An article in the Retail Dive Brief* on August 5 jumped out at us with some fright. (We’ll get to what concerns us greatly in a moment.) Here's what was shared:
But merchants need not worry. (And this is what concerned us.) Amazon can assure that "sellers will have enough room for six months of inventory on average." 👀
- As reported by Max Garland, Amazon Merchants who use Fulfillment By Amazon are advised to send their holiday inventory to Amazon during August and September, to arrive no later than October 19, a week earlier than last year. (And six weeks in advance of Black Friday.)
- And Garland cautioned, "Sellers who miss the October inventory receiving deadline may have tough luck finding space at Amazon’s fulfillment centers."
But merchants need not worry. (And this is what concerned us.) Amazon can assure that "sellers will have enough room for six months of inventory on average." 👀
"Six months’ supply of inventory on average?!"
Amazon expects (enables? encourages? allows? insists? demands?) that Amazon Merchants operate at 2 turns?!
That is outrageous! Other than for jewelers and some shoe retailers, 2 turns could be a cash flow killer!
Some background.
Granted, 6 month’s supply of inventory does keep Amazon's expanding network of fulfillment centers filled and collecting fees. But, it surely is not contributing to the financial well-being of most of its Amazon Merchants.
According to Amazon, this is to "maximize the merchant's sales potential during the holidays." Hmm. That’s what lots of vendors say to retailers too.
We worry about their merchants’ survival potential come 2025. Cash IS king.
“No retailer ever filed bankruptcy because their turns were too high.”
—Michael Gould, late CEO, Bloomingdale’s
For more perspective, see the Key Ratios Benchmarks for all retail segments at RetailOwner.com.
* "Amazon moves up Black Friday inventory deadline for sellers." Retail Dive Brief, August 5, 2024.
Amazon expects (enables? encourages? allows? insists? demands?) that Amazon Merchants operate at 2 turns?!
That is outrageous! Other than for jewelers and some shoe retailers, 2 turns could be a cash flow killer!
Some background.
- Twelve months divided by 6 months inventory on hand = 2 turns.
- But for example, 4 turns = 3 months supply, which would mean half the amount of cash tied up in inventory.
- Truism: The higher the turns, the lower the cash tied up in inventory.
Granted, 6 month’s supply of inventory does keep Amazon's expanding network of fulfillment centers filled and collecting fees. But, it surely is not contributing to the financial well-being of most of its Amazon Merchants.
According to Amazon, this is to "maximize the merchant's sales potential during the holidays." Hmm. That’s what lots of vendors say to retailers too.
We worry about their merchants’ survival potential come 2025. Cash IS king.
“No retailer ever filed bankruptcy because their turns were too high.”
—Michael Gould, late CEO, Bloomingdale’s
For more perspective, see the Key Ratios Benchmarks for all retail segments at RetailOwner.com.
- Compare the inventory turnover rates for each retail segment.
- Spoiler alert: in 2023, only one retail segment had a turn rate below 2.
- BTW, these benchmarks are for the median-performing retailers, the middle of the pack. There's also the top quartile, the top 25%, that have even higher turn rates, and likely much better cash flow!
* "Amazon moves up Black Friday inventory deadline for sellers." Retail Dive Brief, August 5, 2024.