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Let’s be rational about SKU optimization Presented by: Dave Wendland, VP Hamacher Resource Group
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Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

May 17, 2020

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Page 1: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

Let’s be rationalabout SKU optimization

Presented by:Dave Wendland, VP

Hamacher Resource Group

Page 2: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

PAINTSALE

Have we gone a bit too far?

Key factor # 1: Shopper confusion

Page 3: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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?”

Page 4: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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).

Page 5: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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.

Page 6: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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?

Page 7: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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?

Page 8: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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.

Page 9: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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.

Page 10: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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.

Page 11: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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.

Page 12: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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

Page 13: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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?

Page 14: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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

Page 15: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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

Page 16: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

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?”

Page 17: Let’s be rational about SKU optimization · Why is SKU rationalization important? Research by AMR Research completed in 2007 shows customers only use approximately 340 unique items

Hamacher Resource Group

the art & science of retail healthcare best practices

Dave Wendland, [email protected]

Office: 414-431-5301