Shrinking SKUs

Joseph Bonney | Jun 26, 2009 3:00PM GMT

Friday's Wall Street Journal has a front-page story that homes in on a key issue for retail supply chains.

The subject: the current drive by retailers to trim the variety of products on their store shelves. Stores haven't adopted the Henry Ford view that customers can have in any color they want as long as it's black, but retailers are asking whether every product really needs to come in several sizes, styles, colors or flavors.

Why the current push to simplify stock-keeping units? As the WSJ article points out, one reason is the recession. Sluggish revenue has forced companies to look for ways to trim costs, and any supply chain manager will tell you that SKU proliferation has added to costs. Reducing the number of SKUs simplifies supply chains and saves money.

Of course, reduction in choices may cut into top-line revenue, but many companies have decided that the savings are worth it. The big question: is the reduction of SKUs a temporary phenomenon, or will it continue after the economy comes back?

It's too bad it appears to have taken a recession for many retailers to remember some of the principles of retailing. I can recall a prominent drug store chain 50 years ago that went through its records and eliminated about one third of the products, sizes, flavors, etc., that it had been offering. It traded customer choice for inventory cost reduction and more rapid turnover of inventory. "During the years of almost uninterrupted growth (and what now appear to have been mild recessions) many retailers simply got lazy. Reductions in the transportation portion of their logistics costs helped lull them, too. More recently, under cost pressures, retailers are getting back to what some might say they never should have gotten away from, and are focusing once again on reducing inventory and the working capital that inventory absorbs. The trade off is the same as half a century ago. Fewer choices for consumers.

- By LKAUFMAN on 6/26/09