Nielsen: Retailers Should Tread Cautiously When Cutting SKUs

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June 22, 2010

More than half of U.S. consumers tell The Nielsen Company they are likely to shop elsewhere if they notice a reduced product selection, while nearly half of retailers indicate continued plans to decrease assortment.

So far, most consumers haven’t observed assortment changes. Only 7 percent of consumers so far report a noticeable reduction in product variety, Nielsen announced at its Consumer 360 Conference where it unveiled the new research. And although 42 percent of retailers decreased SKUs in 2009, assortments overall shrunk by only 1 percent.

Over the next 18 months, however, retailers say they plan to continue cutting and then maintaining reduced assortments. Forty percent of retailers indicate they’ll continue to cut SKUs, with some stating target reductions as high as 10 percent, according Nielsen.

“Reduced assortments are definitely here to stay, and the message to retailers is to choose carefully when it comes to deciding which products to trim,” said Stuart Taylor, vice president, custom analytics for Nielsen. “In many cases, strategically reducing assortment can result in an improved customer experience and greater profitability. Cut the wrong product, however, and the potential customer backlash could be costly.”

For example, 7 percent of personal care product shoppers say that when faced with a shelf that does not contain the item they want, they’ll leave the store without buying the category at all. Often, this translates into the consumer taking their entire shopping basket purchase elsewhere, according to Nielsen. Although 7 percent seems minuscule, a one half of 1 percent decrease in shopper closure across the grocery channel could cost as much as $1.5 billion in sales, according to Nielsen.

A majority of retailers (75 percent) are downsizing product assortment to improve merchandising opportunities, while 71 percent cite a desire for greater control over inventory. Sixty percent state the moves are made to alleviate shopper confusion, while 52 percent are doing so to cut costs and improve profitability. Nearly half (48 percent) of retailers are making more room for store brand products.

The key lies in reducing assortment strategically, according Taylor, balancing the interests of the retailer, manufacturer and consumers. Retailers should adopt an ongoing, objective process around assortment and applying intelligent analytics to help identify products that provide the greatest incremental sales benefit, he added.

“Success in today’s competitive retail market is no longer about having the most products -- it’s about finding the right mix of products,” said Taylor. “Retailers should be focused on offering the products their customers want most and making it as easy as possible for their customers to find and purchase those products.

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