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.'"
Other benefits 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.
For vendors, 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.
"Everyone thinks 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 shelf simplification.
"We generally 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."
Discussion Question: Is the ongoing SKU rationalization healthy or unhealthy for retail sales? What options do vendors have to protect shelf space?