Retailers across multiple segments are reducing the number of products they offer, a strategy reflected in earnings announcements throughout the year. Dollar General trimmed 1,500 stock keeping units (SKUs), while Under Armour announced plans to cut SKUs by 25% immediately with another 25% reduction planned. BJ’s Wholesale Club indicated plans to reduce roughly 20% of SKUs, and Lululemon cut North American SKUs by 15%. The strategy aims to help companies stabilize sales, reduce excess inventory, and improve profitability during a period when consumers have pulled back spending due to elevated gas and food costs.
The approach carries distinct advantages and trade-offs depending on retailer type. For premium brands like Lululemon and Under Armour, SKU reduction serves as a tool to regain pricing power and reduce damaging markdowns that erode profitability. Under Armour’s leadership emphasized managing for quality over volume, with fewer products commanding higher full retail prices. However, both companies have faced investor scrutiny, with Under Armour’s operating income turning negative and Lululemon experiencing significant share price declines despite revenue growth. Industry analysts note that brands can dilute their value proposition if they grow too large, with saturation occurring at certain revenue thresholds where maintaining brand perception becomes difficult.
For value-oriented retailers like Dollar General and BJ’s, assortment reduction serves different purposes. These stores aim to streamline inventory management, accelerate product delivery to shelves, and reallocate space to their best-performing categories. Dollar General reported that eliminating products opened shelf space for higher-selling items while improving supply chain efficiency. BJ’s found success by removing redundant variations, such as carrying the same soda in only one format rather than multiple sizes, thereby concentrating sales into remaining products.
Implementing these strategies presents practical challenges. BJ’s acknowledged that a previous SKU reduction attempt failed to generate intended results, instead cutting sales until products were reintroduced. The risk for any retailer involves losing customers to competitors offering products that have been removed from shelves. Moving forward, companies indicate they will pursue more targeted and cautious approaches to assortment reduction rather than broad cuts.
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