Amazon has poured billions of dollars into warehouse expansion during the past decade to make room for the massive influx of inventory the company is storing for third-party sellers. Now, it's putting in place a program to force those sellers to use the space more efficiently, penalizing those who don't.
It's part of Amazon's effort to ease its growing warehouse congestion problem. The company can't open fulfillment centers quickly enough to meet the demand that comes with having millions of outside sellers on Amazon. Third-party merchants now account for more than half of products sold on the site.
In an attempt to reduce the clutter, Amazon is instituting a system called the Inventory Performance Index, which it describes as a “first step in setting a bar” on inventory performance. The IPI measures how well each merchant manages its inventory, removes products that aren't selling and fixes its listings as needed.
Starting Sunday, inventory that stays in Amazon's warehouses for too long without being shipped to customers or taken back will hurt a seller's IPI score. Those with a score below 350 won't be able to send more products into Amazon’s warehouses and will incur a monthly “overage fee” on the inventory that exceeds their storage limits. Sellers above 350 won't have any restrictions on storage space. Scores range from 0 to 1,000.
Until now, sellers could rent unlimited storage regardless of how effectively they managed their inventory. In the initial stages of the new program, only a small number of sellers will be affected by the storage limit.
“Amazon is in the business of selling — not storing — your stuff,” said Chad Rubin, CEO of Skubana, a developer of sales software. “The IPI score essentially forces sellers to move inventory that’s just sitting there, and Amazon gets to make more money off of them.”