Here is a common challenge for all retailers, from the independent store, to the major mass retailers. Almost daily, sales reps come in to ask you to buy more products and more skus. However, sales are flat; maybe slightly declining in this environment. So, adding more choice is a great way to drive sales, right? Does adding skus increase sales?"..."
Here is a common challenge for all retailers, from the independent store, to the major mass retailers. Almost daily, sales reps come in to ask you to buy more products and more skus. However, sales are flat; maybe slightly declining in this environment. So, adding more choice is a great way to drive sales, right? Does adding skus increase sales?The answer is no for two reasons.
First, if you're able, run a report on sales per sku store wide. I'll wait while you do it. Now, I bet the top 25 per cent of skus account for more than 70 per cent of your sales. Take a quick look around your store: do those top skus account for over 70 per cent of your shelf space? We all know the answer to that is no, as there has to be some level of selection for the consumer and some available space to allow for emerging brands or trends.
What I want to suggest is the idea of increasing the shelf space of those top skus and discontinuing the poor performers. In doing so, you have instantly increased your profit per sku and per square foot. Giving the top performing skus more shelf space not only allows you to get more sales per square foot, but it gives the winning products extra facings, more stock on shelf, and allows you to keep the shelf full longer. In doing this, you can reduce out of stocks, increase your inventory turns, decrease labour costs, take advantage of volume buys, and drive more sales at your store.
Secondly, there is the paradox of choice. This means that by offering more options, it actually confuses the decision making.
We all have done it – sat in front of a shelf, staring for what feels like hours to choose which crackers to buy. Simply put, there are too many options for us to make a quick decision, and often the decision people make is to just avoid making the choice. That results in lost sales. Furthermore, once you make the decision, there is always cognitive dissonance, also known as second guessing your decision. Did you choose the right one? Square crackers vs. triangle? Which one goes better with cheese?
Now, transpose this situation to your store, and you probably have five, six, maybe 10 multivitamins on the shelf. Do you really need that many? That vast of a selection causes confusion and results in lost sales. If a sales associate is not there to help a customer, what would the shopping experience be like? How would they know which one to choose? If you only had three options, the decision is simple and leaves the customer feeling like they made the right choice.
There is one retailer who has mastered this concept, but arguably has taken it too far. If we quickly examine Costco, you will find that it has limited the product selection to one brand and one size. The Costco shopping experience is horrendous, like shopping for a car at the factory, yet customers walk away happy. A big reason is choice; there isn't deliberation over what brand of pickles to buy. Customers don't feel bad about these decisions as there were very few to make.
I'm not recommending we go the Costco model, but I challenge everyone to run a report, ask your suppliers for one, and find out what your bottom sellers are and discontinue them, then make room for the items that sell the most, making your staff, customer, and bottom line a lot happier.
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