A recently published Media Post Marketing Daily piece, "Some Categories May Be Vulnerable at Retail," points to some serious fall-out at retail after many months of sales declines. The gist: retailers are intent on cutting inventory levels. That doesn't only mean there will be less back stock in stores. It also means there will be considerable SKU cuts made to reduce costs, optimize assortments and improve profit margins.


According to the Wall Street Journal, the nation's largest retailers will be cutting their overall product assortment by 15% in 2010. Wal-Mart is committed to an overall reduction of 15-18% in their assortments. That's significant. In fact, it's a total reversal of the trend in the past few years to grow assortments. It's a safe bet, mid-sized and smaller retailers will follow suit. The losers here will be CPG companies.
Many will face the real possibility of not only losing a few SKUs out of retailer assortments; "They may lose an entire (brand) line," according to Willard Bishop retail consultancy VP Paul Weitzel.
Ouch! The economic downturn which has been in force since 2007 has fueled unprecedented growth for store brands, so it is possible many retailers will see their own brands as logical choices for category and product expansion at the further expense of national brands.
Over the past year, store brand sales have increased by 10% versus a 2% sales increase for national brands. According to Nielsen, store brands, on average, comprise just over 10% of most retailers' total product mix, but account for over 20% of sales, while achieving a turn rate that is better than two-to-one. While many retailers have adjusted their pricing in response to economic realities, store brands are still delivering excellent profits.
The new frugality in the marketplace is forcing retailers to take a look at their assortments; so are manufacturers. The "SKU rationalization" trend has begun. According to Willard Bishop, five key metrics related questions will have to be answered:

• Variety. Retailers' optimal product mix to meet consumer demand.


• Profitability. Retailers' bottom line by product/brand/category.


• Productivity. Retailers' product turn per shelf.


• Working capital. Retailers must assess their inventory costs and ROI much more closely.


• Growth. Retailers must identify growing and declining categories and adjust inventory dollars and SKU mix accordingly.

• Do you think the overall SKU reduction will be noticeable given the plethora of consumer products available at numerous retail outlets around the country?


• Do you expect to be able to find the kinds of products you want to purchase regardless of the cuts? Does it concern you that some of your favorite products may become unavailable in your favorite stores?


• Do you dislike having to choose another national brand to replace one you currently purchase? Do you see store brands as a strong alternative?


• While the short term ramifications of retailers' decisions may result in fewer products being manufactured and result in lost jobs, do you think there may be long-term benefits to SKU rationalization?