Why Retail Leaders are Betting on Fewer SKUs

Attribute-level analysis evaluates products based on specific characteristics such as color, size, style, material and packaging. By understanding which attributes drive customer preference and sales, retailers can keep top-performing items in stock, refine assortments and develop new products that better meet shopper needs.

Brands can no longer focus on a singular channel for their sales. 73% of retail shoppers are omni-channel consumers, combining a hybrid of both in-store and online shopping methods for everything from browsing to price comparison to checking-out.  

Today, retailers must keep inventory aligned across multiple platforms, resulting in greater data complexity which needs to be effectively analyzed and digested into actionable next steps. How does SKU rationalization directly impact the bottom line for omnichannel retailers? In a number of ways: 

Availability 

Leading consumer research company Nielsen IQ (NIQ) reports that US consumers make purchasing decisions based on three factors: availability, quality and price. Of those, 90% of women and 87% of men named availability as a top consideration before purchasing online.

Related to availability, accurate SKU rationalization is key to inventory management and optimizing shelf space, leading to enhanced sell-through rates and reduced warehousing costs. It ensures more accurate buying decisions and stock level management, crucial for maintaining product availability across all channels. 

Improved customer satisfaction 

Whether it’s to try on a pair of shoes, compare the shade of a lipstick or read the ingredient label, consumers still want to shop in-person. And when they do, it is important that retailers have the items in stock, especially after seeing them online, since frustration can quickly follow when these expectations are not met. Shoppers interact with brands across an average of six touchpoints during their purchase journey and they are 90% more likely to buy from retailers with an omnichannel marketing strategy.

In the increasingly competitive retail landscape, consumers want the right products delivered ASAP. SKU rationalization ensures that retailers offer merchandise that truly meets customer wants and preferences. This, in turn, enhances customer satisfaction and loyalty. 

Increased profitability 

SKU rationalization increases profitability. By identifying and eliminating SKUs that erode margin, retailers can reallocate resources to address gaps in their product portfolios. This strategic approach ensures a more profitable and efficient product assortment. 

Despite its benefits, SKU rationalization is often a manual and complex process that demands the right data and a structured approach for meaningful results. Without the right tools, teams face several common challenges, including:

Enormous amounts of data to analyze 

Retailers are inundated with data from various sources including sales, customer behavior and market trends. Managing these vast amounts of information effectively is a key starting point for effective SKU rationalization. The data must be accurate and readily available, yet many retailers find themselves struggling with a plethora of spreadsheets, databases and nuanced reporting methods across brands and channels. This results in a huge challenge to roll up that information into insights. 

Reliability is another issue. Decision-making is hindered without: clean, accurate data, standardized data management and consistent formatting across channels, brands and markets. 

Inventory management 

Continuing about reliability, certainty in the data used for SKU rationalization is critical for effective assortment planning. Any discrepancies or errors result in ill-informed decisions, thus leading to costly overstocking or, even worse, out-of-stocks. Accurate inventory data is necessary to maintain the right balance of product availability and minimize excess stock. 

Stockouts and cannibalization 

Removing products from the assortment without a thorough understanding of their influence on sales can lead to unintended negative consequences like popular items facing stockouts, resulting in frustrated customers and lost sales. Moreover, the remaining products in the assortment may cannibalize each other’s sales, resulting in an overall decrease in revenue. SKU rationalization is essential for optimizing assortments, especially for retailers seeking to localize or segment their assortments at a granular level. 

Vendor relationships 

Because SKU rationalization often involves reducing the number of products offered, it can catch suppliers and manufacturers off-guard. Open communication—like informing them that it may increase the volume of the SKUs that are left—paves the way for smooth transitions and maintains positive partnerships. 

Brand loyalty 

Customers develop loyalty to specific brands or product variants over time. When these items are discontinued as a part of SKU rationalization, there lies a risk of losing loyal customers. Retailers need to weigh the benefits of SKU rationalization against the potential loss of customer loyalty or dissatisfaction. 

Regulatory compliance  

Regional regulations and compliance standards add another layer of complexity to SKU rationalization. For example, a brand looking to consolidate styles or materials across markets must ensure that fabrics, trims and labeling meet local requirements. A denim style popular in one country may need different chemical compliance certifications or labeling standards before being offered elsewhere. These factors must be carefully evaluated to avoid regulatory risks while streamlining assortments. 

SKU rationalization is no longer just a cost-cutting initiative—it’s a strategic imperative for fashion brands aiming to remain competitive, profitable and agile in today’s fast-changing market. But achieving it efficiently demands connected digital systems that go beyond spreadsheets and manual analysis.  

Centric PLM™ offers several tools and features that are invaluable in the SKU rationalization process: 

Centralized data management – PLM provides one source of truth—a single repository for all product-related data, making it easier to access and analyze information across different SKUs. 

Enhanced collaboration – PLM systems facilitate better communication and collaboration among departments, ensuring that all stakeholders are aligned in the rationalization process. 

Detailed analytics – advanced analytics tools within PLM evaluate SKU performance based on various metrics such as sales data, production costs and market trends.  

Lifecycle tracking – PLM allows for tracking the entire lifecycle of a product, from design to end-of-life, providing insights into long-term performance and profitability. 

Process automation – automating routine tasks within Centric PLM can reduce errors and speed up the rationalization process. 

Change management – Centric PLM offers robust change management capabilities, ensuring that any changes to SKUs are systematically implemented and documented. 

Discover how leading fashion brands are streamlining assortments, accelerating time to market and increasing margins with a smarter, data-driven approach.