Is bigger actually better when it comes to product range or does it just confuse shoppers? Joanna Perry explores whether retailers could benefit from editing their ranges for consumers
A quick trip to Asda and Tesco in High Wycombe last week perfectly illustrated one of the differences in the two supermarkets’ range strategies. While the Asda hypermarket was stocking 25 different types of washing-up liquid, with a large proportion of the space given over to just two types, the smaller Tesco supermarket had an astonishing 30 washing-up
Asda has reduced its SKUs in the past couple of years by an estimated 30%. At the same time, Tesco has expanded its range with the launch of its Discounter brands.
TNS Worldpanel director Ed Garner says that historically supermarkets have expanded their SKUs – particularly with their good, better and best private-label offers – and this was the right thing to do given their need to appeal to a wide audience.
However, Asda’s continued sales success raises the question of whether retailers of all kinds could benefit from more closely editing their range.
Comet commercial director Bob Darke says the size of the range is an issue in his business right now. Darke says retailers, and especially retailers who operate out of town, have been guilty of overplaying range at the expense of advice and customer service in the past. This happened because the availability of space meant retailers could afford to give “category-killing choice”.
But Darke says that it is clear that once a customer decides they want a 32-inch TV and comes to a store to buy one, then too much choice can be unhelpful.
For specialist retailers, the answer to the dilemma is more clear-cut than the supermarkets. Multichannel allows a clear strategy for reducing SKUs in stores without reducing the overall choice they can present to customers.
Halfords chief executive David Wild says that specialist retailers need to use the internet to broaden their range. Halfords does this, but keeps its stores relevant with a forward-looking product range strategy overlaid with a service and fitting proposition. For instance, it invites back customers who purchase bicycles after six weeks for a bike check.
Darke agrees that this is the way his business is also going. He says: “The big change factor here is the multichannel nature of the business. The future is a more edited range in stores, backed up by a bigger catalogue online.”
He adds that the difference in the range displayed in stores and sold online will increase dramatically and says that retailers in his sector can learn lessons from department stores and fashion retailers that use their stores to “tell a story”. At the same time, he wants Comet’s website to have the largest extended range it possibly can.
Mothercare is another retailer that views its comprehensive range as part of its customer proposition. Group brand and commercial director Gillian Berkmen says that while one of Mothercare’s parenting centres will stock between 50 and 70 different pushchairs, customers who go online can choose from up to 700. With one merchandising team handling both stores and online there is synergy between the decisions over what is sold in stores and what’s sold online.
Berkmen says: “We are the market leader, so we have to offer the best selection for first-time mums. Some 90% of first-time mums come to Mothercare.”
This is an important point. Retailers need to be sure that, in terms of choice, they reach the critical mass required for customers to consider them a product expert.
Boots UK director of CRP, space, layout, value and merchandising Daniel Humble says: “Our merchandising strategy should be driven by customer need and we use our latest customer insight information to influence this – it’s not just about the biggest sellers but about the unique products that drive real variety. Some products, particularly in our healthcare area, play a unique role and it’s important for us to make them widely available in addition to the best-selling lines.”
Retail consultant Clare Rayner, managing director of Retail Acumen, worked for First Quench on the merchandising in its Threshers chain. One outcome of its analysis was that the retailer needed at least one bay of wine in each store in order for customers to view its wine offer as credible. However, as more bays were added, the incremental sales achieved from expanding from four bays to five was minimal.
So retailers must examine the marginal benefit of additions to their range, and whether extra choice produces more sales or just dilutes sales of existing products on the shelves. Waterstone’s is one retailer that has examined space elasticity to work out the optimal space to give to different products.
Going back to the washing-up liquid example at Asda, at least a third of the space was given over to just two products. “The quality and quantity of space drives demand. It is a bit of a self-fulfilling prophecy,” says Rayner. The sheer volume and high visibility means they will sell more, although there comes a point where adding more stock won’t increase sales.
While there are certain categories where Halfords needs to maintain the depth of its range to support its service proposition, such as car parts, other categories lend themselves towards being web-only.
Halfords wants to offer a bigger and better assortment online. For instance, it has added 2,000 extra bike accessories to its website that can be ordered for home delivery, and later this year it will allow customers to order them for free delivery to its stores.
HSBC head of retail research Paul Smiddy gives an example of a retailer that has been successful at demonstrating its product authority – Richer Sounds – despite carrying a relatively narrow range.
There is a feeling that as long as retailers don’t over edit their range, then customers are happy for the whole range not to be instantly available in-store, as what they actually want from a specialist is product advice. Darke believes that multiples can learn something from independents that don’t carry a huge range, but use old-fashioned sales skills and a catalogue to extend their in-store range.
But while some retailers are delivering expanded ranges in stores with self-service technology, Darke is committed to using his staff. “It is very much an assisted sale. We wouldn’t be doing our job as shopkeepers if we asked our customers to drive out of town and then use a kiosk,” he says.
Smiddy points out that widening your service proposition is one way to “move your centre of gravity away from price”. He adds that retailers that have challenged product markets are moving into service in the broadest sense, using the example of HMV selling tickets and creating cinemas and venues.
As well as potentially boosting revenues by redeploying space, there are cost benefits to editing your range.
Asda is thought to have achieved considerable cost savings as a result of its SKU reduction. Rayner points out that less SKUs mean less volatility in demand and easier demand forecasting, so suppliers can benefit from this strategy as well (although only if it is their products that are picked to stay on the shelves).
For retailers, the additional supply chain and retail operations benefits of having fewer products with a small number of facings or single facings is that replenishment is easier – you don’t need to refill the shelves so frequently.
Again a balancing act must be struck between cost reduction and necessary choice. Garner says that while SKUs equal cost, as a customer “if you go into Waitrose to buy olive oil then you want there to be lots of choice”.
Darke says that there are cost benefits to cutting your range in store, even if you maintain choice through a multichannel offer. “If a product is accessible via a distribution centre, you might need 25 units rather than the 250 you would need to have a display model in each store. Display models must also be sold as such, so there is a cost there too,” he says.
A range of strategies
For the supermarkets, one strategy does not suit all.
However, he admits that there is such a thing as too much choice, and it can make it more difficult for customers to find the products they really want.
Garner agrees and says that Tesco may have gone a step too far with its Discounter brands, and it has some balancing to do. It may pull back its range in some areas, and certainly won’t add further to the complexity in his opinion.
Wild believes that for the grocers there is no one right strategy, and it depends on their starting point as to the result they can achieve from either reducing or increasing their SKUs. However, he does add that with Tesco’s deep customer data gathered through its loyalty scheme, any increase in SKUs would have been done in a very data-driven fashion.
One might assume that suppliers would be resistant to any range reductions, but they too sometimes see the benefits of offering less choice.
Garner highlights Sainsbury’s launch of its Novon laundry products range, saying that the grocer launched it with about 70 SKUs, while not long after the main branded suppliers in the sector decided to reduce their SKUs to simplify their offers to consumers.
This range issue also raises the important point of the continued importance of point-of-sale information to help explain the differences between products.
Rayner points out that retailers must have good signage in store to explain what makes a particular brand or item worthy of being part of the offer. For instance, if an own-label product is as good as a brand and 20% cheaper you should say so.
Garner believes that the point-of-sale material that accompanies Waitrose’s Essential products has been a success, clearly defining to customers why those products are there.
And engine oil is an example of where Halfords has used point-of-sale information to explain the breadth of the range. Wild says that every bottle of engine oil on sale currently has a collar asking if the customer is sure they are buying the right engine oil for their particular car. This encourages customers to speak to Halfords’ staff about their product choice, and Wild says “good product advice magnifies the range that you have”.
He concludes that historic sales information is not enough to make decisions on range, particularly in stores, and retailers need to be outward looking. At Halfords, staff watch the independent bike sector closely, and keep their eye on upcoming trends to build the price architecture and create a balance of products at each relevant price point.
And Darke adds that another side effect of displaying less in stores and more online is that it allows him to use some of the space in his stores to display new and innovative products, where initial sales volumes might not be high.
Bigger ranges, at least bigger ranges in stores, are certainly no guarantee of better sales.