SKU rationalization, or “doing less better”

You may have seen a recent Wall Street Journal article about SKU rationalization. It’s the move by many large retailers to cut their SKU count by 15% or more. I’m in the camp that agrees with this move, even though it might threaten some stores’ perception of broad assortments:

Runaway SKU counts in many retailers have become an issue long before the current recession, but tough times may impose the sort of inventory discipline that was long overdue. There is simply not enough space in the four walls of an existing store for the sort of brand extensions and other SKU proliferation discussed in the article. Stores’ increased emphasis on their own brands has only added to the clutter.

The P&G exec makes a valuable point, and another way to put it is, “Sell what you own.” Given the longstanding 80/20 rule (20% of SKUs drive a disproportionate amount of sales), the bottom 15% probably contribute a very low proportion of total sales. They also make the shopping experience more difficult for customers and take up shelf space or floor space that should be dedicated to higher in-stocks of the most wanted goods.

There is always a role for a retailer willing to offer more SKU assortment, but that job is best filled by category killers or web-based retailers. For most general merchandisers, apparel stores and food/drug stores the “less is more” strategy makes a lot more sense.


1 Response to “SKU rationalization, or “doing less better””

  1. 1 Ted Hurlbut July 6, 2009 at 3:36 pm

    SKU rationalization, or narrowing assortments, is the inevitable outgrowth of having to scale back inventories to reflect sales declines. Allowing inventory turn to creep up in this downturn is a hidden drain on precious cash flow.

    When sales drop, items and categories that were once viable, that sold enough units to justify the necessary investment in inventory, suddenly no longer make economic sense. These are the items and categories that must be pruned as assortments are narrowed.

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