The Mix Success of Less Merchandise

In the last 10 years, retailers have tried to reduce their merchandise mix including the width and depth for the product line. Depending on the retailer, this strategic decision has led to mix financial performance. Ron Johnson and his management team could have little choice but to clean off the shelves at JC Penny. Most recently, Office Depot reduced its merchandise mix and noticed a 2% decrease in third quarter sales. However, sales per square foot remained flat. Most famously, Walmart's effort, known as "win-play-show," failed to reverse a sales decline for the nation's largest retailer.

Johnson, though, could understand merchandise management better than a lot of retailer managers. At both Apple and Target, he worked with an approach known as "good, better, best." For any one product category, the retailer stocks three types of product. For example, at Apple, the company offered the MacBook with only a 13" screen, which is good. It also offered a 15" MacBook Pro (e.g., better) and a 17" MacBook Pro (e.g., best). Target followed a similar approach to its merchandise. For example, in men's blue jeans, the company sold Levi's (e.g., best), Wranglers (e.g., better, and a private label (e.g., good). In both instances, Johnson generated sufficient foot traffic, in part, to less merchandise.

Less merchandise offers several benefits. One, it makes the store appear less cluttered. Two, consumers can make quicker purchase decisions. Three, store margins are boosted because of less inventory costs. Four, price lines are easier to maintain, which should also reduce the need to discount. Five, buyers can usually negotiate lower prices because another brand wants to get on the shelf. The only way for the brand to reach the shelf is for another brand to be removed.

However, this approach carries a caveat. If the retail manager removes a brand or brands that certain consumers want, then the retail manager risks losing those consumers. Walmart removed too many brands. Managers at competing grocery stores were more than willing to let consumers know where they could find their preferred brands.

Penny's merchandise group would be wise to conduct research that provides some insight into what brands drive their consumers to a Penny's location. Simply looking at the top two or three performers in a product category will not cut it. The analysis needs to go deeper such as correlation and cross tab to establish preferences for and relationship among brands. At that point, brands can be trimmed.