We never thought we’d see the day. Wal-Mart, the global giant that’s kinda the hero to many of our leading chain retailers, has cut too deep and is opting for a bit of TLC instead.

Bloomberg takes up the story:

Wal-Mart Stores Inc., the world’s biggest retailer, is bringing back some products it had removed from shelves last year as shoppers turn to competitors for a wider selection of merchandise.

The company met with suppliers about reinstating items to keep customers from going to other stores, said Leon Nicholas, a director at consulting firm Kantar Retail who has spoken with manufacturers about the move.

Wal-Mart is returning some health and beauty supplies, cereal, pet treats, soda and laundry detergent, Nicholas said. The retailer said last month its U.S. stores recorded a drop in sales and had a “slight decrease” in customer traffic in the quarter that ended in January.

Last year, Wal-Mart reduced the number of merchandise varieties, known as stock keeping units, or SKUs, sold in the U.S. in categories such as laundry detergent and bedding. U.S. stores cut inventories by 7.6 percent while increasing sales by 1.1 percent.

Now Wal-Mart is telling suppliers it cut too much in some areas and wants to bring some items back. The retailer is noticing that consumers are visiting other stores and no longer going to Wal-Mart for everything they buy.

Is this a significant paradigm shift? Consumers, now growing more and more accustomed to the Long Tail appeal of the infinitely deep shelves that line the Internet, voting with their feet? Or is it (heaven forbid) that consumers really are brand-loyal, at least to some extent?

It’s a fact of recession life that consumers tend to stick with the brands they know. When there’s not much money around, they want to be certain it’s well spent — and one of the ways to do that is to stay with the familar, the reliable product experience they’ve enjoyed in the past.

Alas, we do fear that the current change of behaviour by the Bentonville behemoth is just a momentary blip in the ongoing struggle between Good and, well, Good-but-in-a-different-way. Until Weta Digital can invent some real-world version of “the shelves that came out of nowhere in the first Matrix film and were filled with absolutely everything”, we’re stuck with a retail environment where longevity instore is based on the “what have you done for me lately” model.

Other news out of the US is decidedly less bullish on the notion of SKU rollback.

According to STORES magazine, efforts aimed at optimizing SKU assortments are in the works at numerous supermarket chains.

SUPERVALU CEO Craig Herkert recently told analysts that the company plans to edit the selection in some categories by as much as 25 percent. The focus is on reducing package sizes rather than entire brands or lines of product, yet in the categories that have already been “optimized,” some brands have been eliminated completely. Herkert says SUPERVALU’s goal is to “increase holding power for our best-selling items and add space for SUPERVALU’s owned brands.”

Industry watchers are convinced that Kroger is also in the middle of an aggressive SKU-optimization process. Though Kroger executives decline to provide specifics, it is widely known that the chain eliminated 30 percent of the SKUs in the breakfast cereal category about 18 months ago. Execs have been largely pleased with results; only one item originally cut from the mix was reinstated.

Trimming assortments obviously frees up shelf space for more economical ["profitable"] in-house brands. Experts believe that the surge in private-label goods experienced by most supermarket retailers over the last 12 months can be attributed in large part to the economy, though the trend has been building for years.

When the nation hit economic low tide, consumers who had heretofore resisted private label began trying items out of necessity. What many shoppers discovered was that the store offering was often as good as the branded product, but cost less. And some private-label products – Safeway’s organics line, for example – are so strong that they have emerged as “brands” in their own right.

As the quest to improve assortment optimization progresses, questions are being raised as to whether shoppers will continue to purchase private-label goods as the economy improves. There is no simple answer. In some categories – like paper towels or plastic wrap, where there is little perceived difference – experts believe private-label sales will remain strong. In categories like ice cream, where the store brand may have achieved a lift as a result of price, the jury is still out.

One consumer trend that Bob Phibbs, known as the Retail Doctor, insists has staying power is the desire for fewer choices. “The brand model that calls for more and more line extensions doesn’t seem to be working,” he says. “There must be 25 versions of Crest and Colgate on the shelf, and if you stand and watch shoppers, most of them are so overwhelmed that they just reach for the old standby.

“In fact,” he continues, “research shows that 63 percent of shoppers are the type of personality that wants to buy the same thing they bought last time … The challenge for the retailer is to whittle down the choices in such a way that it’s meaningful for their unique customer. That doesn’t have to be bad news for brands, but it does mean that if a supplier wants to win space on the shelf, they need to deliver a product that’s going to hit it out of the park.”

Taking Out Your Own Knife
We rather like the notion offered up by Bob Byrne of management consultants A.T. Kearney New York. He believes that marketers should open up their own veins and make the necessary incisions themselves. Here are his ten insights into the delicate art of DIY SKU Surgery:

1. Start with the consumer, not with you.
Redefine what your consumer values, wants, buys, uses—and work backward from there. Although most initial line and SKU decisions are based on rich consumer understanding, they tend to be unilateral and narrow. What have all of these individual decisions done to the overall portfolio and the consumer’s interaction with it?

2. SKU complexity is a hidden consumer tax.
Complexity costs are not a burden on the manufacturer. In reality, these costs are passed on to the consumer, as a kind of nVAT (non-Value Added Tax). You may have 50 variations of shampoo, but 80 percent of your consumers are buying just 10 of them—all priced 7-8 percent too high.

3. A “segment of one” is so 1980s.
Do consumers value variety? Certainly not the way brand managers do. The record is clear: more choice seldom results in more sales, and may even cause shoppers to simply walk away from the shelf.

4. Define your target SKU portfolio by which SKUs are necessary, not by which are unnecessary.
Reverse your thinking: Focus on necessary SKUs. Then use research on consumer preferences and switching behavior to design an optimal product portfolio based on what consumers really want, not what you can produce most efficiently.

5. Cutting the tail (bottom 30 percent of SKUs) is easy—and fruitless.
Many SKUs end up as consumer or business “mistakes” that fragment volume for unnecessary or outdated reasons. But these mistakes are not just the low-volume SKUs!

So forget about eliminating just the easy 30 percent and instead focus on eliminating unnecessary medium- and high-volume SKUs. Imagine taking your highest-volume SKU in a category—24-oz. white—and replacing it with two SKUs—20- and 28-oz. white. Both would probably be pretty good sellers, but they’d be fragmented into two mid-sized SKUs. Wouldn’t you prefer to (re)-consolidate into a single Power SKU?

6. SKU optimization is a tool, not an objective.
This is a huge trap. Is reducing SKUs 20, 30 or 40 percent good? Is it bad? In truth, it’s neither: It’s just something to do. What are you aiming for?

7. The best objective for an SKU optimization effort is growth, not cost reduction.
A large body of evidence shows SKU reduction can be a growth initiative.

How? Start with out-of-stocks. Most leading brands are out of stock at retail 4-6 percent of the time. But the SKUs that are out of stock are not the slow movers; they are the Power SKUs. Simplify the line. Simplify the shelf set. Reduce out of stocks, and grow volume.

8. An effort for SKU optimization should be led by marketing and sales, not by finance and operations.
If you’re starting with the consumer, you need to start with your departments that are closest to the consumer. So rather than running a supply-chain initiative, put marketing and sales in charge. Give them an opportunity to clean out and re-fashion the portfolio. (And give them very big targets.)

9. Use the same discipline and marketing rigor in de-listing SKUs that you used in launching them.
When a company introduces a new line, an enormous effort ensures that customers switch from competitors’ products and don’t cannibalize sister brands by using special introductory pricing, coupons, advertising, sweepstakes, etc.

Now, what happens when a product or SKU is de-listed? Nothing. Why shouldn’t the same discipline and energy expended in fattening the portfolio be expended to get it into shape?

10. SKU optimization should not be a company-only initiative—include your retail partners and share the benefits with them.
Retailers will also reap benefits—better shelf alignment, lower out of stocks, rationalized promotion calendars, and improved inventory turns. It only makes sense to include retail partners in your thinking about SKU optimization.

Marketers as surgical partners rather than patients? Rather like the notion.

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Tags: retail, sku optimisation, wal-mart