BJ’s cuts 20% of SKUs to reduce ‘unnecessary choice’

At warehouse clubs, less is often more when it comes to assortment. Indeed, value over variety is a guiding principle for companies such as Costco, which pioneered the idea of customers paying a membership fee in exchange for a limited selection of bulk goods sold at wholesale prices.

However, not every major warehouse store has stuck to this philosophy.

In a recent earnings call, BJ’s Wholesale CEO Robert Eddy admitted the company had become “over SKUed” and was in need of a powerful pallet cleanser.

Over the next couple of years, the company plans to reduce SKUs by 20% from the current average of 7,500 items per store to around 6,000.

• For comparison, Costco carries around 4,000 SKUs per store.

Past attempts to cut back didn’t work out, Eddy told shareholders. Removing SKUs just reduced sales, and then the company ended up adding back items, making the situation a lose-lose for the warehouse store.

“What we’re doing now is removing unnecessary choice,” Eddy said.However, as BJ’s own failed attempts to reduce SKUs shows, removing choice sometimes hurts sales, and with such a large number of items hanging in the balance, which SKUs ultimately get cut could determine if such an ambitious plan ends up helping or hurting the bottom line.

Overstuffed: As for how BJ’s got into this position in the first place, there is a strong temptation for retailers to keep tossing up new products, Dinesh K. Gauri, professor of marketing at University at Buffalo’s School of Management, told Retail Brew.

“I think most companies fall into this trap,” he said. “You want to provide as much choice as possible to the consumer. But at some point, it’s too much, and then what’s the difference between a club store and a normal supermarket?”

The main advantage of the membership model, he added, is to reduce choice in exchange for the “best possible value.”

• BJ’s did not respond to multiple requests for comment.

Scott Benedict, a retail consultant specializing in warehouse stores and a former buyer for Sam’s Club, told Retail Brew that BJ’s SKU count reflects both a lack of discipline and an attempt to beat out the competition with a broader assortment, particularly in grocery and consumables.

• In the latest earnings call, Eddy called out beverages as a category where cuts have been beneficial, including removing “unnecessary duplication” such as one-liter and two-liter sizes of the same product.

Cutting the wrong product: The risk of drastically cutting SKUs is that you could end up taking away the exact product that keeps a customer coming back, Gauri said, adding, “They will have to go at it very surgically. They cannot just say, ‘OK, these 20% of items are selling less. I’m going to just reduce them.’”

Benedict agreed cutting SKUs is a sensitive process—and every choice counts.

“Any one of those decisions that’s bad can lose you a member,” he said.

In addition, he added, it’s important for BJ’s to stick to the plan if it’s going to derive any benefit from cutting SKUs. The worst case scenario is if the cuts scare off customers without eventually driving volume in the remaining SKUs.

“In a club format, you’re not paid to provide every choice in a category,” he said. “You’re paid to make the best choices, and if your member doesn’t see it that way, then you have a problem.”