what to do about it, because it's very analytical, it's very, very numbers based. There's a lot of people that are on the more creative side and they may not quite understand that, and how Amazon has presented these changes has been absolutely terrible, because the problem is they'll announce these changes but they don't tell you how they work. IPI score, they give you kind of a guide, but they don't tell you the full story. Restock limits, they kind of give you a guide but they don't tell you the full story. Well, we can handle that for things like PPC or the Buy Box because we have years of saying, " Hey, if you're$ 10 over the other seller in the Buy Box, you're probably not going to get the Buy Box."
Ryan Cramer: Right, there's math to it.
James McConnell: We don't have historical information on all these things, and that's kind of what I said, is like okay, we need to do some analysis. I said let's take a lot of data points, let's collect those and just plot them. I saw things that for example, just using one example, high IPI score and restock limits. We saw a complete discorrelation. There was no trends that I saw people with high IPI scores and terrible limits. I saw people with low IPI scores and great limits. So, I was like okay, well throwing that out the window, but I was also finding other things and pulling all these data points and saying hey, it ain't a perfect trend line. If it was a perfect trend line everything would fall on one line because I figured out the formula. Well, I didn't, but if you collect enough data you can see trajectory, and trend, and saying hey, these data points kind of correlate to this. Is there outlier data? Absolutely, but can I take this data, turn it into something that is useful and not just say, " Hey, you can do all this math, and analysis, and pull these 20 reports." No, I said, " Give me three numbers." Very simple numbers. They're all on the same page on Amazon, and say, " That can give me an idea of what your inventory looks like and what should you do about it." Unfortunately, well fortunately, it's easy to figure out what to do about it.
Ryan Cramer: Right.
James McConnell: Unfortunately, what to do about it is not great for pretty much any business.
Ryan Cramer: It's probably yeah, the worst case scenario, right?
James McConnell: Most people were using Amazon as their warehouse, not as their retail channel. I like to use the analogy of people need to stop using Amazon as their centralized warehouse for everything and now treat Amazon as like the store shelf in Walmart. You stock just enough there at the stores to kind of keep stuff in stock, but you're not storing a whole container there if it sells 10 a week or 10 a day. A container is a lot of inventory. You need to think about whether it's in your house, your garage, a 3PL, your warehouse. It doesn't really matter to me, but you need to stop thinking that Amazon is your logistical and warehouse provider, because they don't want to be. So, last year about 2020, Amazon between COVID, which we all know wrecked so many different things. Amazon basically decided, they said, " We have all this warehouse space, and what business do we want to be in?" We saw this with Canada first. Canada had this kind of preview and then it hit the US, it hit the UK. Canada is still really hurting right now, and I'm sorry for the Canadians, because it's really rough up there with the space, but it gave us a preview of what was happening. What was happening is Amazon was saying, " Do we want to be in the storage business? Does it make us money? Sure. Does fulfillment make us more money? Yes." So, if you notice, Amazon is not building millions and millions of square feet of warehousing, they're building small warehouses across the US that are maybe 200,000 square feet or 400, 000 instead of like two million, and saying, " This will help us get up to customers quicker, but we could build bigger." I mean, Amazon is how many billions of dollars do they have, but they're not wanting to be in the storage business anymore, they want to be in the fulfillment business. With that means hey, if you're sending us six months of inventory, we're going to penalize you for that, and that is kind of where the new restock limits. Last year the 200 limit, that was really related to COVID. COVID strained their capacity inaudible.
Ryan Cramer: They're trying to catch up, yeah.
James McConnell: Now we're looking at something beyond COVID and saying, what is the business strategy behind this? Now, will it loosen up? Maybe, but will it go away? I highly doubt it.
Ryan Cramer: Right. So, what I'm hearing, if I'm deciphering this correctly for someone who is listening to this for the first time, Amazon used to be, a lot of people used to think of Amazon as send pallets upon pallets. Again, for Amazon their goods to just there. It was A, from the supplier, manufacturer, to B, Amazon, and that was it. That's all you had to worry about or how to get it there, I should say. Now it's kind of it's actually changed because Amazon is now effectively saying, like you said, we only care about the end customer, which has always been their statement, right? We can't say that we want the best for our end customer, the buyer of goods. We want to get there quicker, that's how we're going to manage our logistics chain. That being said, we're not, like you said, building two millions square feet of warehouse space, we're doing a smaller but quicker and more effective and efficient. So, with that being said, that affects one entity, that affects people who are trying to put their goods in there, and that's kind of put this ripple and people are riding this wave. It's not really a ripple, it's a wave, because it's disrupted how people have done business for the past, since 2014, 2015, when FBA became truly a thing as a third- party seller. So, who is affected the most at the end of the day? Is it that third- party seller or is it the smaller seller, or is it the new seller, is it the person or the business who are the top 100 or 1, 000 of all Amazon sellers? Who is really affected the most by this?
James McConnell: So, Amazon gives you a nice starting call it balance or whatever of a 1, 000 units per storage category. So, brand- new sellers who are just testing it out, you probably have it pretty easy because you have 1, 000 units worth of space. The problem is when you start exceeding that, and the larger and larger you are, this is anecdotal but it's based on some data, the larger the seller you are, the more strict and refined your limits will become, because Amazon is going to say, " Hey, the larger you are, you should know your inventory better, have better analytics, better forecasting, all that stuff, because you're pumping 200,000 units through us, or 300, 000 units through us." We've seen accounts with even more, and they do have high limits or low limits. I mean, we've seen a complete mix. Now it's okay, you need to learn inventory management and turnover. That's kind of what my article kind of went into, is saying hey, what is turnover? Because it's not just selling more. If it was selling more, we would all be doing sales right now, but it's really operationally thinking what does turnover look like, because I can tell you very, very large sellers right now that have plenty of limits. Why is that? Well, they have extremely lean inventory. They are sending in inventory weekly. They have their own kind of either 3PL or warehouse where it's taken care of.
Ryan Cramer: So, in that regards, yeah, the beginner seller I think would obviously win. That's funny that you mentioned, they have to learn logistics. It's like that's not something that anyone wants to do, but that's something that I think would be beneficial, right? At scale, in theory, you at that level of seller, you're probably diversifying or should be, in my mind, diversifying channels, not just selling on Amazon, but you're probably selling on multiple marketplaces and Amazon, but then maybe diversifying the fact of the direct- to- consumer avenue as well. Where is the innovation going to come from this, do you think? Is it going to be people turning away from Amazon and trying to effectively sell in multiple platforms or are they going to try to, you're going to see this laying grab of warehouse space, manage your own warehouse at scale and then effectively figure out once my limits are close to need being fulfilled or refilled at Amazon's FBA warehousing, then I'm going to do from my warehouse to an FBA facility.
James McConnell: Yeah. So, what I tell people is the same. If you want to be in the warehousing industry, go get a warehouse, but I can tell you right now I know eight figure and nine figure sellers, personally, that on both sides of the spectrum. They have their own warehouse, they use other people's warehouses, I know companies that do both. They have their own and they also use other companies. So, you're going to have to evaluate what are your strengths, what makes sense for your business, PL, versus wholesale, versus RA, et cetera, and focus on what are you good at. If you're really good at marketing and really good at advertising, does it probably make sense for you to open up a warehouse and learn how to run that? I'm not saying it is or isn't, but you kind of have to ask that to yourself and say, " What's the wise decision here?" Because finding a 3PL that is maybe an expert at that might be an alternative and say hey, and there may be additional benefits you weren't even aware of. For example, a lot of people just use partner carrier. It's a great service, but there's actually additional benefits, like what if you go beyond partner carrier. You will think oh, that's always more expensive. For us, it's cheaper, but that's not going to be the case for everyone and that's because of the connections, and all the network I have made because I'm specializing in that area. On the other hand, if you want to do your own warehouse, you're going to have to spend the time to learn all those things. So, it can kind of go a lot of different directions with that, but I kind of hope that answered your question.
Ryan Cramer: No, absolutely, it does. So, what's the advice? So people are coming out with you I know and giving shout outs to people who are listening online, from Eat Sleep Amazon. Hey Tiffany, what's up? And then obviously Narae, hey. So cool to see James in 3D. I think that's a funny comment. Not just listening your voice, I think she means on Clubhouse. So, that's great to see you guys chiming in. What I'm constantly thinking of is I think this is the space where innovation comes, James, and I think that this is where a lot of smart people in the space is if you can figure out how to logistically get your goods quicker, and the turnover is going to be faster, this is the industry and this is the space where you need to either learn it or you need to know someone who knows what they're talking about. So, you have worked with customers in this space. Where are we seeing success, you personally and for your clients? Where have you made the shift to effectively overcome this barrier that Amazon has put in front of you?
James McConnell: So, I'll actually pull some points from my article on saying hey, what can we do about this?
Ryan Cramer: Sure.
James McConnell: We'll do the easiest ones first, and this is the easiest thing that all sellers can do, delete any inbound shipments that you're not going to ship. I know we all test out shipments sometimes, we create a dummy shipment like ah, we'll see. Delete those because they are counting against you. Super easy to do, filter by working and just delete the ones you're not going to ship. If you're going to ship it, makes sense. The second thing is obviously fire sale or sell off any excess inventory if you can. That's kind of given, but at the same time that helps. The rest of the points are kind of more fundamentals, and it's saying you need to send in an appropriate amount of inventory more frequently. So, let's just use a product that sells 300 units a month as an example. Very, very simple number because there's 30 days in the month, 10 units a day. Most people would normally send, I don't know, 90 days of inventory. So, that would be 900 units or maybe even more. Now you need to cut that down as much as it being realistic. So, for example, let's do we'll send in 30 units, or no, we'll send 300 units once a month. That's good progress. If you can bump that down to 150 units twice a month, that's even better. Then the further and further back you can do. Obviously we can't do like 30 units a day or 10 units a day, that's just not realistic.
Ryan Cramer: Right.
James McConnell: But once a week or twice a month shipments may make sense. The second thing you can do is say we're going to buy 10, 000 or 1,000, store them and drip feed them into FBA case by case. That can be done that way. You just need to make sure that how frequent are you sending in shipments, and that inventory needs to be kind of in proportion to that. Then the number one area that a lot of people don't realize is Amazon announced in this change that they said, " Working inbound, in transit, and shipped shipments are counting part of your restock limits." Do I think it's fair? Absolutely not, because they don't have to store crosstalk.
Ryan Cramer: Right. You're talking about inventory that's 45 days plus on the water that might just be sitting there, that's not actually being able to be sold. So, why does Amazon actually count that? Does anyone have an answer for that in that regards? Because I thought that was most fascinating in this all.
James McConnell: crosstalk. But what that's going to force people to do is that you can't create your shipment, let's just say a China shipment coming to the US. You can't create the shipment at all while it's in China, unless you're going to private jet that thing over, which crazy if you do, you can't afford to do that because of the restock limits now. You have to, whether it's your freight forwarder, your 3PL, your house, I don't really care, someone has to label those and create that shipment after it's already in the US. I don't say that as a 3PL provider, I say that as Amazon tells you in their help documents it says, " We will count this as part of your restock limits." And ultimately that hurts your calculations, because they say, " Wow, you're using 5, 000 units of space and you're not selling anything."
Ryan Cramer: Right.
James McConnell: Yeah, crosstalk.
Ryan Cramer: Yeah, timing the factor in this is negative for you. So, you're not selling inventory, they're just going to keep dropping that down until that you" sell through" it all.
James McConnell: I mean, my inventory is in the middle of the Pacific Ocean. Why am I getting penalized? Because Amazon. So, that's been a big challenge for some people to realize. Okay one, that may be an easy fix, but now where does that inventory go? Freight forwarders, some of them don't label inventory. If it's going from a container straight to Amazon normally, well you can't do that, and someone's got to unload that container. So, there are a lot of things that people don't realize anymore that in some cases containers make sense to Amazon, but you're looking at very high volume inventory, very large sellers, but for most people you're going to have to have a middle ground step somewhere in the US, or whatever country you're working with. I will say that Canada, UK and the US is where we had some data. The UK and Canada are hit harder. They have less warehouses, they have less people, they have less infrastructure. Canada is extremely hurt right now because they also are dealing with a lot of lockdowns and I know that some stuff is loosening up, but they are probably the tightest restrictions. What I see Amazon doing is saying hey, we can tighten it by basically turning a knob, or we can tighten it another way and say or we loosen it up. So, you can tighten it, loosen up, with basically probably a few key strokes on there. With Canada, it's extremely tight and hard right now. UK it's rough, but it's doable. US, people think it's rough now, just look at Canada. If you think it's rough now, ask a seller who can only send in 20 units of an item that sells 1, 000 units a month. That just doesn't make sense, but it's the reality. With the US we have rumors that in July things will loosen up a little bit. I encourage people to not count on that because while it can loosen up, it can also tighten. It may not tighten in July, but what they may do is say, " Hey, we'll give you a little bit more in July. Oh, Q4 is piling up, we can't handle it, we're going to tighten it back up."
Ryan Cramer: And shut it all down again.
James McConnell: Your supply chain needs to be able to be adjustable to that, and with that there's merchant fulfilling or seller fulfilled Prime or shipping yourself. Does that make sense now? Because I always tell people, " Would you rather sell an item for$3 more because of the shipping and the fulfillment cost or would you rather sell nothing?"
Ryan Cramer: Right. That's the thing. So, there sounds like there's a lot of solutions that can come from this, and it's figuring out what's best for each seller, right? It's not a silver bullet, is a term a lot of people use. It's not a one size fits all. It's a depending on who you are, where you're selling, what's kind of your projection. There's lots of different options. If you were the decision maker in this case, I want to go back to the original point of it doesn't make sense for your inventory on the water to count towards you. I agree with you, I don't think it should. I feel like I know where Amazon is coming from. If you have to in theory think that at some point it's one the way there and you don't sell that inventory, it has to count towards something, so they're playing with that plus minus, that error ratio, right? What's the solution if you are Amazon and you're in charge of this rule? Where do you move so that effectively it helps Amazon still with this new wave where they're moving to and then also it's fair for sellers in terms of crosstalk.
James McConnell: If I was on Amazon's side, the number one thing wouldn't be actually to change the calculations or anything but to tell sellers the calculations, and saying, " Hey, this isn't proprietary. This is not like the Buy Box algorithm or the PPC algorithm." I get that. I can see how that can be proprietary and have unusual competitive advantages. If you actually tell us how or more how, or more pieces to, more variables to the restock limits and make the dashboard to say you need to do this, increase this, reduce this to here, et cetera, whatever those variables are, then sellers can actually send in more optimized inventory. It's a win for Amazon. They have higher turnover. It's a win for sellers, even though they may not like the result, they now know what to do. Versus us having to do analytical research and guessing, and while I have reasonable estimates and guesses, I don't have the answer. I know sellers that have outlier data and I've talked to them and I'm like, " Here's a couple ideas, but the problem is your metrics are good but your limits are terrible." I don't know, because I'm not Amazon, and Amazon could just be so much more transparent with just helping sellers, guide them. When you say inventory efficiency needs to be improved, well, that's a really, really broad statement.
Ryan Cramer: That's super vague, yeah.
James McConnell: Telling people you need to increase turnover by removing this SKU, or by selling through this, or you have this total inventory or this or that, that gives them a strategy and it gives them a way to improve. It helps sellers, it helps Amazon, it increases sales, it prevents stock outs. I really don't see any negative to it, because it's going to optimize the entire group of people involved.
Ryan Cramer: I'm going to ask two questions. If people are listening to this or if I'm a listener to this and I say, " Well, what happens if I do go over my inventory limits?" Is there a simple and straight- forward answer? How do you get slapped on... It's no longer a slap on the wrist. Is it financial hit, is it your account will be suspended? What are the" effects" that happen if you're over your inventory limits all of a sudden?
James McConnell: So, I'll touch on a couple things with that. One, I'll preface, I encourage everyone to read the section on what are restock limits. The reason I say that is cubic or volumetric is much different than units. Now, on the cubic side if you go over it, you get charged fees. That's related to IPI, that's related to storage limits, a little bit different. Now, restock limits are a little bit different. Those are calculated super inconsistently but it's roughly once a week. Some time on the weekend between Friday and Monday it seems to be most of the calculation times, but Amazon's done a calculation on Thursday, they've done it on a Monday night, and I'm like, whatever. But the restock limits, the problem with those is Amazon does not really penalize you, unless you're... If you're doing black hat stuff to get around it, that's a different story, but we're going to assume you're trying to be a legitimate seller that's trying to follow the rules and get your stuff into Amazon, but you have limits. If an item is in a shipment, you're okay to send it. I've only seen a few cases where shipments were canceled and most of those still got checked in, unless they were doing black hat stuff. The next thing would be if you submit a removal order, once that gets processed it reduces your restock limits. So, it may take six weeks to ship, in some cases it takes even longer, but once it's submitted and it's in the system to process, give it 15 minutes or whatever is needed and you'll notice your restock limits loosen up by that many units. So, removal orders are great. Your shipments, send them in. If they're already in a shipment, great. If you can't add it to a shipment because you have restock limits, you won't be able to ship the product, so don't ship it. With that said, sending it to Amazon, keeping your inventory lean, you might have to sell some items for a loss. I know private label sellers that are going into arbitrage to buy some breakeven or even lose a little bit of money on some items just to boost their turnover so they can adjust and accommodate for a product launch, or restocking their bestsellers, et cetera, and saying, " Hey, what's our solution here?" Well, if private label sellers are having to go to do arbitrage just to loosen this up, there's a lot of moving parts to this. One of the number one problem I see in the sellers that don't have enough space is how to fix it. If you're out of space you can't just get back in the black and say, " Hey, we have space now." Because Amazon is going to recalculate and push you down even further. You have to overcompensate your turnover and go from one extreme to slow turnover all the way to extreme turnover. So, imagine sending in five days of inventory.
Ryan Cramer: Right.
James McConnell: crosstalk.
Ryan Cramer: That sounds asinine and crazy.
James McConnell: It's crazy, but you have to do a little bit of that to balance out some of your slow sellers because it's kind of an average game. Saying hey, if 80% of your inventory is running slow and now you've sold out all of your fast sellers and you can't restock those because of your slow sellers, now 95% of your inventory is slow. Amazon sees that and they're saying, " Man, you're getting worse and worse because your fast seller has already sold out, now you're stuck with all these slow sellers, so we're not going to let you send in your fast sellers." It's kind of like, what? What people need to do is overcompensate, and what I like to joke is under deliver to Amazon. So, you're sending in fewer units, very few days of cover, and pull back your slow sellers. I know it's expensive, I know it's terrible because removal orders take forever, and I know it's a headache, but I would rather have my inventory at FBA selling than having nothing that can be done and got okay, all my slow sellers aren't selling, my limits are terrible, I can't send in my fast sellers.
Ryan Cramer: Yeah, James, that's another issue that I don't understand either. Why is Amazon accounting this to be or why are they pushing this to be account based instead of ASIN based? Because it would behoove, like you said, if that issue came to play, that's a very difficult thing from a business perspective for Amazon to say, " Listen, I'm going to penalize you and not let you send in inventory that does sell through our solution, which makes us money. Instead, I want you to keep suppressing you so that you can't get your inventory in there." Why would it not be ASIN based instead of account based, how it currently is?
James McConnell: So, I like to use the analogy of 1, 000 cubic feet, 1, 000 cubic meters, whatever unit of measure you want to use, but we'll just use 1, 000 cubic feet. If that normally stores 90 days of inventory at Amazon, Amazon is saying, " I don't really care. We just want that to be three sellers of 30 days of inventory. Now we've turned that entire 1, 000 cubic feet of space in one month." This policy, going from ASINs to accounts said okay, there are sellers in here with 600 days of inventory of some ASINs, 200 units, doesn't sell very much. Well, you can see, multiply that by thousands of SKUs, thousands of ASINs and tens of thousands of sellers, and now you have a lot of dead and bad inventory. Now, are there great sellers mixed in? Absolutely, and they even loosened that up for you last year on individual SKUs, but the big picture thing is let's say 30% of their space was being well optimized, but 70% was just being brutal. There was so much storage of junk products, bad PL launches, products that aren't selling very fast, et cetera. So, Amazon said, " Hey, the only way to fix this is to force everyone to have extremely good inventory management across the board." Because yeah, you have a few sellers, but if on average your overall inventory is slow turnover, then on average we're storing stuff instead of fulfilling stuff.
Ryan Cramer: Great. How do we grow our limits? What's the best way to say I want to continue to evolve and grow, and as I build onto my brand, adding more inventory, what's going to be the easiest way to grow that, or I should say the most effective way to grow that? I won't say easy because I'm assuming it's not.
James McConnell: So, in my analysis we noticed that increasing turnover did not guarantee higher restock limits, but higher restock limit sellers, they were utilizing 5% or 10% or 20%, very, very low utilization had excellent turnover. We're talking we had some sellers that they were turning their inventory 20 times a year. Now, is that realistic for everyone? Absolutely not, but we do know that if you keep your inventory lean, and let's say your sales increase 2% a month, but if you keep your inventory lean, your restock limits should naturally either maintain stability or slowly rise, because now you're selling more inventory having with less stock. Now Amazon says, " Man, you're really good at inventory management. We'll give you some more space." And I'd like to use the credit score analogy, that people just max out their credit card or max out their limit. It's not a guarantee, but it's a good analogy for some people that you probably aren't optimizing your inventory because I have more limits than I need right now because my inventory is I'm only sending in 30 days, or 15 days, or sometimes even less. It makes sense for me, it may not make sense for everyone, but Amazon sees that and they say, " We want you to keep growing your business and want you to keep sending in stock because your stuff sells out fast." And that's not just one or two SKUs, it's your whole inventory. It doesn't mean you need to sell more, so I have a bunch of new SKUs that we've added to our catalog. They're almost all slow sellers, but I'm not sending in 500, I'm sending in 12 or six, or 20 instead of sending in 300 or 500, and that makes sense because they may sell 12 units a month. So, if you're sending in six units twice a month, Amazon loves that and they've kind of naturally rewarded that in most cases.
Ryan Cramer: Right, because the limits are low but you're still" selling" through it all and at a good rate.
James McConnell: crosstalk.
Ryan Cramer: Right. They still make money off of you. In that regards to is this going to provide... Is when you optimize your logistics, is that going to be the number one component people have to lick with to launch and rank basically your products on Amazon? Because in this case you're talking about if I don't optimize or I have a lot of dead weight, maybe people lose a lot of ranking capability or ability to burn through inventory, or if you're even trying to launch a product, now it becomes a little bit a slower process because I can't just give away units or do heavy discount and drive people to traffic and sell through is not going to be the number one component. Now I have to keep things in stock so that that burn rate continues to lengthen, thus making my product more viable in Amazon's eyes. Is that going to be the new thing people look at when in terms of launching products?
James McConnell: I think what people are going to have to learn is unless your product can be fulfilled by merchant affordably, which we can touch a little bit on that a little bit, the products that really can't affordably be done by merchant have to have a slower and longer growth. They can't have hockey stick growth where you're just skyrocketing in rank. You're going to have to have a steady increase and climb the ladder instead of day one we sold 10, day two we sold 100, day three we sold 1, 000. That's hockey stick growth. Now, that's an extreme scenario, but you get the idea of saying you can't do that anymore, unless you can fulfill it yourself, and then you can have theoretically infinite capacity. But the sellers that are selling less expensive products or products that are just more expensive to fulfill, your launch strategy may be three months instead of three weeks. That requires a whole lot more planning. You can't just send it all to Amazon anymore, and you're going to have to really evaluate what does a launch strategy look like to balance out, and maybe some of your fast sellers, if you have existing inventory, you're going to have to trim those down to loosen up some space for this new launch. It's not easy, it's not hard, it's not fun, and it's not cheap, but it's either learn this or let Amazon run over you and you're going to be like okay, not selling anything.
Ryan Cramer: Right. I'm going to go back to original point two. I think going back to the beginning of the show I was asking a question. You were explaining saving time, money and effort and putting money to your bottom line is effectively what you're trying to do for your business. I want to go to the fact of maybe we take a step back further instead of just inventory. How does this affect relationships internationally with either your manufacturer or supplier and how do you move forward with them? Is this a conversation you have with them of saying I want to still do this amount of inventory, but I want to do it smaller batches at a time? Can you hold on to this inventory at half rate or whatnot, or can we negotiate payment terms? How does this effectively make you go back to your supplier and say, " We need to work together and figure this out as well"?
James McConnell: So, two things. This business is either going to become more capital intensive or you're going to have more negotiations with suppliers. It can really only go one of those two ways. I don't really see it getting much easier because this changes in Amazon's benefit. Sure, there's some sellers that are not be able to send in all their inventory of the fast sellers, but on average, they're going to be fulfilling more and storing less. So, if your supplier, if you can split it up, great. Otherwise, you may have to buy inventory and store it at your house, your warehouse, et cetera.
Ryan Cramer: Okay. What's kind of your... If you had to put on your cap and you had to play predictions for a little bit, I hate doing that with Amazon because it always seems to swing the other way what a lot of people think might happen. How does this effectively alter how sellers function, besides logistics? Is this going to be, like you said, more capital intensive? Is this going to weed out a lot of sellers? We're going to start to see less but more people going towards bigger players that are going to only last in the space? Who is going to effectively get... How are we going to see this landscape change?
James McConnell: Yes. So, it's not going to crush all sellers kind of equally, obviously, but what it's going to highlight is the ones that are running their businesses professionally. So, that can be a small seller, that can be a large seller. I know large sellers that don't run their business professionally and they don't know squat about their shipping cost, or their metrics in a variety of areas. I've been amazed by some of them saying, " Hey, we spend millions of dollars on shipping a year but it's just part of doing business." You don't want to save any of that money, what? But it's how sellers look at this. If you were selling to Walmart, Target, Costco, et cetera, you would have to have good inventory management to be able to work with them. It's forcing sellers to kind of level up in professionalism in this side of the business and operations, saying a small seller can do it, but you now have to have another dashboard and saying hey, okay, our PPC is good, our sales are good. Well, what does our operations look like now? The metrics that you didn't really care about before, now you have to care about. The ones that do, will do better.
Ryan Cramer: Absolutely. With that being said, I think there would be a way too of a lot of sellers trying to do fulfilled by merchant in Prime, because if... Do you think that process is still easy to be a part of or what are the situations that people can be effectively moving towards that if they do have that inventory capability at their own house, at their own warehouse, so on and so forth, or just sharing space in that regards? Do you see a move towards that quite extensively or it's just going to be marginal?
James McConnell: Everyone can do merchant fulfilled, not everyone can do it profitably. So, you ain't going to beat FBA's rates, I'm just going to tell you that right now. I have items that Amazon fulfills, packs, puts in a box, ships them, all of that for cheaper than I can ship it, not counting the box it goes in, not counting the labor, not counting the storage, all that stuff, they can do it cheaper. It's going to be a big wake up call for people in Q4 who say, " Hey, we want to fulfill this for$ 3. 50." The shipping costs$ 4, how are we going to fulfill it for$ 3. 50? Plus, if you're using a 3PL or a service provider, they charge pick and pack, they charge other fees. So, even if you're doing it yourself, you can't pick and pack stuff for free, someone has to do that. Shipping cost alone it's something you can do. Seller fulfilled Prime is open, it's just they have very, very high metrics to meet, higher requirements. They're not easy, but you can get in it. Then working with 3PLs that are aware of all that or your own warehouse staff, I would be aware and understand the merchant fulfilled/ seller fulfilled Prime process now, whether you use it or not, because it's something to prepare for, it's something to learn. Be aware of the costs associated with it. Your box costs money, your time to pick and pack, you're sorting all these packages. Doing 10 packages is easy, doing 1, 000, not so much.
Ryan Cramer: Great. At scale that can become an issue. So James, what's your plan moving forward? With all of this being said, what are you guys focusing in the most and helping customers kind of grow and prepare for Q3 and Q4?
James McConnell: So, one of the biggest things is we're trying to reduce the time between the time it's added to a shipment and the time it checks in on Amazon. We've done that pretty successfully, now we can get trucks that are driving to Amazon directly from our facility. The next thing that we're doing is saying, " Hey, we can do drip feeding." So, maybe it's just through UPS, but we send in a box a week, or two boxes a week, or whatever it is, and that's helping clients and customers that are saying, " Hey, how do we get stuff into Amazon more frequently?" And then being prepared for merchant fulfilled in Q4. It's not to say that restock limits won't get better. I do hope they do, but we have to be prepared because Q4 we always saw Q4 as this crazy time. We're dealing with crazy time right now, and what is it, June?
Ryan Cramer: Yeah.
James McConnell: It's never been this crazy in June. So, being prepared for all that is very key.
Ryan Cramer: Well, as always, fantastic stuff, man. I think, like you said, I know a lot of people had said it's not the sexy or fun topic to talk about, but we're seeing the swing towards now it's becoming, for a lack of a better term, a lot of people who are data nerds like you and me, now all of a sudden become more viable in terms of saving time, money, and effort, and then obviously you become the popular kid in the room of how do we fix this, how can you save me money, help me pass my test. All of a sudden like this, right? It's all of a sudden become this space where lots of people have to live now, and effectively do it quickly. So, we're seeing these pain points in growth, but it sounds like you're doing all right, man. It sounds like you figured it out. We've put the link to your blog and what your data and analytics showed. So, definitely check that out if you are watching this or if you're listening to this. This will be also in the show notes as well. But that being said, we just lost James, so I wanted to thank him before he passed out, or kind of went away there and lost internet connection. It looks like he had to bounce away, but if he comes back we'll make sure we give him a quick thank you as well. But that being said, that was restock limits and inventory management from the one and only, James McConnell. You heard it from him. Super important to understand that Amazon has changed these for their more logistic and fulfillment side, not just storage units. So, that is what I took away from that. Hopefully this applied to your business and you can get some great takeaways and apply it starting today, because as you know, Q3 and Q4 are certainly on the horizon. It's times to plan for right now. We just passed Prime Day, so everyone has their eyes on the rest of the year and even planning for 2022. Always important to plan for the worst, not the best, and I got James back again after we lost him. James, we lost you there for a second. No worries.
James McConnell: Sorry about that.
Ryan Cramer: No, it's all good. We were just kind of recapping for you, just saying obviously have your eyes on Q3, Q4. I wanted to thank you for kind of sharing those insights and great tips and help that you're referring. Again, in the show notes we've put those findings from your blog and articles. So, thank you so much again for another show now. You're always welcome on any time to discuss findings and if you have new data that you can share with us and helping other sellers grow, we would love to have you back on.
James McConnell: Absolutely. Sorry about that, my internet connection. Absolutely, and if anyone wants to reach out to me, I mean, I'm on most of the social media platforms, either as my name or as James Universe. Happy to chat with people and say hey, you got a quick question or whatever, and I love helping people. Sometimes it's a really, really easy fix. We told people like hey, just delete these three shipments, because you're not going to ship them. Oh, that solved all my problems.
Ryan Cramer: Great.
James McConnell: Other cases it's much more complex.
Ryan Cramer: Easy stuff.
James McConnell: And saying hey, you need to redesign your entire supply chain, because it was 100% dependent on Amazon, you can't do that anymore. That's not saying that you need to use me or use your own house or whatever, it's just because that's what Amazon is saying.
Ryan Cramer: Right, and you got to take a step back, reassess everything. Don't make irrational decisions. Kind of figure out, take it step by step, and obviously make the best decision for you and your business. So again, yeah. James, we connected you on all the social media. Go ahead and check out his website obviously at the Marketplace Prep website. It's going to be marketplaceprep. com. Again, the blog is also in the comments, in the show notes. You'll be able to find and take a look at that as well. Fantastic analysis of real clients that you are looking at and how to problem solve for that. So, definitely check it out. Read it today if you have to. I would assume better sooner than better for much of the other sellers, but follow him on social media as well. So, thank you so much for hopping on.
James McConnell: Absolutely. I appreciate it and thank you for having me on.
Ryan Cramer: Yeah, no problem. Again, James McConnell. You can also follow him on Clubhouse. He's always speaking on there too. So, make sure you check him out there, on those social media platforms. Again, this is episode 122 of Crossover Commerce, Amazon Restock Limits. Kind of demystifying all the headaches hopefully, but with those headaches there are solutions. Take some of the aspirin or the Tylenol that James is providing today and hopefully that will help cease, ease some of those pains that you might be having if you're an Amazon seller. I know it's certainly answered a lot of my questions, but painting that picture is always helpful, asking for help in that regards, or just checking out the solutions that James offered. But again, just keep always learning. Now we get to learn about logistics a little bit more frequently than maybe what we wanted to, but that's always a good thing, to learn more about your business and grow from there. Again, this is Crossover Commerce, this is episode 122. Thanks for joining me live again. We did four episodes this week, which is fantastic. As always, getting the best and brightest people in the Amazon space on the show. Next week will be no exception. We have lots of great guests lined up for you today. Go ahead and follow us on social media or follow myself to be notified when people will be going live, or I will be going live, and who will be coming on the show to give their insights to help you grow your business, both domestically and internationally, no matter where in the world you might exist. I'm Ryan Cramer, this is Crossover Commerce. Thanks to James McConnell, of course. We'll catch you guys next time. Take care.
Ryan Cramer of Crossover Commerce talks with James McConnell of Marketplace Prep to discuss the current status of Amazon restock limits.
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