As the adoption of online sales was increasing, operators have been scrambling to find creative ways to compensate for the lost sales. One such way is to sell additional items that will increase sales (however marginally). Some retailers moved outside their core competency to find alternative products and services traditionally not available in their brick-and-mortar locations. The expansion of merchandise lines wasn’t the silver bullet operators hoped for and are now rethinking their strategy. But, intentionally dropping sales takes discipline, which most retailers lack.
One such success was from the biggest innovator in the field, Sol Price. Sol, the founder of Fed-Mart and Price Club (early warehouse club operators – Price Club was acquired by Costco in 1993), aggressively pursued what he called “the intelligent loss of sales” – deciding what sales you are willing to live without. As a result, Price Club refused to sell to non-members, and only sold larger sizes, like 24-packs of toilet paper.
Starbucks recently announced they would be dropping newspapers, grab-and-go snacks, and bags of whole bean coffee for sale in all of their 8,600 company-owned stores in the U.S. Presumably, the primary impetus for this decision is the fact that sales from these items do not provide a meaningful contribution to unit sales and profitability.
One notable recent exception was CVS, with their decision to drop cigarette sales in 2014. This was an expensive decision – CVS estimated that dropping cigarette would cost up to $2 billion in annual revenue. However, this was part of an intentional strategy to re-brand CVS as a healthcare company, and their belief that cigarette sales was incompatible with that mission.
How to determine categories or products to cut? Marginal contributions to sales and profit is just one way but be sure you understand the impact from your customer’s point of view. Don’t just analyze the category or product in isolation—analyze the entire basket in which it resides. If that product is regularly attached to the baskets of your most valuable customer segment, for example, you might want to think twice.
The intentional elimination of merchandise lines will continue to be a trend in the ever-changing world of brick-and-mortar retail. As operators learn more about their customers, they will hone-in on what the customers want/need which could ultimately lead to a decrease in merchandise lines.