The e-commerce environment has continued to experience major shifts and transitions over the last decade, significantly impacting consumers and sellers on various platforms.
Amazon FBA Changes Impact Sellers
Successful e-commerce entrepreneur and coach Gav Kwok, who has experience working on popular sites like Shopify and Amazon, opens up on the peculiar challenges the industry is going through and how the recent changes to Amazon FBA are likely to impact sellers.
“It’s affected our business. A lot of products that we’ve assigned big volumes are no longer profitable; the margins were already kind of low to begin with,” Gav Kwok explains.
According to Kwok, a Las Vegas-based entrepreneur who began his Amazon FBA partnership while still in medical school, many sellers have had to adjust their strategies for selling different products over time.
The new changes in Amazon’s FBA fee structure place higher charges on third-party sellers to prevent them from selling inventories at the competitive price consumers have come to expect from Amazon’s platform.
“We have had to adjust our prices, pretty much for every single product,” says Gav Kwok. “There are a lot of products that we’re phasing out, finishing up selling the inventory, that we’re no longer going to sell because the margins are just not there right now.”
Getting Rid of Inventory
For the same reason, many sellers have found themselves in a situation where they must get rid of their inventory or risk Amazon lowering their Inventory Performance Index (IPI) score, which determines how well items are selling well in the market and how sellers are performing.
In the final analysis, if the cost of keeping products on Amazon is greater than the margin that they make, and the seller isn’t moving inventory, Amazon will lower their score even more.
Seller Scores
“Every seller gets a score based on how much inventory they sell; it can either go up or down depending on how quickly inventories get sold. If you have inventory that’s stuck in the warehouse for like six months or a year, Amazon gives you a lower score because they know the seller doesn’t know what they’re doing,” Gav Kwok explains.
“Amazon sees that they ordered too much inventory. They don’t know how to sell their products properly, so we’re going to allocate them less inventory space. A good seller normally has their inventory max two to three months.”
According to Kwok, sellers should plot a graph to determine which products are performing well in the market and which must be phased out of their inventory completely to ensure they are not always at the bottom of the profit margin table.
Many e-commerce entrepreneurs stockpile goods in their inventory without knowing how to move those goods and how to work their way around on the platform, so they end up with items they can’t get off the shelf.
Sellers who find unsold items on their shelves for too long usually put them on sale to get rid of them. Typically, sellers lower prices for inventories that are not getting sold quickly while upping the margins for goods that are popular with consumers.
“There are some products that we’ve had to phase out to make way for better products,” Kwok says. “We’re no longer selling them because the margins are just not there right now.”
The Rise in Inventory Prices
This strategy, in turn, raises prices for the consumer. The rise in inventory prices may be a turnoff for many consumers.
“The next quarter might be even worse,” Gav projects, pointing out that with the price increases, consumers may strongly consider whether or not they have to buy things from Amazon instead of a physical store where they might be likely to get it cheaper.
“Unlike during lockdown, I don’t shop as much on Amazon as I used to,” Gav says.
“I’m sure other consumers are the same way. So, we have seen a decline in consumer spending. I believe that was Amazon’s worst Q4 earnings in the past 10 years.”
Manage Risks From The Beginning
Nothing is guaranteed at the end of the day. Gav Kwok encourages managing your risks from the beginning. his greatest desire was financial freedom, which he found in e-commerce.
Whether on Amazon, Shopify, or some other platforms, Gav Kwok is all about e-commerce; that’s his focus and passion.
When he talks to aspiring entrepreneurs, he suggests they do the same – pick a business or an idea they are passionate about and pay attention to every aspect of it.