High Margins Don't Always Equal Profit [Opinion]
Stores will have more success with higher turns and a focused and simple inventory mix, especially in hard goods.
April 7, 2013
By Martin Pratt
Every retailer had better ask themselves the question: “Am I carrying too many SKUs?” For independent garden centers, the downside of too many SKUs can be the difference between success and failure.
Making every dollar of inventory work harder is important throughout the store, but in hard goods is it essential to maintaining profit levels.
Today retailers need to focus on the consumer and meeting their needs. It may seem contradictory, but when it comes to customer needs, the old adage “more is better” is far from accurate in the lawn and garden hard goods category. Instead, independents need to shift from meeting every possible desire to meeting the major demands. A high margin SKU that takes two years to sell through adds significantly less value than a SKU with 35 percent gross margin that turns four times a year.
How To Decide Which Products Are Key To Your Business
So here is the dilemma — how do you decide which SKUs to stock? You can pay a third party to analyze your POS data or you can do a little work on your own.
Obviously ranking your sales by category will give you a good idea of what items are selling and what items are not. That is a great place to start but you need to do more work. You need to carry a robust assortment that will address all the major issues a homeowner might face in your market. Your assortment also needs to be compact enough not to confuse the consumer and waste inventory dollars.
One approach is to start out with a clean shelf and build your assortment from the ground up. Decide what product categories you need, and from there you can decide what specific SKUs to stock.
A good rule of thumb is no more than two brands for any single category. This still gives the consumer a choice but will not overwhelm the novice gardener. This is especially true when there is not a salesperson present to help with their decision making process.
In most categories, this means carrying a national brand and a price point, which can be either a brand or a private label. National brands are necessary to drive traffic and bring innovation, but should be accompanied by those unique offerings that expected at independents. You need them, but do your homework to select sizes and packaging to help differentiate from the big boxes. Most national brands offer special sizes or consumer rebates to the independents to allow them to compete, so ask your salesperson.
Green goods and salespeople are the key, make sure your team understands the strategy and knows how to position the hard goods.
Trimming Products Can Be Hard, But It's Worth Doing
Without a doubt, this process will cut items that you believe have a loyal following, but never fear, if you train your staff, they can usually position a similar solution item that you are carrying.
This limited SKU, limited brand strategy will increase sales, inventory levels will go down and your in-stock position will actually improve. This concept was tested with some independent retailers last year and they were successful. What they also found was that this approach provided an easier shopping experience and led to sales increases in adjacent categories. A simplified shopping experience will also decrease the time necessary to merchandise the department every week, which has positive impact on your bottom line.
The goal of every manufacturer at the fall trade shows is to entice you to buy displays and assortments to drive their sales. This is where you need to stick to the plan and only order what is in your assortment or merchandising plan. If you find a new item you feel you should stock, take the time to determine another item to remove from the planogram. Once SKUs get in the planogram, they often live there for too long and that is why consumers get confused. Too many choices are worse than no choice at all.
A simple, easy to shop consumer experience and your profitability rely on creating a merchandising plan and sticking to it. Keeping the focus on the best shopping experience will drive consumers to purchase more and allow your valuable inventory dollars to work more effectively.
Martin Pratt [email@example.com] is a Consumer Package Goods sales and marketing professional with background with independent garden centers and other retail channels.