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THE GREAT (?) SKU REDUCTION
The great SKU (items) reduction strategy has failed at
Walmart. It didn’t cost a lot, just a few points of market share and a
decrease in comp store sales for the last two years. But why?
It has been obvious for years that Walmart has had too
much inventory in the stores, not by competitive standards since their stock
turn was already enviable, but just by the clutter on the shelves and in the
aisles. So what happened? And is there a lesson for other retailers?
Here is my take. The SKU reduction was in reality
more of an inventory reduction, and driven at the execution level (buying
and operations) by reducing inventories first, rather than a reasonable
approach to assortment management.
Customers polling probably followed the lines of “would
you like cleaner stores, less clutter and an easier time navigating the
store?” This is akin to asking if you would rather live in a clean house
than a dirty one. The question not asked was, “are you willing to give up
some of your selections to achieve this?”
Reducing true duplication, assorting for impact and
deciding what the important elements of your assortments are will impact
sales positively. Removing SKUs that not only impact those assortments,
but also may (as at Walmart) impact the customer’s desire to shop your store
will do the opposite. Assortment planning is both a science driven by
analysis and statistics, and also an art form in the sense that customers
will make alternative store choices if your assortments fail their
expectations. Your assortments must support your brand. Remember the great
department stores of old that had those great toy, electronics, furniture,
notions and fabrics departments? Reducing their assortments directly created
and fostered the growth of discounters and specialty retailers.
Assortment
reduction strategy breaks into three categories:
1.
Dangerous:
Simply put, if you eliminate anything that has a flavor, a smell, a cure, a
hygienic value, or a cosmetic purpose, you are in the high danger zone. I drink
Pepsi not Coke. The reduction of product selection is final; sales recovery
depends on changing the customer’s most personal habits. Good luck with that.
2.
Risky:
Eliminate a size selection or a declining or small category and you may push a
customer to another store, particularly if the size you eliminated is an opening
price. Walmart eliminated fabrics in most stores, so the customer must go to
another retailer. Sounds like the department stores. The sales effect of
eliminating a category is of course fatal for that business and that volume.
3. Pragmatic:
What kind of copy paper do you use? Trash bags? Salt? Packing tape? How
about band-aids or those throw away aluminum pans, do you really care if they
are decorative? There are many places to slowly reduce inventory without a
great risk. Assuming that each product does have a rate of sale, there will
always be some sales fall off, but likely the business will be transferred to
other similar products. And you will retain the customer.
So a note to Walmart. You are a generalist, learn
from the department stores of old, and remember your customers come to you
for the wide assortments you carry. As a woman said to me once in a store
when I asked if I could help her find something “no I know it is here, I
just have to find it.”
The Walmart that I worked at was and is the best at the
correction of errors process, so be assured that they will get the
assortments back on track and at the same time continue to grow profits.
P.s: Recently, a sign
on a shelf in the Health and Beauty Aids department in my local supercenter
read: “We no longer carry electric razors or replacement heads for razors.“
The same store now carries baking pans in the stationary department. I know
this too will pass. |
