R&FF Retailer Cover Story: Whither SKU Rationalization?
By Warren Thayer, Editor, Refrigerated & Frozen Foods Retailer; Contributing
Editor, PL Buyer, Stagnito Communications
Thom Blischok begins this tragicomic tale of inefficiency in the precise and
methodical manner that is his trademark.
“A few years ago, we did an analysis of the convenience food and drink category
for a combination supermarket and drug chain,” he says. “There were 4,267 SKUs,
and we looked at a random sampling of 25 stores for 32 weeks. We studied daily
POS and market basket data — 16 million baskets in all. And you know what?”
We’re totally caught up in this by now. “No, what?”
“Over the full 32 weeks, 72 percent of those 4,267 SKUs didn’t sell a single item. Not one.” He pauses, letting us assimilate this bizarre factoid before continuing.
Blischok, president of Global Retail Solutions and Strategic Consulting for Information Resources, Inc., Chicago, and a recognized futurist and retail thought leader, has seen pretty much everything in his career. This story isn’t particularly surprising to him, but we have to confess stunned astonishment. We ask what happened next.
“We helped them redesign everything, cut back drastically on SKUs, and substantially increased the productivity of facings,” he says. “Sales shot up, and in post-exit interviews with customers, they all said, ‘My God, you’ve increased your assortment!'”
This last part does not surprise us. We’ve learned from a variety of studies in recent years that assortment is more about perception than reality. But as retailers struggle with “assortment” while simultaneously trying to max out profit per foot of shelf space, things have a nasty habit of going south.
In fact, Blischok figures today’s supermarkets are over-SKUd by about 25-30 percent. And why is that?
“It’s the conflict between retailers and manufacturers,” he says. “The manufacturer says, ‘Take all my products and let’s be partners.’ The retailer says, ‘Open your wallet and let’s be partners.’ It’s a constant tug of war, involving trade dollars and allowances vs. shelf space.”
You won’t find many retailers today who will say, with a straight face, that
they aren’t carrying too many SKUs. SKU rationalization — or, as Blischok prefers
to call it, SKU optimization — is high on priority lists everywhere. Trouble
is, it gets screwed up. A lot.
For the complete story and interview with Thom Blischok, go to the R&FF
Moderator’s Comment: Where do SKU rationalization efforts
go wrong? And what can be done to improve the situation?
It’s a very complex issue. Just lopping off the bottom
20 percent of SKUs isn’t the answer. As Bill Young of Concept Shopping points
out, “The best way I can think of to use loyalty card data in planogram decisions
is to make sure not to delist items that appeal to certain top shoppers. Then,
minimize stocking cost by putting these important but slow moving items only
in the stores where they are needed. This minimizes costs and prevents your
best customers from visiting your competitors to get some of their favorite
brands.” You also have to do your homework on consumer decision trees, and price
Warren Thayer- Moderator