GETTING 'SMART' ABOUT HBC

In its study on efficient product assortment, the General Merchandise Distributors Council's Educational Foundation analyzed analgesics and hair care using a five-step process called "Smart Assortment."

nventory investment was up 3%. Hair care enjoyed even greater increases, with sales per SKU up 17%, sales per foot up 16%, profit per foot up 15% and ROII, up 15%.

Here is how the process works:

1.It defines consumer purchase decisions within the category. It was found that consumers shop by ingredient for analgesics. Therefore, there is a low substitution rate by ingredient, while the form (caplets, tablets, gel caps, liquid) has higher degrees of substitution, meaning the consumer is willing to purchase another item if the SKU is not available.

In hair care, consumers were found to purchase products based on performance and the emotional benefit the product delivers. It is at brand and size levels that substitutions are more likely to be made. Consumers are less likely to substitute based on version.

2.It identifies the point of duplication within each segment. In the analgesics category, it was found that stocking more than 160 to 179 SKUs does not increase category sales.

In shampoos and conditioners, 340 to 375 items was the optimum range before items begin to duplicate.

3. Through concentration analysis, it identifies the relative concentration of business overall and by segment, and determines the top-10 SKUs and their volume contribution to the category.

In analgesics, the top 10% of items represent about one-third of segment sales, or a limited concentration. It was found that 10% of the SKUs generate only 32% of acetaminophen sales, 35% of ibuprofen sales and 32% of the aspirin sales, indicating that no real power SKUs or power brands on an SKU basis dominated the category.

In hair care, however, power brands or SKUs appear to dominate the segments within the category. At the shampoo therapeutic level, 10% of the items generate 80% of dollar sales; in treatments and conditioners, the top-10 SKUs generated 98% of dollar sales, and in baby conditioners, the top-10 SKUs did 82% of dollar volume.

4. Through contribution analysis, it identifies profit and productivity contribution by ingredient, brand and form.

For example, aspirin provides a strong gross margin, but is weak on space productivity and performance per item carried.

5.Through substitution analysis, it confirms which items add variety vs. duplication.

The analgesics analysis found that on an ingredient basis there was an opportunity to reduce the variety and less productive segments. On a brand basis, there was an opportunity to increase category productivity through reduction of lower performing brands. On a form basis, there was an opportunity to reduce various forms by stocking multiple forms in the highest performing brands only.

In hair care, the value in salon segments underperformed other segments and were targets for EPA. Hair care segments were dominated by two or three leading brands; therefore, category productivity could be increased by reducing low-performing brands.