By Gary Huang
What’s the first thing that comes to mind when you think of the holidays? Maybe it’s the stress of visiting family and hosting relatives and friends. Or maybe it means being able to unwind and take some time off to go on vacation. Or maybe it means it’s time to go shopping for some retail therapy.
As online sellers, when we head into the fourth quarter or holiday shopping season a couple things come to mind.
As a seller, going into the 4th quarter, I think of it as “WINNING TIME”. According to Amazon’s quarterly sales reports, 4th quarter sales increase at least 30%!
Amazon sales spike on average 30% in Q4 or $8-10 Billion dollars!
So as the saying goes “As the tide rises all boats will rise.” This means that by simply being a part of this action, there’s a great chance your sales will go up!
But in business as it is in sports, you don’t just jump into the 4th quarter without a game plan and expect to come out on top! It’s not so simple…
So I’d like to share with you some best practices from the sourcing, purchasing, and logistics side so you can WIN your online sales 4th quarter whether you’re an Amazon FBA seller or an importer or wholesaler. These are accumulated from my experiences as on ecommerce seller and sourcing products from China as well as my research and interviews from different experts.
Best Practice 1: Make sure you have enough inventory in stock for the holiday sales spike.
One rookie mistake that I often see is failing to anticipate the increased sales demand from Q4. I’ve made this mistake myself when starting out.
Sure some sellers brag about selling out but when you sell out it’s actually NOT a good thing because you’re losing out on potential profits. In other words, you’re leaving money on the table and your competitors are taking it from you. So the goal is to keep enough product in stock to capture all the potential sales you can.
On the other hand you don’t want to keep too much inventory in stock either because that would tie up your cash in inventory. If you don’t move your products fast enough you will incur Amazon’s long term storage fees as well as hurt your cash flow from having too much cash tied up in inventory.
How do you know how much inventory to keep in stock? Depending on whether you’re an established seller or new seller there are two ways.
First you can look at your past sales history. For example if you’ve been selling for at least a few years you can refer to your Q4 2015 and Q4 2016 sales history as well as your sales history this year to forecast your sales. I won’t get into too much detail here but having these past results can be a good indicator of the number of units you should keep in stock.
As a general rule Amazon’s sales volume in Q4 increases about 30% so you can expect your product to experience a similar sales bump.
Note, this doesn’t consider a changing marketplace as new competitors are coming in. Also beware of product improvements. For example if one of your competitors “one-ups” you on solving one of your market’s pain points, they are likely to take market share away from you.
Word of caution, if you’re product is a seasonal product that has peak sales in the summer then you probably won’t get the same sales spike in Q4 unless it can be a great gift. For example watermelon slicers that sell like hot cakes in June, July, and August will have slower sales in October, November, and December.
A second way is to look at Google Trends. This is especially useful if you’re a new seller of a certain product and don’t have the luxury of past sales numbers to refer to.
The fancy term “big data” gets thrown around alot these days, but in a nutshell you can use Google Trends’ “interest over time” history to get an idea if a product will they a sales bump in the 4th quarter.
For example if we ran a search for “gloves” on Google Trends we would find a chart that looks like this. We can very clearly see that interest skyrockets in Q4 so we can assume that a sales spike would go hand-in-hand.
Therefore analyzing your sales history and Google trends will help you understand how much inventory you should keep in stock for the holidays.
But knowing how much product to order is only half the battle. The next step is to decide…
When should I place my orders so my SKUs will be shipped and arrive in time for the holidays?
To answer this question we will need to work backwards. First we need to figure what are the cutoff dates for your products to be delivered to Amazon’s Fulfillment Centers (or your 3rd party logistics warehouse) so that they can be delivered in time for the holidays. In other words, if you miss the cutoff dates, say goodbye to holiday sales!
Though Amazon has not yet released their cutoff dates for Q4 2017, we can use last year’s cutoff dates as a reference point.
So to make sure that your inventory arrives in time for Black Friday, Cyber Monday, Christmas and the rest of the holiday shopping season here are the key dates.
NOTE: In 2017 here are the key holiday shopping dates:
- Nov 24: Black Friday
- Nov 27: Cyber Monday
- Dec 25: Christmas.
CASE 1: CUTOFF DATE FOR BLACK FRIDAY AND CYBER MONDAY IS NOV 7 (based on 2016 data):
This means that your inventory must arrive at Amazon’s FC for delivery by Black Friday and Cyber Monday (note: this is Amazon’s 2016 shipping deadline and I would assume a similar deadline this year)
If you were to ship by sea then I would aim to ship them at least 5 weeks beforehand. This is assuming a 30 day delivery window, additional time customs clearance, and ground transportation and last mile delivery. If you are shipping to your own warehouse or 3rd party fulfillment center before moving the goods to Amazon’s FCs then I would allow for even more time.
If shipping by air I would aim to ship them at least 2 weeks in advance or before Oct 26. This is assuming 5-10 day (or longer) delivery, customs clearance, etc.
CASE 2: CUTOFF DATE FOR CHRISTMAS DELIVERY IS DEC 2
If you don’t want the grinch to steal your Christmas or have your competitors take away all your sales, then make sure your inventory arrives at Amazon’s Fulfillment Centers (FCs) no later than Dec 2nd for delivery by Christmas (note: this is Amazon’s 2016 shipping deadline and I would assume a similar deadline this year). This gives Amazon enough time to inbound your SKUs, sort them, and pick and pack them for delivery before Christmas.
This means that landing your shipment the week before Christmas won’t cut it. Based on Amazon’s guidelines you will need to get the products to their warehouses more than 3 full weeks before Christmas to ensure delivery before Christmas.
Now that we know the deadlines for our products to arrive at Amazon’s FC’s the next question is…
When do we place our Q4 orders to our suppliers?
The simple answer is right now. Here’s why:
Every year Chinese factories are slammed with increased orders leading from late summer all the way through the holidays until Chinese New Year. This is their busiest time to year.
BEST PRACTICE: If your factory promised a lead time of 30 days in July, you’d be smart to check with them about their delivery times in Q4. In my experience it’s not uncommon for delivery times to slow down to 45 days to even 60 days leading up to the holidays! So be prepared for longer wait times for your order to ship in Q4.
This is because there may be a queue of orders already placed in front of yours. First in, first out. So the earlier you place your Purchase Order, the earlier place in line your shipment will be. The early bird catches the worm!
Moreover delivery lead time is not only about the factory’s own production time. They need time to source their raw materials, dyeing/printing the materials, as well as the cutting and sewing process. All these are parts of the supply chain may be disrupted when the tide rises in Q4.
To give you an insider’s look at the manufacturing process – you’re only as strong as your weakest link. If your factory subcontracts the dyeing process and their dyeing mill is backlogged 2 weeks with a ton of orders, it doesn’t matter how fast your factory can pump out your products. They have to wait until the dyeing mill is finished before they can proceed with production.
So the key takeaways are to 1) Check factory lead times for Q4 and expect the worst (i.e. Murphy’s Law) and 2) place your orders early so you are not stuck trying to ship your product during peak periods.
This leads to the next insight I’d like to share with you.
Expect Shipping costs to skyrocket in Q3 and Q4!
Just as leaves change color every fall, so do the PEAK PERIODS come every Q4 for freight forwarders. This means that your shipping costs will INCREASE leading up to the holidays. This includes both shipping by air and by sea.
I’ve talked to several freight forwarders and logistics professionals and they all have warned me that “Peak Season should be pretty tough this year.”
For ocean freight, the cost of shipping a 40’ full container load (FCL) from Shanghai to Los Angeles have already risen $300 per container since July!
If you’re shipping smaller shipments of less than a container load (LCL) word on the street is to expect “25% price increase” during the peak shipping season in Q4. This means to roughly about a $5 increase per CBM if you’re shipping less than a container load (LCL).
To give you an idea of how cyclical the ocean freight peak season and slack seasons are, here’s a nifty chart from Freight Crunch.
So the takeaway is this. Be prepared to recalculate your margins in Q4 because shipping costs are going up.
And not only that…
Shipping lead times in Q4 may become longer as well because logistics providers will be slammed with shipments before the holidays.
This means longer lead times.
CASE 3 – In Dec 2016 one of our fashion accessory products was ready for delivery. We were already late for Q4. This was a lightweight and compact item and we normally shipped it by Fedex International Economy which normally takes about 5-7 business days from China to the US. However when we contacted Fedex in early Dec, we were surprised to find out that because of their huge shipment backlog, Fedex economy air needed a 20(!) day delivery lead time during the peak period of Dec 2016. This was 4x longer than their standard 5-7 day delivery lead time!
So the takeaway is this – be prepared to eat higher shipping rates in Q4 if you’re late and still want to get your product to shelves in time for Christmas. A 20-day delivery window shipping in Dec would have meant that our product would not be able to be sold and delivered to our customers before customers.
Therefore we were forced to use the more expensive Express option to qualify for their 3-day delivery and make it in time for Christmas. We had to pay a 40% price premium! Lesson learned… don’t wait until the last minute to ship!
And if we look at Amazon’s fulfillment centers the lead time to inbound products is getting longer as well. As of August 2017, seller support informed me that they can only honor a 14 day time window after the goods arrive at the Amazon fulfillment until they will be available for sale.
In summary, remember that Q4 is a golden opportunity to have huge sales for your business. But don’t let the grinch steal your Christmas! Make sure to place your purchase orders early and consider longer lead times as the entire supply chain is at peak capacity leading up to the holidays. Also, check your margins to make sure you can absorb the higher freight costs during the peak period. By doing this you will be a strong position to WIN Q4 for your business.
But wait… it’s not over yet. The next big challenge is Chinese New Year. Factories will get their turn to celebrate their holidays and shut down for up to a month in Q1. Stay tuned for more updates…
Are you an advanced seller who’s selling on average at least $5,000 revenue per month? If so, can you do me a favor and complete this short 5 min survey so I can better understand your challenges and how I can create content that best helps you? Thank you!
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Gary Huang is an American based in Shanghai, China, and working in sourcing since 2008. He is the creator of 80/20 Sourcing, which helps small business importers quickly and efficiently source from China. Gary also serves as the Co-Chair of the American Chamber of Commerce in Shanghai’s Supply Chain Committee. You may contact him at www.8020sourcing.com/contact.