SKU Rationalization Reshapes Retail Shelves
By Tom Ryan
In a bid to
simplify choices for recession-weary consumers, retailers across channels
are trimming SKUs on their shelves. Industry execs and analysts predict
that assortments over the next year or so will be reduced at least 15 percent.
An article in The Wall
Street Journal points
out that the move follows years in which broader selections were being
pushed as consumers were spreading their grocery-shopping trips around
to two or three stores. By 2008, nearly 47,000 distinct products filled
a typical food retailer’s shelves, up more than 50 percent from 1996, according
to the Food Marketing Institute.
But now retailers
are finding that budget-conscious shoppers want to simplify shopping trips
and are homing in on familiar products.
“All that go-go
1990s where we were adding items in and adding items in, and people wanted
more, more, more, more choice… just didn’t pay off,” Catherine Lindner,
Walgreen’s divisional vice president for marketing development, at a recent
conference, told the Journal.
Looking at store shelves, “People say, ‘Whoa, you’re bombarding me. Help
me figure out what I need.'”
for retailers include lower labor costs, fewer out-of-stocks and an increase
in their ability to squeeze vendors for better deals. Cutting excess inventories
also carves out more room for in-house brands.
the rationalization will mean the one or two dominant brands in a category
win space at the expense of third tier or lesser brands, according to the
article. With more limited shelf space, vendors will have to focus more
on their most profitable items.
what they have is the most important thing,” John Fleming, Wal-Mart Store’s
chief merchandise officer, told the Journal. “We
try to show them…that if we eliminate something, a customer might want
to buy more of one of their other products, because we will make the presentation
better and make the category easier to shop.”
Procter & Gamble
Co.’s departing P&G chief executive A.G. Lafley at a recent investor
conference touted the advantages his company would gain from the move toward
end up with share and sales growth, and it’s all, of course, a lot more
profitable and returns a lot more cash,” said Mr. Lafley. “It benefits
the leaders in the industry and it disproportionately benefits P&G.”
But Jim Craigie,
CEO of Church & Dwight Co., the maker of Arm & Hammer baking soda
and Aim toothpaste, is skeptical that cutting assortments will help stores’
sales. “If a retailer makes cuts on brands that are strong, have had lots
of innovation and marketing support, they’ll lose sales,” he told the Journal. “If
a consumer goes to a shelf looking for that product and can’t find it,
they will go to another store.”
Question: Is the ongoing SKU rationalization healthy or unhealthy for retail
sales? What options do vendors have to protect shelf space?