The range of most retailers is huge. And that while the vast majority of the range hardly adds anything. Not only are many articles that are offered of little relevance to the customer, the vast majority also hardly contribute to the turnover. For example, with many retailers, only 20 to 30% of the products provide 80% of the turnover. There is a lot to be gained there, especially at a time when cost savings are more than desirable. “Rightsizing‘ offers opportunities.
If you scan any shopping street, you will come across square meters with many of the same. A jumble of products that customers cannot make sense of. Whether it’s a drugstore, grocery store, sports store or electronics store, retailers across all industries tend to cram as many products into the store as possible. Because selling products. However? Nothing is less true. In many cases, only a small part of the range accounts for the largest part of the turnover. The rest of the products are gathering dust. In fact, they cost money. Think of storage, logistics, square meters and the handling costs in the store.
Optimizing the range can therefore yield a lot. Not only on the cost side, but also in creating a stronger formula. Because by applying more focus and by giving the products that really contribute something more space, both in the store and online, it becomes clearer for customers what they can contact your retail formula for. Customers also rate products more positively when they are given more space.
Perceived variety of choice
The survey of the Inspiring 40: Retail 2019 shows that supply & assortment is the most important reason for the customer to visit a retailer. While only 27% of retailers inspire with their offer. What seems? Customers are not at all waiting for an abundance of choice. They prefer to be presented with suitable products and services that suit them. Customers do like to have a choice. It turns out that an assortment that is too small is considered less surprising and generates less traffic. Retailers are faced with the challenge of offering a range where customers feel that they have something to choose without experiencing choice stress. This is about the perceived variety of choice. Research shows that our brain can process about seven different variants. Also offering three options via the principle “good-better-best“Is a proven method to give customers the idea that they have enough choice without overburdening them.
Advantages of a smaller range
– Cost reduction: A larger range means a more complex product base to fill in and keep, more actions (both in-store and in DC) and a greater risk of obsolescence; While more volume and a faster turnover rate in many cases means lower purchase prices;
– Less complex for the customer: Various studies show that too much supply leads to choice stress;
– Clearer formula picture;
– Customers assess products more positively: Products are given more space, so that they are seen as more attractive and cheaper by the customer (more volume gives a lower price perception).
Risks of a smaller range
Risk of less traffic: Research shows that there is a negative correlation between purchase frequency and the reduction of the range (Assortment and Merchandising strategy, 2019) During the corona outbreak, this effect appears to have been reinforced, discounters faced less traffic because customers chose for a one-stop shop;
Risk of too little variety: The customer may experience a smaller range as not surprising enough. Retailers such as Action and Flying Tiger, both a relatively small assortment of approximately 6,000 and 1,500 articles, solve this by changing the range weekly.
A discount strategy
Feeding a small assortment is nothing new. It has been the tried and tested strategy of discount supermarkets for quite some time. A 2016 study by EFMI Business School showed that Albert Heijn served the customer more than 27,000 SKUs. While Aldi made it with only 1,250 SKUs. The discounter does not offer twenty-five different types of sprinkles, but five. And guess what? Although Albert Heijn is able to achieve much higher turnover figures, Aldi is able to earn four times as much per product as Albert Heijn. And that while the market share is five times smaller. But downsizing the range is not only a way for discounters to become more profitable. It is also smart for other retailers to take a close look at the range.
Aldi manages to convert no less than € 2 million per year per product. In terms of turnover per product, Aldi is therefore four times the size of Albert Heijn, while the company is five times smaller in market share.
Remediation pays off
Actually, we dare to say that for almost all retailers, smart cutting in the assortment yields money. More and more retailers realize that the downsizing of the range is necessary. Wouter Kolk argued in a podcast with Salem Samhoud to reduce the range: “The amount of articles has increased enormously. We must also thicken that. You don’t have to have seven variations of a product when four is enough. This also makes it less complex for the supply chain. “The CEO of Ahold Delhaize Netherlands and Indonesia puts his money where his mouth is. In the new Gall & Gall stores, the number of wines has been drastically reduced and Albert Heijn is also working on an assortment optimization whereby fewer articles are carried, according to research agency IRI.
American superpowers are also downsizing
We are also seeing a shift in America, where everything is big and a lot. The American department store Target is known for its wide range. From electronics to medicines and from daily groceries to furniture, you can find it all. Target suffered from the Amazon effect. Profits fell and Amazon quickly took market share. The retail chain had to survive with more than 1,800 stores.
A logical response to Amazon’s huge offer would be to offer even more products. But Target opted for a “less is more” strategy. That meant smaller shops (from 10,000 m2 to 2,500 m2) and a more limited range adapted to the needs of the target group (young families). As an example, in the apparel category, Target has 15,000 different products, while Walmart offers more than 1.3 million items of clothing. In Europe, too, we see that more and more supermarkets are focusing on small convenience stores and that the large hypermarkets are failing. City stores, to-go concepts and smaller neighborhood shops are popping up everywhere with only a fraction of the complete range. This creates more differentiation in formats with a range tailored to specific customer needs.
From downsizing to rightsizing
Okay, so cutting in the range. Then the question remains: where are we going to clean up? Banning the products just by feeling can have dramatic consequences. To determine which products can be phased out, just looking at turnover and margin is not enough. Sometimes a product hardly contributes to turnover, but it does contribute to the formula image you want to create. Consider, for example, unique high fashion items at the Bijenkorf. Most likely, these products are not the margin drivers. Yet they contribute significantly to the premium experience that the brand wants to radiate. It may also be that the product does nothing extra for the formula, but is relevant for the customer. Consider, for example, the cold bottle of water at the Kruidvat in the city. A fourth criteria for assessing the range is the degree of distinction it offers from competitors. Take HEMA by offering a private lease. Not something that is directly relevant to the formula, but it is distinctive from the competition.
Criteria for determining which range can be remediated:
– Does the range contribute to the margin and turnover?
– Does the range contribute to brand positioning and the formula image?
– Does the range offer sufficient relevance for the customer?
– Does the range provide sufficient differentiation from competitors?
In a world in which we receive far more information on a daily basis than we can process, retailers can help customers by rightsizing their assortment. Cutting in the range is not an end in itself. It is about offering a range that is in balance based on the four criteria mentioned. In addition, it is important to help customers make the right choice by means of communication, personal recommendations and product presentation. Still exciting to actually remove products from the range? Go test! Start with one or a few stores and observe and measure the effects. It is not easy, but rightsizing pays off.
brand strategist and director Crossmarks