Friday, June 19, 2015

Category Management & Lean Retailing: When Cutting Product Range Is Good

Another post dedicated to the option sometimes taken by retailers to cut down product ranges. I have posted recently about the very same topic. Obviously, the past 20 years, the FMCG product ranges have grown largely, making categories more and more complex to deal with. Nevertheless, I must admit that the more products you own in your product range, the more you sell.

Still, owning too many products could hurt your business. As I have said in the past, it hurts profitability as your operational costs rise each time you add a new product (shelving time, warehouse space, pricing and administrative duties...). But I read recently this great article about Tesco's decision not so long ago to shorten their product ranges.

Here are the two main reasons highlighted:
  • It allows the retailer to cut down the prices, and hence be more competitive. As I have said, product range raise the cost, and could either hurt your profitability but also your pricing. Obviously, it would be tough to go to extreme cut downs like discount specialist Ikea or Costco, but for a hypermart chains, having a lean strategy could help competing.
  • It allows to cut down out of stocks. Out of stocks are one of the main reasons of unhappiness in store. By having complex and large ranges, you increase the potential sold out items. Therefore, by limiting the ranges, it is easier to keep your store full and attractive.
I would like to add new ones:
  • It can ease the shopping experience and the merchandizing plan, to give a better lecture of the offer.
  • It could boost the average sales/months per products, and therefore improve the scoring of certain categories with low rotations.
Now the main issues to face while doing such a move:
  • Costco, Ikea, Aldi or other discount stores thrive on low prices with low ranges, but a hypermart or a supermart are meant to provide choice. It is one of their competitive advantage. It is wise to study well where and how to cut off without hurting some key category of services with low sales but a high importance in terms of service to customers.
  • What to do with the extra space? If you have to multiply the facing of products just to fill in the blanks, it would hurt inventory for no reasons. Maybe such a move also should be thought on how you could advertize better, or improve the shopping experience by using the extra space (new technologies, corners with sales people...)

Working better a smaller product range is obviously a risky strategy, but if set up properly for the right reason, it could be very efficient.