MERCHANDISING A STORE IN WHICH EVERY ITEM MATTERS

David Orgel

For years, retailers have wondered how to handle the rush of new-item introductions, and the answer has been elusive for just as long.

In 2003 alone, there were 11,500 new items -- a 20% jump over the prior year, according to the Global New Products Database from Mintel, the Chicago-based market research firm.

On the one hand, you don't want to miss out on carrying potentially hot items in real time. Yet the danger is the store becomes cluttered with peripheral products that obscure real gems.

So when new trends develop, the question is how do retailers decide which items to embrace and which to leave behind? An article on Page 40 cites the increasing move to co-branding in ice cream. Such varied brands as Snickers, Tastykake and Snyder's of Hanover are making co-branding appearances with well-known ice cream names. On its face, this practice of marrying two trusted brands is one that appears to have consumer drawing power. But how far do you go in this activity? Do supermarket retailers take the primary brands and items, and cut off the secondary or tertiary ones? Do retailers take on a large number of additional ice cream SKUs, even though low-carb is all the rage?

It's sometimes useful to look outside the supermarket model to help address these kinds of questions. Consider how the membership warehouse club Costco would deal with such issues.

Costco, based in Issaquah, Wash., is a model of discipline. It maintains a limited assortment of some 4,000 SKUs at all times. Every one of them has to matter. Those in the bottom percentiles of sales growth are in danger of quick extinction. The decision to add an item often means removing something else. Costco also caps margins at around 14%.

So a Costco buyer's task is to improve sales with a fixed number of slots and set margins. How does the buyer do this? By adding items that truly represent enhancements over existing products and justify higher price points. That could mean items with bigger quantity, better packaging, improved taste and convenience, or any number of other upgrades. However, the improvements have to be real and, even at a higher price, the product must represent a tremendous value.

Not surprisingly, it takes a long time for suppliers to develop new items for Costco. Yet all the work put into the item by the retailer and supplier helps increase the odds that it will succeed. The supplier that partners with Costco must be willing to tamper with success by continuing to make the item better over time.

Now let's return to supermarkets. The point isn't that they should adopt the warehouse club model. Supermarkets need to be in stock on much more than just 4,000 SKUs. They absolutely must embrace the best of the hot new products. Nevertheless, it's a useful intellectual exercise for a supermarket retailer to ask what his or her store would carry if only allowed 4,000 or 10,000 or 20,000 items. What would a buyer carry if only allowed 100 or 50 items? What I'm suggesting isn't a variation on category management, but rather a line of thinking that will force discipline and priorities. It will also keep the focus on value-added products as opposed to me-too items.

It's just one more tool to help maintain perspective when the next positively must-have, guaranteed-winner item comes along.