Dharmesh Mehta, Amazon’s VP for Selling Partner Services, announced a new streamlined FBA capacity management system, which includes a new feature for sellers bogged down by their capacity limits. Starting March 2023, Amazon will turn FBA into an auction, so sellers may go beyond their allocated warehouse space by bidding for more. In a way, you could say that sellers will now bid for two things – first, their PPC, and second, their warehouse capacity. But what does this all mean for the Amazon seller?
Auctioned FBA Space Means More Predictability & Control
Mehta’s blog introduces 4 new FBA capacity management features:
- A single, month-long FBA capacity limit, where capacity limits will be announced in the third full week of each month
- Estimated capacity limits to help sellers plan three months in advance. Amazon will provide estimated limits for the ensuing two months to help sellers plan, but the Inventory Performance Index will influence the estimates
- The opportunity to request a higher limit based on a reservation fee – which can be refunded 100% if the stock in that extra space is sold out in a given time frame
- FBA capacity limits in volume to better reflect capacity usage
This change comes on the heels of the feedback from many sellers, who expressed that they need “more capacity, more predictability, and more control over their inventory,” according to eCommerce Bytes.
Sellers will submit their request for added capacity and their bid. To keep it simple, the space will be awarded to the highest bidder. However, as we’ve come to expect with FBA, nothing is quite as simple as it seems. Sellers’ IPI will serve as the main KPI, but other KPIs also include sales forecasts for their ASINs, shipment lead time, and Amazon fulfillment center capacity.
Auctioned FBA Space Will Discourage Slow-Moving and Unproductive Inventory
Casey Green, director of sales at Pattern, tells Modern Retail that brands who have unproductive inventory sitting in Amazon warehouses and fulfillment sellers might get hurt by these new developments. Sellers who are unable to move inventory may find lowered chances as requesting for additional space in the future. “People that have product that’s fast moving, I think it’s going to be great for them, and they can request more product or more space, but those that are unproductive, it’s going to hurt them,” he was quoted as saying.
Value Added Resource also notes, “These changes add more complexity and will likely lead to sellers losing even more margin to fees.”
Vanessa Hung, an excellent resource person for Amazon account management, commented on this LinkedIn post, “Between this and the fee increases rolling out in the first quarter, sellers must be more intensively managing their inventory to bear the cost of using FBA. On April 1st, they are implementing the Storage Utilization Surcharge, which will kill the bottom line for most SKUs with 90 days of inventory in FBA + this bid for space.”
Will This Change Benefit Smaller Sellers Too?
Large sellers will definitely benefit from this change. They have the budget and the product sell-through to justify the need – plus their IPI scores are probably quite healthy. Smaller sellers fear that they’ll be left in the dark. Will the change be democratic for all involved, big and small? Or will larger brands win the auction game and dominate the fulfillment center space?
As of the publishing of this blog, there are still kinks that need to be ironed out – or perhaps Amazon hasn’t rolled out the full communications on this yet. Whatever the case may be, it’s worth it to keep an eye and ear out for updates.
If your IPI score, your budget, and your sell-through justify the additional capacity, why not go for it? After all, if you can guarantee that the stock you’ll place in the extra space will sell out, you’ll get your reservation fee back. Perhaps all of this is a way for the e-Commerce giant to avoid being used as a warehousing space for unproductive inventory and problematic listings.
It will definitely be interesting to see how this will pan out.