Posts Tagged 'SKU rationalization'

SKU rationalization: The Costco approach

From a recent RetailWire discussion about Costco and its approach to keeping assortments narrow:

SKU rationalization can be carried too far: Just look at Walmart’s experience a few years ago when it reduced its SKU count so dramatically that it lost sales along with its competitive edge. But in Costco’s case, the idea of “doing less better” makes perfect sense. Regular shoppers still perceive plenty of choices inside a Costco store, but not to the point where it makes the store difficult to navigate. And Costco’s commitment to fresh assortments — not just in food but throughout the store — keeps consumers coming back with more frequency, despite the bulk packaging found throughout the store.

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Target and Walmart: Who’s gaining share?

From a RetailWire comment following the release of November sales data. Obviously we’ll know more after December sales:

As with yesterday’s survey data about smartphones, I’d like to see some sales data that backs up the information about Target and Walmart. Since Walmart doesn’t report comp sales by month, it’s tough to compare their November performance with the strong outcome at Target. And “intent to visit” (or reported visits) don’t necessarily equate to sales unless we know what’s in the consumer’s shopping cart.

Despite these reservations, it’s clear from Target’s YTD comp sales compared to Walmart’s numbers that they are delivering a stronger performance this year. The discount customer is showing signs of being more aspirational, spending more on apparel and other discretionary goods (a weak spot for Walmart) and generally giving herself “permission to spend” within a household budget.

The surprise in Walmart’s weak numbers is its failure to recapture consumers who had traded all the way down to dollar stores, perhaps the weakest segment of the retail business right now. It speaks volumes about Walmart’s continuing struggles with softlines as well as the costs of its SKU rationalization program to the top line.

Walgreens: Getting serious about health and wellness?

From a recent RetailWire comment: Walgreens has wavered over the past several years between broad varieties of goods unrelated to their core mission, and a more focused approach. Lately, they are swinging toward “less is more” again:

I’ve long argued that Walgreens needs to be more focused in its mission to be a provider of health and wellness products and services, not just a pharmacy. Central to this mission will be some long-overdue “SKU rationalization” and store redesign. Walgreens needs to be willing to walk away from its other role as a “neighborhood convenience store” cluttered with a bunch of stuff in order to maximize its true role as a category killer with huge growth opportunity. I look forward to the day when I can actually find the HBA product I’m looking for in my neighborhood Walgreens store, without having to wander through aisles of t-shirts and “as seen on TV” junk.

OTC drug shopping: Time for some SKU discipline

From a recent RetailWire post about OTC drugs and the “shoppability” of the category in major drug and discount stores:

OTC drug shopping (especially for pain relievers and cold remedies) makes the cereal aisle seem simple by comparison. Brands like Tylenol and many others have added complexity through an endless stream of line extensions. (I’m still not clear on the difference between “Tylenol Sinus Congestion & Pain” and “Tylenol Severe Sinus Congestion.”) Add the growth in store-brand generics (many with their own line extensions) and it’s no wonder that the consumer is so confused.

Where to start addressing the problem? I think SKU rationalization makes just as much sense in this category as anywhere else in the store, but I wouldn’t stop there. I think it’s critical to add digital signing as a navigation tool and to provide product information. Finally, the big-box pharmacy chains need better category management: If Walgreens (for example) is really committed to be the headquarters of health and wellness, does it need to carry so much unrelated product?

Walgreens’ latest brand position, part 2 (Food)

Here’s the other side of the coin for Walgreens, right after discussing “wellness” as a valid brand statement for a pharmacy chain. A few days later, Retail Wire asked panelists to discuss Walgreens’ plans to enter the fresh/convenient food business in a deeper way. I disagree with the strategy:

Everybody wants “in” on the fresh food C-store business, whether it’s Tesco, Walmart or now Walgreens. This strategy doesn’t align with the “wellness” positioning that RetailWire panelists kicked around only last week. If Walgreens is serious about what it wants to stand for, it needs to get moving on its SKU reduction, clean up its in-store navigation and improve its overall customer experience. I’m not convinced that a section devoted to fresh and prepared food is the answer, unless there is a serious effort to eliminate some of the other businesses (e.g. basic fleece separates) that are tangential to Walgreens’ brand position.

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.

Why can’t customers find clothes that fit?

Today’s Retail Wire discussion focuses on the average female customer, who now wears a size 14 dress and nevertheless finds it harder to find clothes that fit in most mall-based specialty retailers. Here are my comments:

If today’s average dress size is 14, then demographics and historical data suggest the average size will be 16 in another five years. Retailers ignore this trend at their peril. It’s tempting to pay less attention to the baby-boomer customer than to a younger, twenty-something consumer who might reflect the merchant’s self-image more appealingly. But baby-boomers carry a disproportionate amount of spending power and are probably the customers driving up the average size.

SKU rationalization makes sense in the context of the retailer’s target customer. It may be hard for (say) J. Crew to justify larger sizes, but it ought to be easier for Ann Taylor. By cutting off its size range in its brick-and-mortar stores, Ann Taylor is inviting some of its best future customers to shop elsewhere.


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