Post on 17-May-2020
Let’s be rationalabout SKU optimization
Presented by:Dave Wendland, VP
Hamacher Resource Group
PAINTSALE
Have we gone a bit too far?
Key factor # 1: Shopper confusion
Ibis White
Have we gone a bit too far?
Key factor # 1: Shopper confusion
Silky White
Snowy Pine
Gallery White
Painter’s White
Cotton KnitBleached Linen
Pillar White
Falling Snow
Marshmallow
Pure WhiteExtra White
SnowboundDover White
Ceiling Bright White
Creamy
Pearly WhiteWhite Duck
AlabasterWest Highland White
Zurich White White Heron
As one shopper lamented, “How many shades of white do we need?”
Have we gone a bit too far?
Key factor # 2: Retailer profitability
Cutting SKUs from the portfolio to grow revenue may seem
counterintuitive. But it supports a winning strategy by
improving remaining and new SKU productivity (and profits).
Have we gone a bit too far?
Key factor # 3: Differentiation - Focus
Whether part of a „merchandising the core‟ strategy or improved
„impact‟ at shelf, retailers are determined to de-clutter stores and
make them more shopper-friendly.
A delicate balancing act:
1. Meet consumer choice expectations while
controlling the number of items stocked.
2. Increase efficiency of the supply chain as well as
increase profitability.
What is the goal of SKU optimization?
The simple facts:
From a retailer’s viewpoint …
• Retail shelf space is at a premium.
• Consumers are demanding convenient, easy-to-shop experiences.
• Merchandising has moved from shopper-focused to product-centric.
• Product proliferation (and duplication) no longer “fits” the shelf.
Why the big deal about SKU optimization?
Why the big deal about SKU optimization?
The simple facts:
From a shopper’s viewpoint …
• Less may be more.
• Shelves are too-often distracting.
• Choices are confusing.
• There is simply too much product.
Too much – too little – too late
Why is SKU rationalization important?
Research by AMR Research completed in 2007 shows customers only use
approximately 340 unique items per year (down from 390 last year) from a pool
of more than a million items sold.
All SKUs become liabilities to an organization at some
point in their lifecycles.
SKU proliferation must stop!
How much is too much?
The average store could lose up to 15 – 20% of its SKUs
How do determine where to make cuts:
1. Start with an understanding of the fundamental needs of shoppers.
What do they really buy? In other words, which 10% of items account for
85% of sales?
2. Then, be honest, how many items are kept in the store for their trade
allowance and not because they serve the needs of the shoppers?
3. Finally, items should be removed based on their lack of contribution
to customer value and the retailer‟s profitability.
How much is too little?
What to leave in, and what to take out?
Proactive product discontinuation is the art of managing the product portfolio
and the science of the numbers.
Data must be deeply mined not only to understand sales and item profitability,
but also relationships between items.
The sale of a key item may influence other sales … it‟s a difficult process.
Manufacturers are encouraged to compete on innovation rather than price.
Is it too late for your brand?
What is most at risk?
1. Categories that aren‟t central to the retailer‟s “brand promise”
2. Brands in slow- or no-growth categories which lack genuine
innovation
3. Sizes, flavors, or other line extensions that nave not created
incremental sales
4. Suppliers with “me too” products in one or two convenience
categories
Is it too late for your brand?
There is hope for niche brands and players.
1. Does your brand add incrementality to the category – is it an
up sell opportunity for the retailer?
2. Are you bringing excitement to the category with new – and truly
innovative – products that drive overall market basket growth?
3. Is your SKU a high-loyalty brand that will be missed by shoppers?
4. Have you created demand for your product beyond the reach of
the shelf?
Optimization is worth it in the long run.
1. Improves overall profitability
2. Improves overall sales per square foot
3. Reduces stock levels
4. Improves product availability
5. Delivers better shopping experience
6. Maximizes vendor marketing
7. Improves business process – speed-to-market
8. Frees up working capital and creates new opportunities
Too much – too little – too late?
Truth #1: Consumers have become increasingly confused by too much choice
Truth #2:Some retailers may have over-rationalized in certain categories
Truth #3:Brands with purpose and key points of difference will continue to survive
It was high time that real optimization occurred at retail.
Everyone became a bit too complacent fueling product proliferation.
What this has led to is survival of the fittest and true product
innovation.
It is our belief that SKU optimization is here to stay …
… this is not a one-time event, this is a process!
Could this be the “new normal?”
Hamacher Resource Group
the art & science of retail healthcare best practices
Dave Wendland, VPdave_wendland@hamacher.com
Office: 414-431-5301