Retailers strive for the perfect mix of products that will boost sales and keep costs down -- but the experience of some, including Wal-Mart Stores Inc , in pruning merchandise shows that getting the recipe just right, can be tricky business.
More than 40 percent of retailers reduced the number of different items, or SKUs, on their shelves in 2009 and nearly the same number expect to make additional cuts, according to a survey released by the Nielsen Co on Tuesday.
Limiting the product assortment can help retailers like Walmart and drugstore giant Walgreen Co and grocers Kroger Co and Supervalu Inc cut costs, but the risk is that shoppers will take their money elsewhere if they are unable to find an item.
The message to retailers is to choose carefully when it comes to deciding which products to trim, Stuart Taylor, Nielsen's vice president of custom analytics, said at the market research firm's Consumer 360 conference in Las Vegas.
There aren't a lot of rules of the road, said Taylor, who called SKU reduction a process, rather than a one-time event.
At the end of the day, everything is a trade off, said Chris Shaw, HJ Heinz Co's senior manager of client business planning, who works with retailers tweaking their selection.
According to Nielsen, 7 percent of shoppers who did not find the personal-care item they were looking for said they would leave a store without buying an item in the category. More importantly, some shoppers said they would leave without buying anything.
If just 0.5 percent of grocery shoppers were to leave a store without making a purchase, the lost sales would equal as much as $1.5 billion, according to Nielsen, which sells products and services to help retailers finesse assortment.
Most consumers haven't yet noticed that overall assortment is down about 1 percent, Taylor said, adding that just over one-third of shoppers polled by Nielsen actually said they were seeing product variety increase.
The stakes are high in the grocery arena, where retailers are battling to offer the lowest prices to consumers who are suffering from continued joblessness.
Supervalu Chief Executive Craig Herkert has said the company plans to pare SKUs in some categories by as much as 25 percent.
Kroger, which already has trimmed its selection of breakfast cereals, is believed to be undertaking similar efforts, though its executives have remained tight-lipped about their plans.
Walmart is the highest-profile retailer to have gone public with the pain associated with clearing the wrong items from shelves.
When it reported fourth-quarter results in February, Walmart said its program to overhaul stores hurt sales as shoppers adjusted to new layouts and product selections.
The world's biggest retailer, which last year got almost half of its U.S. sales from the grocery category, removed slower-selling items and replaced them with faster-selling or more popular products as part of a store remodeling program.
In March, Walmart said it returned roughly 300 items to U.S. stores after executives said the retailer disappointed customers by not stocking them.
The company found that not offering particular sizes or flavors of some foods sent some shoppers elsewhere, even if the missing item was a one-pound bag of brown rice.
(Editing by Maureen Bavdek, editing by Leslie Gevirtz)