SKU Rationalization

When establishing their assortment, vendors may distribute products for an existing brand, license a brand name to create new products, or create products under their own brand. In all three cases, selecting productive SKUs is essential. Offering too many products across categories can be a large logistical undertaking and may make your brand unclear to customers. Offering too few products hampers sales potential and category spread. Focusing on one category or collection of products and slowly expanding offers checkpoints to evaluate whether those products should be explored further. In this model, a vendor will be able to experiment with their assortment and gather data about product performance. 

A key concept to think about is the “80-20 Rule” referring to 20% of an assortment making up 80% of the sales. This concept may not be consistent across all assortments, but does make the vendor think about best-sellers and “the rest”. As long as the best sellers are intact, a vendor can introduce new items or change existing items to test customer response. Even if all the new products are a massive failure, a vendor will still be able to count on that 80% or best-sellers sales. If a particular product is not selling, it should be optimized (we’ll see how to do that later), and if it still does not sell, it should be retired. There is no use focusing time and resources on unproductive SKUs. 

An easy way to experiment with SKUs is to create variants of best sellers. These can be different colors, sizes, or features. The intention should be to build on what works about a product and provide minor changes to capture more customers. An even easier (but trickier way) to identify high priority SKUs is to contact a retailer’s merchant team for a category. These teams are often looking for trusted partners to fill assorment gaps and/or offer better costing. If a brand is adamant enough, they could pitch retail teams and ensure they’re among the first to know about a product opportunity.