With Q4 just around the corner, it’s the time of the year when savvy merchants are beginning to plan and predict their holiday inventory investments. What is going to be my biggest mover? What are my competitors going to bet on?
Although future inventory investments are often necessary to ensure stock of products to sell, for merchants with a diverse set of inventory and many SKUs, accurately predicting all products to invest in is virtually impossible especially with the practical limitations of limited capital to invest and external competition variables.
Merchants can use Just-In-Time (JIT) fulfillment to maintain a leaner business model to offset the uncertainty of inventory investment. Since inventory is not on hand but residing at a suppliers location, a merchant will have to add a ‘lead-time’ to ship parameter to each Amazon listing. This ensures a buffer for transit time between supplier and merchant.
In the fiercely competitive Amazon marketplace where many goods are commoditized, how does adding a lead-time affect demand and profitability? If all things including price are held equal, will adding a lead-time affect performance?
At Teikametrics, our data analytics team has reviewed the data from a wide variety of merchants in almost every category of Amazon. The data showed some very interesting results with a clear relationship between lead-time and demand however the strength of this relationship was highly dependent on the category in which the products were being sold.
For example, products in the Electronics category were affected far more than products in the Clothing and Apparel category. With many variables at play it is unscientific to define a root cause however, we believe since the Electronics category has many larger sellers who hold inventory with where demand is highly price elastic, adding a lead-time immediately makes a product listing less attractive. In contrast, the Clothing category has many more choices with far less merchants per listing competing with one another across the same SKUs. Also, since the nature of apparel items results in many permutations as a result of options such as Size and Color variations, competition from FBA sellers is far less aggressive. If FBA can be deemed the nemesis for longer lead-times via JIT, there is a lot less FBA on apparel listings in the Clothing category.