Friday, June 26, 2009

Retailers cutting back variety

Stan Pohmer (Pohmer Consulting Group) sent me a link this morning to a WSJ article discussing retailer moves to cut back on the number of SKU's. Here is an excerpt (for the full article, click here):

For years, supermarkets, drugstores and discount retailers packed their shelves with an ever-expanding array of products in different brands, sizes, colors, flavors, fragrances and prices. Now, though, they believe less is more.

Pharmacy chain Walgreen Co. is cutting the types of superglues it carries to 11 from 25. Wal-Mart Stores Inc. has decided that 24 different tape measures is 20 too many. Kroger Co. has tested stripping out about 30% of its cereal varieties.

In the next year or so, these and a few of the other largest retailers are expected to slice the assortment of products in their stores ...
Stan made a few elaborative comments in his email saying:
Line simplification, making it easier for the consumer, reducing SKU's for better inventory control, back to basics, reduction of confusion...

As explained in the book The Paradox of Choice: Why More Is Less by Barry Schwartz, and explained in the article, having the retailer be the gatekeeper of the assortment, reducing the SKU count to reduce customer confusion and only stocking the best of the best, could increase sales, rather than hinder them (which goes against the logic of most producers).

This could have major implications for the L&G we really need another red petunia? If the Boxes embrace this philosophy of short and deep, is this an opportunity for the IGC's, to fill the gap and gain differentiation? Or is this a fundamental shift for all retailers?
To which I replied with my own comments:
In our industry, we have already seen brand blurring erode brand equity; product proliferation whittle away at the length of the product life cycle; and analysis paralysis on the part of our consumers (as you stated). I contend that retailers should put each product category and each product within the category to the value proposition test. We [as an industry] need to remember that we are in the solutions business. Even in our research regarding the value of landscapes to perceived home value, the sophistication of the design was the number one contributing factor, followed by size of the plant material. The diversity of the plant material was still a contributing factor, but well behind the other two.
To which Stan replied with the following:
As far back as the early 1990's, the Big Boxes (specifically TGT and WMT) went through an exercise they called 'space wars' where every department, every planogram and every item on that planogram was evaluated through multiple metrics (i..e unit and $ sales and net contribution (GM less markdowns of all types, adv costs, internal/external distribution costs, plus any internal charges...down to the item level!). Looking at the numbers at the macro level, management determined division and dept space re-allocations, and then the individual departments did their micro level critiques. Using this information in building the assts for the next season, category, asst and unit decisions were made, down to the # of facings and shelf inventory.

Overall this system worked (one had to make judgment decisions and couldn't let the numbers force stupid decisions). Every item had to justify it's existence every year...there were no sacred cows. Even if the buyer wasn't a product expert, the numbers forced him to, at least at the top level, make more intelligent decisions based on sales (consumer demand) and profit. It makes me wonder, however, how the SKU proliferation that's taken place over the past few years survived the space wars analysis process (unless one incorrectly equated breadth of asst with differentiation)
Want to join in the discussion???

1 comment:

Adam said...

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