Sales Down? Time To Dial Down The SKUs


While all marketers are wrestling with what this recession will mean to consumer spending patterns in the months ahead, savvy retailers are sifting through spending data to learn how they can use the downturn to their advantage--redefining the way they serve their core audiences.

Karla Martin, a partner with Booz & Co. who specializes in organization and strategy for consumer products and retail clients, says it's all about smart allocation--stores devoting more space to what consumers want, and limiting the offerings that simply get in their way. Done well, it boosts profits and customer satisfaction. In fact, Booz says it's the biggest trend in retailing since the Big Box. Martin explains how companies can reallocate resources and win new customers, even at a time when business is down.

Q: What do customers want from retailers?



A: Well, it depends on types of stores, of course. But in general, there's a widespread consumer frustration out there, with many shoppers feeling there are too many choices, presented in a way that's needlessly complicated.

So in apparel, they want stores to be curators. You don't go to a museum to see every landscape ever painted--you want to see things from the 18th-century pastoral school. They want that kind of editing. They want retailers to stock brands that show they understand a certain lifestyle, especially now, coming off five years of hard-core brand identification. Take Juicy Couture. Fans know it's come a long way beyond that pink sweatsuit with "Juicy" on the bottom. They think, 'this brand knows I dress up sometimes, and that sometimes I want new sunglasses.'

In grocery stores, they see way too many SKUs. The average household buys something like 650 SKUs in a given year--a tiny fraction of the million or so that are out there. Many stores have seen category sales go up 25 to 50% when they streamline--consumers don't necessarily want to see five sizes and seven scents of every single household cleaner.

Q: So is it as simple as cutting back on the products that don't sell?

A: No, it really takes careful analysis and smart segmentation, often at the local level. Sometimes, when stores edit their offerings from a "long tail" perspective, they can wind up cutting off their tail to spite their face. One of our clients sold an organic cereal made by Weetabix, and it didn't really do well. But it turns out that the people who did buy this particular cereal tended to buy almost exclusively green items, and had a bigger basket than other shoppers at the end of the trip.

Chains also need to figure out what's missing. In some stores, Kroger now sells milk in three-quarter-gallon containers for people who found a gallon too big and half-gallon too small.

Q: Do you think the outlook for retail is bleak, as so many others seem to feel these days?

A: I think the news of the demise of retail has been widely exaggerated. Players in the value end, like Walmart now and eventually Target, will do well. And I believe there's a lot of pent-up demand in the luxury end of the business. And some stores are really serving their customers: Ralph Lauren shoppers identify with that lifestyle, and the stores know how to offer an assortment that's constantly appealing.

Q: How will specialty retailers fare?

A: If they were struggling already, the recession is just sort of the straw that breaks the back of things. More or less, the Gap's Old Navy appeals to the same value customer as Walmart, but Walmart is doing well, and Old Navy isn't. Yet the Gap's Banana Republic is doing relatively well--it's gotten laser-sharp in how it defines its brand, skirting the edge of fashion without being too fashionable. How did Ann Taylor go from being a chain that always seemed to get it right to being so dowdy?

Q: Is the recession actually changing consumer behavior, or are they the same, and just spending less?

A: They're spending differently--they are wearing their old clothes, and not paying attention to things like hem lengths. But they are buying new accessories. Consumers are buying less, and part of the reason is that they are being choosy.

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