HighJump Software

I am a frequent reader of Logistics Viewpoints by Steve Banker and Adrian Gonzalez, an excellent blog on supply chain news and trends. In recent posts they mention that several retailers such as Wal-Mart and Kroger are undertaking programs to reduce the SKUs available in stores. They cite this as a positive supply chain improvement with less SKUs flowing through all the levels of the supply chain. After reading this post, a few questions jumped to my mind:

Is this good for consumers?
What will be the supply chain ripple effects?

On the first question, my initial reaction was anything that reduces choice is bad for consumers. Sure the companies are not taking their best seller off the shelves, but they are removing items that presumably get bought occasionally and now a buyer is going to come into that store looking for these items only to leave frustrated. On the other hand lower supply chain costs could result in lower overall costs for other items in the store which would be a benefit for consumers. Given Wal-Mart’s corporate strategy and low pricing approach, I would surmise this is where they are headed with this SKU rationalization program. For the average consumer the net-net of this is probably a slight benefit whereas consumers looking for the “fringe” SKUs will be hurt.

On the second question, I think SKU rationalization in brick and mortar stores will lead to SKU expansion in online retailers. While these products might not be on anyone’s “A mover list” they still are needed by certain segments of consumers. I think this could be a boon for niche retailers (to the degree walmart.com does not simply add these SKUs to their offering) since they will have more products that only they carry. The carrying cost for an online retailer is much smaller than a brick and mortar store because they can have one unit in stock for viewing by the entire internet populace to make a sale whereas the brick and mortar store has to ship a unit to each store and then have it take up valuable retail shelf space. In the online world the incremental cost of online shelf space is minimal, just a few pixels and voila. This shift has supply chain implications as e-commerce fulfillment is very different from traditional retail/distro fulfillment. As we saw in the dot com boon several warehouses had difficulty managing the different fulfillment challenges that each type of fulfillment posed. For large retailers that plan to increase their SKU selection online, they should plan to optimize their e-commerce capabilities or risk reducing cost of one order type only to watch it increase for another.