Let s be rational about SKU optimization. Presented by: Dave Wendland, VP Hamacher Resource Group

Transcription

1 Let s be rational about SKU optimization Presented by: Dave Wendland, VP Hamacher Resource Group

2 Have we gone a bit too far? Key factor # 1: Shopper confusion PAINT SALE

3 Have we gone a bit too far? Key factor # 1: Shopper confusion Silky White Alabaster Pillar White Painter s White Snowy Pine Creamy Snowbound Extra White Dover White Gallery White Pure White Marshmallow Cotton Knit Pearly White Zurich White West Highland White Bleached Linen Falling Snow White Heron White Duck Ibis White Ceiling Bright White As one shopper lamented, How many shades of white do we need?

4 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).

5 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.

6 What is the goal of SKU optimization? 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.

7 Why the big deal about 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.

8 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.

9 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.

10 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. SKU proliferation must stop!

11 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.

12 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

13 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?

14 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

15 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

16 Could this be the new normal? 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!

17 Hamacher Resource Group the art & science of retail healthcare best practices Dave Wendland, VP Office: