Range consolidation or range expansion – choosing the right strategy

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Ranging decisions have long provided retailers with a dilemma; customer choice vs streamlined, efficient supply chains. Striking the balance is a key criteria of any range review. We’ve been talking to Steve Collinge from the Insight DIY group to understand how the Home and Garden sector is responding to the challenge.

Towards the end of last year, it became obvious that two very distinct and yet opposing ranging strategies were beginning to emerge across established retailers in the DIY, home and garden sectors. When it comes to the management of bricks and mortar stores, it’s all about range reduction and simplification, driving efficiencies through supplier consolidation and reducing stock levels. But with the continued rise of e-commerce, now accounting for over 50% of sales of some high street well established retailers, this provides an opportunity to increase customer choice, grow revenues in complementary and adjacent ranges without carrying the full accountability of traditional supply chain risks

Range consolidation

The need to reduce in-store ranging and stock holding is not surprising when you consider the pressure being felt by retailer supply chains. Everywhere you look, established retailer distribution centres are bursting at the seams, either to keep up with increased consumer demand or because of high stock levels that they are now sitting-on following demand led  over-ordering and availability led contingency planning from the Far East.

You can understand the need to drive efficiencies with retailers such as John Lewis & Partners, recently announcing that 60-70% of their total sales are now achieved online.  It’s fair to say that UK lockdowns did contribute to this high number, which out of interest stood at just 40% pre pandemic. But that is still a staggering statistic, when you consider that the remaining 30-40% of their sales are now generated by their hugely costly, store portfolio. Perhaps, it is no surprise that they’ve been forced to close sixteen Department and Home stores in the last two years and there are likely to be more closures to come.

Another retailer forced to look very closely at the range management in their stores is the stationery retailer Paperchase. Following their collapse into administration in January 2021 (after being forced to close their stores over their peak Christmas trading period), it was critical to drive efficiencies and make the business more profitable. Penny Teale, appointed Trading Director in April 2021 and supported by 4C Associates, shares the approach they took:

“A key focus of the range reduction was to reduce the amount of product duplication and improve the pricing structure of the range, to make it simpler for our customer to shop, and more efficient for our business to manage. Using 4C’s ‘4MARGIN’ data analytics tool, we built a strategy for each range with detailed proposals on range structure and supplier selection as well as recommendations for a pricing hierarchy by range type. We worked closely with the buying and merchandising teams and through the process, we upskilled the buyers to become more commercial in their decision making while giving merchandisers the tools to make effective ranging and trading decisions. The result was well received by customers and it delivered to the bottom line through improved sales and margin across the entire range”.

Range expansion

Screwfix is a great example of a retailer set on a very different path, choosing to dramatically expand their offer, committing to add at least 30,000 new lines to its online range before the end of 2022. This approach is effectively opening the doors to a flood of new products and suppliers enabling them to solve more customer missions.

For the reasons explained before, with distribution centres bursting at the seams, it would be impossible to take a significant number of completely new suppliers and thousands of products into their existing supply chains, the admin’ burden alone for the supply management teams would make this objective impossible to achieve.

There are two ways to grow a retail business – acquire new customers (which is costly and difficult) or sell more products to your existing customers, those who already visit your stores and websites and like your brand. A wider online range means more online customers and more sales, and these are sales that carry the much reduced risk of stock management. The launch of virtual marketplaces and an increasing number of high profile retailer partnerships also provide customers access to broader product ranges from recognised brands with the retailer benefiting from operating efficiencies and customer engagement.

Sector shift

With retailers adopting polarised strategies when it comes to management of their in-store ranges and their online offer, it begins to raise some very interesting questions. With different strategies and with ultimately different teams managing each side of the business, it becomes increasingly possible to run these channels as two entirely separate, stand-alone divisions and even businesses.

If that happens, then the opportunity for a retailer (particularly a business in distress) to sell off its online business becomes a distinct possibility. Can you imagine John Lewis stores and John Lewis.com being two entirely different businesses with the online channel/company being run on a separate basis, but maybe managed on a license basis with JLP?

Far-fetched? Maybe not… It’s already happening in the US where Saks Fifth Avenue’s parent company Hudson’s Bay Co. split the retailer’s website and stores into two separate businesses in March last year. More recently, the department store Macy’s is reviewing the option after the 163-year-old retailer said last month that it was reviewing its business structure after Jana Partners urged it to separate its e-commerce arm. The activist hedge fund said in October that the e-commerce business could be worth $14 billion on its own, more than Macy’s entire current market capitalisation of about $8 billion. And it’s not only Macy’s and Hudson Bay considering the option with Nordstrom now being added to the list.

What next?

Providing solutions that meet customer needs will never change, and those needs / wants / desires are constantly evolving and therefore so does the retailer proposition. In order to remain relevant with target customers retailers need to show them they understand what they are looking for and then delight them with each interaction.

To expand, consolidate or maintain ranges is a balancing act, but if done right can have significant rewards. At 4C Associates, we support retailers to properly understand their ranges, the drivers of category margin within their portfolio and scenario modelling to enable ranging decisions. Please get in touch if you want to learn more about our experiences.

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