Executive Briefings

Wal-Mart's SKU Reduction Experiment Was Costly Failure

Throughout 2009, Wal-Mart moved aggressively to slash the types of products on its shelves - in industry parlance, it was engaged in a massive "SKU rationalization." By cutting back vast numbers of underperforming stock-keeping units, executives reasoned, the company's outlets could lure consumers to its best-performing products and thereby use its shelf space more efficiently. Customers, however, voted with their feet and went to other chains to not only buy the brands that Wal-Mart jettisoned but to fill their entire shopping baskets.

The company's management began to change course in March by reportedly returning 300 "rationalized" products to store shelves. By the middle of September, Wal-Mart was in the process of reviewing literally billions of items, store combinations of products and item[s] and SKUs that were in stores, and restoring anything and everything that was profitable for us from a [gross margin return on investment] perspective.

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Throughout 2009, Wal-Mart moved aggressively to slash the types of products on its shelves - in industry parlance, it was engaged in a massive "SKU rationalization." By cutting back vast numbers of underperforming stock-keeping units, executives reasoned, the company's outlets could lure consumers to its best-performing products and thereby use its shelf space more efficiently. Customers, however, voted with their feet and went to other chains to not only buy the brands that Wal-Mart jettisoned but to fill their entire shopping baskets.

The company's management began to change course in March by reportedly returning 300 "rationalized" products to store shelves. By the middle of September, Wal-Mart was in the process of reviewing literally billions of items, store combinations of products and item[s] and SKUs that were in stores, and restoring anything and everything that was profitable for us from a [gross margin return on investment] perspective.

Read Full Article