retail news in context, analysis with attitude

I was a little cynical yesterday about an SKU rationalization initiative being imposed on Jewel by its parent company, Supervalu.

I wrote, in part:

In so many ways, this whole “SKU rationalization” trend seems like a flavor-of-the-month response to competition. It just strikes me as the kind of initiative that was cooked up by some consultant - probably the same guy who sold the industry on the notion that Efficient Consumer Response (ECR) and Meal Solutions represented answers to all their problems ... Here’s a pretty good bet. Within two years, “SKU rationalization” will be a phrase that will have cobwebs hanging from it, and there still will be retailers out there looking for magic answers that will solve all their problems. Somebody will be selling them magic answers, of course, and there will be another flavor-of-the-month. But the magic more likely will be sleight of hand...

Not that was completely against the intelligent editing of a store’s grocery selection - but I just thought that it needs to be part of a strategic approach to business and customer development, not just a tactical move to cut costs and raise margins through private label sales.

One MNB user offered to put the initiative in context:

I hesitated to respond to this (SV is my customer), but…thought you would enjoy some more “texture”.

The Jewel program is called SHE (Simplify Her Experience).  It was to be ~300 stores total (Jewel and SoCal Albertsons), but has now been reduced to 10 stores each.  SoCal won’t launch until the end of the year (after the Jewels are finished).

Thus far, I think the results have been murky (similar to your observations – reducing a bit too far and causing the consumer to go elsewhere).

The inside definition of the acronym is just that – Send Her Elsewhere.

MNB user Dave Henry wrote:

I agree with many of your points here but think it pre-mature to bury the concept. Problem with many companies is that they do "rationalization" based upon a need to increase private label ( as you mention ), based upon a vertical ranking of sales, or based upon income potential from cpg's ( a pay to play ).  None of them are particularly smart or strategic as you note. True sku rationalization works when the data is examined both vertically and horizontally to understand the true importance of items to a company's overall success. For example, an item may rank third in total sales in the category, yet have strong purchase affinities and be an item that has heavy representation in the basket of that company's best customers. Eliminate that item and run the risk of losing all the sales of the best customers, because they no longer can purchase items that are important to them.

MNB user Steve Panza responded:

From what I've noticed, retailers are focusing on the wrong cuts. They should be cutting multiple sizes, instead of suppliers. Walk into pretty much any category and you will find five different sizes. Cut back the sizes to the three most popular.

MNB user Ken Ferrera wrote:

In many cases "SKU rationalization" is a warehousing initiative. Investing in warehouse expansion is a tough sell and slow mover take up slots/cube, reduce productivity, and tie up dollars. Its aways a challenge for the DC to justify or manage slow movers versus the retail need for variety.

Regarding Walmart’s efforts at SKU rationalization, one MNB user wrote:

Ask the former Walmart CMO how that worked out for him.  I think he was “encouraged” to spend more time with his family after four consecutive quarters of declining same-store sales.

As in most things retail…timing and execution are the big variables.  I think WM had to bring back many “disco’s”, some say it was an attempt to get lower prices; because customers did have brand loyalty and house brands didn’t cut it.

When groceries were a side issue with WM 15 or so years ago, they could sell at lower margins in hopes of selling the higher ticket and higher margin general merchandise.  Even selling all their groceries at 5% margin didn’t affect the bottom line.  Now that grocery sales are over 50% of volume they are having a drag on grosses.  House brands would be attractive.  Good on the computer models but poorly executed where the shoe leather meets the concrete.

Customers can tolerate a few things being disco’d but not if there are half a dozen or more on your shopping list---that are not in the size, flavor or even the brand you want.  Low prices don’t mean much if no one is buying.


About the Walmart exec being encouraged to spend more time with his family ... I always wonder how the families feel about executives spending so much time at home.

MNB user Dave Howald chimed in:

I remember listening to a retired consultant who had worked many years on ECR.  He told me that within consultancy circles ECR was affectionately known as Every Consultants Retirement.  Prior to that there was the DPP flavor of the month known as Direct Product Profit that could track the cost of one item all the way through the system.  It did bring a better understanding to farmers that even though they might only be getting .25¢ for something they grew, a $1.00 retail did not mean the retailer was making .75¢.
Keep up the good work and keep challenging us.

Responding to Michael Sansolo’s column yesterday about the death of the founder of Swatch, and what his life teaches us about leadership and innovation, MNB user Will Hsu wrote:

Thank you for the wonderful piece on Nicolas Hayek in today’s Morning News Beat. As a member, by age, of the “generation of consumers that eschews wristwatches, using their ubiquitous cell phones to tell time,” I’d like to proudly state I own six wristwatches and wear them daily. Three I purchased for myself are all Oris brand, Swiss mechanical, automatic movements.  Three were gifts and are quartz or electronic movement (Skagen, Bulova, Seiko).  Were it not for the contributions of Nicolas Hayek in the 1980s, I would be without three of my most prized personal possessions that I wear and use on a daily basis.  There is truly something magical and life affirming about placing an automatic movement watch against your ear and hearing the heartbeat rhythm of all those moving parts.  Ironically, I find the cell phone a more suitable replacement for my alarm clock than for my wristwatch.
My fiancée has her shoes and purses, I have my watches.  Keep up the great work!

KC's View: