Paul Sonneveld
Hi, everyone. Welcome back to Marketplace Masters. I'm your host, Paul Sonneveld. And today we're going to tackle a problem that every Amazon brand runs into sooner or later, slow-moving or stuck inventory and the tough decisions that come with that. Today, I am joined by Chad Davis, founder of Lucra Commerce, a results-driven Amazon marketplace and e-commerce growth agency that helps brands scale profitably on Amazon and other digital retail channels. Chad has a strong background in marketplace strategy, advertising optimisation, and operational execution. And he really combines analytical precision with hands-on leadership to unlock measurable growth for his clients.
In this live session, we're going to break down how inventory actually gets stuck in the first place, what it really costs you, and the practical liquidation options brands can guide clients through, including price moves, removals, returns, and other strategies. And of course, we'll leave plenty of time for Q&A. So if you are tuning in live, make sure to drop your questions in the LinkedIn comments section or on YouTube. All right. Without further ado, Chet, welcome to the show. It's so great to have you here.
Chad Davis
I would say super excited to dive in, and thanks for having me.
Paul Sonneveld
Yeah, it's such a practical and, I guess, painful topic. Whenever this topic comes up, there's always frustration and challenge involved. So I'm glad we're tackling it today. So let's start right from the top. You know, in your experience, you know, how does inventory become slow-moving or stock? I mean, what are the most common ways that happens?
Chad Davis
Yeah. So Paul, I think this whole subject of slow-moving inventory, it's a subject that no one really wants to spend a lot of time in and where this usually results from three real things for me, uh, just poor management of inventory punishment, which stems from maybe you have the wrong person looking at weekly demand and replenishing it into Amazon, not using maybe the right type of replenishment tools.
Seasonal products always have issues with overstock because a lot of times it's a one-shot deal in terms of bringing in the inventory. And so high stakes of getting that right. And then really just when you're in the mix of a peak season just having the finger of a pulse of how demand is looking, and how many days you have left until Christmas is here. Just having a finger on the pulse of those things can prevent you from even getting into the situation where you have overstocked inventory in the first place.
Paul Sonneveld
As you're talking about that, I'm starting to have nightmares coming back to me from many years ago, working in retail and being responsible for seasonal ranges, right? And managing like sell through, you know, we're now twenty days out from Christmas, ten days out, you know, we're seventy percent. We need to start clearing like it's there goes your profit, right? So, you know, the whole demand planning, merchandise planning is so critical. Go ahead.
Chad Davis
I just wanted to share my retail experience started in my parents' family business. I grew up in a novelty gift business. My parents had retail stores in the local malls in Long Island, New York. We also sold on Amazon. And so when you sell products that, you know, eighty percent of the business happens in four weeks, the pressure to get those forecasts correct is extremely high and the pressure of actually selling through, not holding inventory when demand just falls off a cliff is just so critical. And so I do have some PTSD stories that I can share maybe another time, but-
Paul Sonneveld
Yeah, I know that. While everyone's enjoying the holiday spirit and the festive season, there's a few people really stressed out, right? Because it's sort of make or break time, a hundred percent. And that assumes you managed to get the stock into the country in the first place. Because I remember lots of situations as well where a container is still in the water or delayed or sitting on a customs stock because they decided to go on strike. You're like, well, I can't do anything with this inventory in January.
So fascinating. So, it's really interesting that you've got that sort of more retail offline experience in our Amazon as well. In terms of underlying causes, would you say, are there any like are there any particular differences in in sort of the Amazon world versus those of us that are sort of managed this from a kind of offline retail point of view? I mean are there any sort of underlying causes that are different, or maybe have a different angle of flavour?
Chad Davis
Yeah, i just want to share the way that you can send inventory into Amazon, because it's so, being nimble and being flexible is just so important during these moments. With the brands that I work with, we send an inventory via SPD and LTL. SPD is basically a UPS shipment. It's much more expensive, but you can get inventory into Amazon in a week versus LTL could be three weeks, could be five weeks. And just managing your inventory with those two replenishment methods is so important to keep the ability to react to changes in demand, which as you know, on Amazon can change pretty frequently and get disrupted, increases a lot of time.
Paul Sonneveld
Do you mind just expanding a little bit on the SPD method? Like, what is it exactly, particularly for our non-US audience, you know, what is it and why do you get that benefit of getting in quickly?
Chad Davis
Yeah, I would love to just, let me just share my screen quickly with you. So this is actually a real inventory dashboard that I use with my clients. And what I track is the fillable weeks of cover and then total weeks of cover. The gap is inventory that is inbound into Amazon. And so as I'm headed into a peak season, I look at these numbers, and my goal is to keep about ten to twelve weeks of supply. It depends on the brand, depends on the category, depends on the circumstance.
But I look at weeks of cover, sales, and then I have going backwards how many units I'm selling per week to give me a sense of reference to know how real is last week's demand. Is it just a blip or is that, is this pretty stable and with SPD, when I have less than four weeks of supply or so, I can get inventory in so quick. So it's kind of my breaking case of emergency method. LTL is my cheaper method that when I have a good amount of inventory, like product J in this example, I have nine weeks now. Maybe I want to just send in three via LTL, and if it gets in three to four weeks, that's perfectly fine. It's not an emergency situation. But what that allows me to do is to send LTLs that won't put me at risk of overstock and use SPD to fill in when the LTLs get delayed, or we see a sudden increase in demand, those kind of situations.
Paul Sonneveld
Yeah, gotcha. So it's really a lever to if somehow your sell-through accelerates and you're sitting on less weeks cover than you're hoping for. And now that window of the LTL delivery is just a little bit too tight. You've got a short-term option there at a premium, you know, obviously, I assume to really bring that stock in.
Chad Davis
Yeah. And what I see with a lot of brands that I work with, they don't use both. They usually just send in big LTLs because it's cost-efficient. And that sometimes leads to overstock when demand suddenly starts to fall off. Or I have brands who take a forecast and will just send inventory based on the forecast that we created six months ago but that's no longer relevant when you're in the day in and day out. And so one of the one of the answers to your question of how do you avoid this situation is a the person who is in tune with day-to-day demand and the ops manager should be working very closely together to strategically replenishment to Amazon.
Paul Sonneveld
I was actually going to ask a specific question on that, which is, in the physical retail world, I'm very used to working with merchandise planners, right? It's their day job. They're crunching numbers all day long, seeing if demands change, if we need to do things, they need to accelerate. I mean, what are you seeing in the Amazon space, particularly as you work with brands? You know, to what extent is that capability embedded within, you know, Amazon brands? Or is this a fairly new thing? I mean, what are you seeing?
Chad Davis
I guess in terms of the data, I guess you're asking, right, Paul? Like what's available to us?
Paul Sonneveld
I guess data, but more also the maturity and the investment in specific capabilities to really manage that from a merchandise planning or demand planning point of view. I mean, do you find, let me put it this way. Do you find that all of your clients have dedicated people just to do this, or is it someone's side hustle to kind of, you know, is the focus there? And I'm sure the answer depends on the brand, but sort of what would be your industry observation?
Chad Davis
My, yeah. Totally understood. It is almost uniformly someone's second job on top of their existing job. I work with many omni channel brands with of which amazon may be growing for them but you know maybe their DTC presence is bigger maybe they have a you know a real big omnichannel business. The situations that I see is for those omnichannel brands, they don't have a dedicated person who understands the intricacies of all these different rules and all these different situations, like I'm describing. Or they are invested in Amazon, but they have really an ops manager who is not looking at the week-by-week sales that I was showing you in my inventory dashboard, which is so critical for getting inventory.
Paul Sonneveld
Yeah, yeah, for sure. All right, well, let's get into the practicalities of this. So you've just signed a new client. They're telling you, Chad, we've got a massive inventory problem. What are the first metrics you go to and look at? How do you kind of, don't just take their word for it, but how do you diagnose?
Chad Davis
Yeah, so three things that I look at. For a specific product, is it selling already? Or is it, there’s a strategic difference in trying to accelerate or move a product that already sells a good amount of volume versus a product that maybe is seasonal and just no longer sells at all anymore. I have worked with brands who thought that maybe assigning a twenty percent off discount to a dead product would move it. Totally not the case. So, really understanding existing velocity and where it stands in the market in terms of price point is really something important to know.
How old is the inventory? So, for those who don't know, inventory fees progressively get worse. You're kind of in a low-stakes period for the first six months. At six months, those long-term storage fees kick in. At nine months, they get significantly worse. At twelve months, they get even more worse than fifteen months. I hope no one has inventory in Amazon for fifteen months. So knowing how old it is helps us understand how urgent the situation is.
And the last part, which I'm going to get into a real example on, is how big is the inventory? And I mean, which in size, cubic feet, very small products might be okay leaving an Amazon for a while. Very big products you're going to pay very heavy fees to leave that in. And you might want to dispose or do a very deep discount in order to sell through. So those are the three things that you really need to understand at a product level when diving into inventory long-term storage.
Paul Sonneveld
Yeah. I mean, I love that delineation between is it dead or is it alive, right? You can, if it's got momentum, you can try and accelerate that a little bit, but if it's, It's just not moving. It probably means it's not ranked. It's gathering dust. Then you've got to be really careful not to get into this wishful thinking. Let's just do a discount. Let's do a coupon. We'll solve the problem. Exactly. Probably not, right? Probably not. After you've diagnosed it, right, what is the framework that you use to assess what to do, right? How do you determine whether inventory should be liquidated, salvaged, removed, written off, or, you know, actually, we just need to go, let's just go nuts on advertising because we think that, you know, how do you make those decisions and what leads to what action?
Chad Davis
Yeah, before I can, to me, I'm a lucra commerce. If anyone doesn't know lucra means profit, everything that me and my team does is based on profit. So, before I get into the actual math of how do you make these decisions? The first thing you have to ask yourself is, are you going to sell this product again? Or are you going to discontinue it? If you're going to discontinue it, you have a lot more flexibility of decision-making.
You might not want to make some of these decisions if you plan to sell it again. A couple of examples of this. I'll give you a real example. I used to work for Sharpie back in the day. Sharpie would sometimes liquidate inventory. A situation happened where they sold Good inventory for pennies on the dime. It went overseas somewhere. It ended up coming back on Amazon months later. And some reseller got to hold that inventory, resold on Amazon, and just completely disrupted this brand for a considerable amount of time.
So if you plan on selling that inventory again, you might want to avoid liquidators. You might want to avoid super deep discounts. And just be careful with that. Also, when you remove long-term storage out of Amazon, you can send it back another ninety days. So, something to just keep in mind. Another thing that a decision trade that you want to think about is sometimes you want to decide, do I want to just bring it back to my warehouse? And I think what you have to think about in those situations is, does it financially make sense?
I would do this all this exercise all the time in my parents' toy business, where it actually was more expensive to bring the product back than just throw it in the garbage and probably wouldn't even be able to sell it anyway for a very long time. And so there's numbers that you can apply to those decisions to make that choice. And so Those are probably the main things I ask myself before getting into the weeds of the numbers of what it costs to leave an Amazon versus dispose versus do a price discount versus buy your own inventory.
Paul Sonneveld
Yeah, that's really, really helpful. I mean, you can run the numbers on each of those scenarios, but I think the watch out is your example is very relevant, right? If people want to buy the stock off your hands at a good price and they seem keen, clearly, they think they have an arbitrage opportunity somewhere else to sell it. And certainly from a US point of view, it is the largest market and probably the easiest market to sell.
So be very, very careful about that. You lose complete control, brand pricing, and the like. What about price reductions so we obviously spoke about i guess these scenarios like the product is dead right? We need to find a way of exiting from the Amazon's warehouse, but what if it's not that? What if it's got some momentum, now we're getting into sort of price reductions or coupons or advertising i mean, how do you think about that piece of the puzzle?
Chad Davis
Yeah, I want to share my screen again i want to show just a live example. There's two examples I want to kind of talk through. Artificial trees, a very big product, and a Christmas ornament. These are two products I have worked with in my career. And I want to talk about how pricing can be the right decision or maybe the wrong decision. And the first thing I do is look at what our product level P&L looks like. Let's look at the Christmas ornaments example.
Every day we sell for twelve ninety nine before ads we're left with six dollars if we lower this let's say lower to nine ninety nine and i know we'll get some gains from fulfillment fees filming people change but we're left with three fifty seven that's how much if we don't need to advertise i mean feel free to keep lowering this price until it sells through assuming you know you're not here to hold this until next year.
That's what you have to really troubleshoot that cost versus removal costs, which I'm just going to quickly flash these costs here. Ornaments are very light, but it costs a dollar to bring back or dispose. It's the same cost. And so before I pay Amazon a dollar to bring this back, I want to discount this until I’m breaking it. So how well can I actually go? 499. I lose fifty eight cents before advertising. Hopefully, at four ninety nine, I won't need advertising. And so that's how I decide kind of the removal disposal versus the price. And let me just show kind of the age inventory. I'm just going to walk through this quickly, Paul, if that's OK.
Paul Sonneveld
No, that's great. I love this practical example. This is real, real life data, right? So, uh,
Chad Davis
This is real, this is a real product, a real situation that happened this year, where we brought in a lot of Christmas ornaments, and we did not sell them all. Christmas ornaments, these are acrylic. They are very, very, very, very small. So the cost, the way Amazon inventory fees are calculated, is based on cubic feet. So the base fee is seventy eight cents per cubic foot because this is like a thousand, two thousandths of a cubic foot. It's almost zero. It's basically zero.
But again, as you get the six months, it goes up. You get an extra fifty cents, then nine months, it goes up dramatically from fifty cents per cubic foot to five forty-five per cubic foot, which is still not a lot when it's after small products. And you can actually see that here when you get to nine months, you go from like almost zero to two cents. So who cares if you're paying two cents in inventory? But then, when you get to twelve months, it’s 690 or 30 cent, that’s when you get hit hard. And so if I change this current inventory to twelve months, now all of a sudden that two cents per month cost is costing you thirty cents. And if you have a thousand of these, that thirty cents becomes three hundred dollars, which on a monthly basis adds up very, very quickly.
So in this Christmas ornaments example, my suggestion I made to my client is to hold it and try to sell it through the year because it doesn’t, it cost us pennies to just hold it in FBA. So might as well try to sell through it. This artificial tree example, totally different story where the cubic foot is actually pretty significant, two forty. And so while you pay a dollar eighty eight per month, normally once you get to twelve months, you're paying eighteen fifty per unit. So, again, if you have a thousand of these. Not sure if that worked exactly, but you're paying a significant amount on a bigger product. And so that's why originally I asked how big is the product and how old is it? Because that's going to change the urgency of the decision-making on actually against this bold inventory.
Paul Sonneveld
That is so, so fascinating. I mean, to me, this is really about really understanding the type of product that you have and how does it behave or how does Amazon behave as time goes by? Because they're great, right? Two very different situations there. Very interesting. Thanks for sharing that. I love when my guest speakers bring real data. It just makes it real. It's really fantastic. I doubt there's very few of us that have really, I mean, we all sort of look at our inventory cost, in terms of the P&L, like a lot of us have got P&L tools and all that, but actually sort of projecting out and understanding where that inflection point is for your particular product is super, super critical. I mean, so that's a big takeaway from today's discussion, I think.
Chad Davis
Yeah. Once you do all the math, there's significant cost savings to be had. And I have, I heard that clearly I nerd out on these troubleshooting decisions that you can make. Uh, but I would recommend everyone spends the time because there's, you know, multiple thousands of dollars, uh, in these situations that I've helped my clients save just by giving her, giving them all the options and being able to make that decision from a dollar standpoint.
Paul Sonneveld
Yeah, for sure. So when it comes to let's say you've done those numbers, and it makes sense to invest in price, right, or to invest in margin, let me just make a bit more generic, invest in margin to clear that product. Obviously, there are, you know, and we're sort of getting into the topic of like promotional effectiveness, right? You can reduce the price, we can put a coupon on it. We can, you know, maybe keep the price the same, but advertising, just give it more exposure. And there may be other levers as well. I mean, ultimately, they all gonna erode your margin, and it's all a form of investment, but how do you work through what's the right choice for a particular product?
Chad Davis
Yeah, I love everything I do. I love to do low effort, small, quick tests. And so if I wanted to start with price, I would start at and let's say the product moves inventory already has demand. I would start with a ten percent discount, twenty percent discount depends on how urgent you need to make this decision. But I’m looking for is the conversion rate change and the sessions change and the sessions change when you change that price.
Price typically impacts conversion rate fastest. And so I've had brands that I work with, when you lower the price to where the market is, this is premium brands, all of a sudden you see a massive conversion rate improvement. And that to me validates the effectiveness of the price. If you don't see that, you're probably just giving away a margin. And so maybe price is not the lever or the price that you're charging right now is not deep enough. And so maybe that's where you want to go thirty percent off, forty percent off. But based on the urgency of the situation, I like to slowly test downwards so I can still make a little bit of margin on it. You know, that's the kind of the best case scenario in those situations.
Paul Sonneveld
And from an effectiveness point of view, is it, is it always price that you go to, or are you finding that maybe sometimes coup, I guess, you know, we're talking price generically, but I'm really talking about like lowering the headline price versus keeping that high, but giving people a coupon, you know, in terms of effectiveness, I'm sure you've done lots of AB testing and played around with all these leverswhere have you landed on, on kind of the effectiveness of those?
Chad Davis
Yeah. I would say, in the majority of the situations, you're talking about C and D-tier products. You're not talking about A-tier products, or you rarely are. And with that said, I don't like to invest in deal fees. So I wouldn't invest in lightning deals. I wouldn't really invest in best deals in the majority of the situations. Coupons, to me, the coupon solves the click-through rate issue. If you have a click-through rate issue, that green badge, that coupon, sometimes can really help.
There are other situations, and I have a brand that I've worked with on this before, heavy subscriber safe brand. Instead of discounting it, why don't we just do a first order, fifty percent off subscriber safe discount? Let's get the subscriber, and let's give them a big discount. And you know what? If they opt in, they subscribe, and they leave after the first order, kind of the same difference as what we would have done with the price discount anyway. And maybe we can actually benefit from this. Maybe we can actually really increase our number of subscriptions. For those brands who have a lot of repeat customers and subscriptions, it's one of the first levers that I go for.
Paul Sonneveld
Yeah, it's almost like, can we just go heavier on the customer acquisition cost? Sort of think about it. I mean, we're still investing. It still hits your margin, but it's kind of a different strategic lens on keeping that customer.
Chad Davis
Yeah, with a benefit at the end of the day.
Paul Sonneveld
Yeah, that makes sense. Advertising, you haven't mentioned it. Where does this feature in all of this? Spend more on Ads.
Chad Davis
Such a tough one because typically, if you're overstocked, you probably don't have a high degree of confidence that incremental advertising is going to get you out of the position that you're in in the most profitable manner. And so I usually touch advertising last. But it's definitely a very situational decision to make, depending on is the product is a quick seller or the product is a dead seller.
One thing I would never ever do is start advertising aggressively on a product that has never really sold because really what you're trying to achieve there is to try to gain organic rank via advertising, gain momentum, and if this product is never sold, and you're going to discontinue it. It feels like you're investing in something that you're just wanting to turn off as soon as possible. And so advertising in those situations is something that I typically don't spend a lot of.
Paul Sonneveld
It's probably an unusual scenario, right? You sort of have to believe that the product has fantastic conversion and click-through, but somehow it's on page three hundred, and it just doesn't get the exposure. So if only you can lift the exposure, then the sales will come, right? I'm sure there's not too many products in that scenario. Assuming the Amazon algorithm would do something about that as well. So it makes sense.
I just want to go back. As we sort of close out, I want to go back to the topic of mistakes. I think you mentioned a really good one at the start of this, which is don't sell your inventory to a third party, ends up on the grey mark, and all of a sudden goes around the world, comes back and bites you in the backside, literally. What are the other big mistakes that you've seen your clients make? What are the kind of... three I call it like the banana skins right what are the three watchouts don't do this because it may sound like a great idea right now but it's gonna hurt you and you're gonna end up regretting it I mean what would be on your top three list?
Chad Davis
Yeah, and I'm going to talk about like specific like seasonality moments like Prime Day or holiday or something uh what I would definitely not recommend is let's say forecast we're gonna sell ten thousand units for the period, the three, four week period. I would not just send in ten thousand units in October and assume it's going to sell. What I do is I actually like to send in a percentage of the total forecast, maybe like fifty percent, sixty percent, something like that. So I have ample inventory to play around with and then leave the remaining part of the inventory as kind of ammunition to restock if the demand forecast follows the trend that I have seen.
With SPD, again, you have the ability to react to demand. You may not be able to do it at the very last second, but the end of November, beginning of December, you can still make moves to replenish your inventory without putting yourself in a bad position. And so that is one of the biggest mistakes that I see. People just send everything that they have to Amazon as soon as possible.
I think the other big mistake that I see sellers make is, this is especially true for new product launch, they look at how much other sellers have sold, and they assume that they're gonna sell the same amount or a percentage of it because of whatever reason. Whenever you're launching your product, give yourself some space to grow, but be fairly conservative and then restock slowly from there.
There's no reason to be super aggressive and to put yourself in these very painful situations because when it happens, when it happens that all of a sudden you have a year's worth of inventory and the product doesn't sell anymore, not only is it painful from a monetary standpoint, but it's a topic that nobody in the company wants to talk about because it's not fun. It sucks.
And that's why people hire me to kind of figure out that for them. But I would just be conservative. Don't just look at numbers and just fire away.
Paul Sonneveld
Yep. Don't get yourself into positive talk either, right? All the time. And yeah, it's that balance. And it's not easy. It's not easy because you can spend lots of time estimating and forecasting. And one thing's for sure, your forecast will not come true, right? You'll either be above or below. So you've got to have some plans and options to adjust.
Yes. Fantastic. Really, really great. Now, it is a live show. We're over time, but I do want to demonstrate people that we're live. So I do have a question from someone here from Gerard. I'm just going to bring it up. I think we covered it partially. But we'll do that question, and then we'll close out. So let me bring it up here. Thank you very much, Gerard, for asking this question. Appreciate it. His question is, if both ads and price reduce margin, how do you decide whether to push visibility versus drop the price first for age inventory? I think we spoke about a little bit, but it'd be good just to clarify the answer for Gerard there.
Chad Davis
Yeah, no, it's a great question. It's a hard one to answer. But what I will say is what I do in these situations is I compare myself versus the market. If my price is way above market, I typically lean on if I get closer to market in terms of price, my conversion rate will improve. And that's so much easier to execute by the way. You can change your price, you can learn within forty eight hours, you know, if that made any kind of difference, assuming you have a relatively quick, you know, high-demand product.
If that's not the case, and your conversion rate hasn't really changed, your volume hasn't really made a significant move, then you know what? Maybe you actually want to go back to your price, and you really want to invest in advertising. And if thirty percent is your break even a cost, maybe you want to bump that up to forty or even fifty percent ACoS, and maybe you get the same result from a margin perspective versus dropping the price. That's what I would suggest.
But again, what's the quickest way you can make an impact? To me, that's price. And so that's why I typically start first there.
Paul Sonneveld
Thank you, Chad. That was a great answer. Appreciate it. And on that note, thank you for this extremely practical session, inventory liquidation. It isn't just a technical problem. It's really about profitability and decision-making and you know really thank you for giving us a real practical example frameworks and share i mean i love those sort of those different examples that you shared as well how does it really work it's sort of we can talk conceptually. But there are the numbers like this is what you do, this is what it looks like so really fantastic. So, I really want to thank you, appreciate your time and I'd love to go deeper on this topic in the future with you.
Chad Davis
Awesome. Paul, thank you so much for having me. This was a lot of fun and I love nerding out on this stuff. So thanks again.
Paul Sonneveld
I'd like to say same here. All right. Thanks, Chad.
Chad Davis
Thanks, Paul.
Paul Sonneveld
Thanks to everyone that's joined us live today. Unfortunately, we are at the end here, but if you registered, obviously, you will receive the recording afterwards. You can resist the frameworks and the tactics we've covered. And you can also visit our website, go to merchantspring.io, where we have a resources section, where we have a whole wealth of on-demand videos relating to all sorts of topics around Amazon agency life, Amazon vendors, Amazon sellers, and the like. So, feel free o check that out.
But until next time, thank you for joining us. And I look forward to seeing you at our episode next week, where we're going to talk about, I've got a slide here, I think we're going to talk about with Scott Bass on Navigating Amazon Brand Registry as a Vendor, right? Clearly, as a vendor, you should just own your brand and do whatever you want to do. It's not quite the case. So we're going to go into the ins and outs of that next week. All right, with that i bid you goodbye. Thank you so much for tuning in, and take care.