Retailers are cutting back on the number and variety of products they stock, which represents a big change in the way retailers and manufactures have done business in the trillion dollar consumer products industry, according to the Wall Street Journal on 6/26/09. Several major retailers are expected to reduce the number of products they stock in their stores by at least 15% over the next few years.
Over the years, manufacturers expanded the types and varieties of products they offered to retailers, to maintain shelf space and to keep their brands top of mind with consumers. Retailers began offering many more products and larger sizes in the 1990’s, to compete with larger discount retailers such as Wal-Mart. By 2008, the number of products in a typical grocery store had grown to 47,000, a 50% increase from 1996, and there were 47,000 new products introduced last year, more than double 1998 levels, per the WSJ.
During better economic times, when consumer spending was growing, retailers and manufacturers both decided that more products and variety was better. For example, there were 88 types of Pantene shampoo at Target stores and Wal-Mart carried 24 different tape measures. (WSJ) But now, during a recession, retailers are trimming consumer product inventories to appeal to more budget conscious consumers, who are also looking to simplify their shopping experience by focusing on well known brands.
Reducing inventories and new store expansion is helping retailer’s better weather the recession. Retailers have also been growing their own, profitable, private label brands and replacing manufactures’ brands with their own products. Wal-Mart now has 5000 products in their Great Value line. Target is rolling out a private label line called up & up, according to the WSJ.
Retailers are now analyzing sales and data from customer loyalty programs to better understand consumer product preferences and to make decisions about which products to stock. Wal-Mart used this type of data to determine that offering such a large selection of products was limiting the amount of products consumers were purchasing. This led them to add more products to the fastest growing categories and scale back products and shelf space in the slower categories, per the WSJ.
Marketers with dominant market share in particular categories will be in the best position to benefit from the product simplification going on at retail. “We generally end up with share and sales growth, and it’s…a lot more profitable…,” said P&G CEO Lafley, as reported in the WSJ. “It benefits the leaders in the industry and it disproportionately benefits P&G.”
How will this trend toward retail product simplification affect DRTV marketers? Marketers of hit DRTV products have the advantage of being able to more cost efficiently drive consumers into retail stores to purchase their products, than traditional marketers and their products are generally more unique. And retailers know this. So in my opinion, they will be less affected than other types of product marketers.
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