SKU Rationalization: What the F*** Is It?

I’ve been spending a lot of time over the last several months talking about a process called SKU Rationalization. And the number one question I get about it is: what the hell IS SKU Rationalization?!

Let’s start with a few basics:

SKU stands for: “Stock Keeping Unit” and it represents a number that retailers use to differentiate products and track inventory levels. Every color and size of every product in your line will have its own SKU number, which often correlates to its unique barcode for scanning at a warehouse or at a cash register. A start-up apparel brand might only have one product in their line, but offer it in three colorways and seven different sizes. Pretty quickly, you end up with 21 unique SKUs to track and maintain. So you can imagine how companies with hundreds of products in their line end up managing thousands of SKUs each year.

For example, in one of my current contracts, we are working on 400 unique products which quickly turns into around 5,000 SKUs in their line. This means 5,000 lines to monitor and maintain in our line planning sheets, customs classifications data sheets, PLM system, photo shoot list and so much more.

Now - what if I told you that only 1,000 of those 5,000 SKUs (or less) were bringing in 80% of their revenue each year?

The hours that the team is spending to update all of that information every day, week and month could easily be cut in half (if not more), and we’d still see a successful revenue stream from that apparel line. Not even that, but what if I also told you that removing the 4,000 SKUs that are doing 20% or less of your gross income could INCREASE your bottom line revenue?

I have personal experience with this in a previous role. As a consistent $20 Million apparel line year over year, we applied basic SKU Rationalization processes to the line and in a single year brought the bottom line revenue up to $60 Million. TRIPLE the revenue.

We tripled our revenue with a smaller line and less work for the team.

It seems counterintuitive to build such a large apparel line if it’s unwanted or if it’s not selling, right? There is a lot of pressure put on brands to offer “one of everything” in their market so that they don’t miss out on a single sale. They offer jeans in twenty different fits to make sure they cover every single body type, but probably only sell four fits on a regular basis. We listen to our customer base almost to a fault, including everyone who reaches out to us in our database. Or if we’re working with wholesale accounts, sometimes we’re not even getting the chance to sell directly to our own customers! We’re instead having to work on all of the requests from our sales teams, which can really make a line grow.

If and when we really come back to the core of our target customers, we’ll realize that SKU rationalization is not only beneficial, but it is likely needed.

If you’re interested in cutting your apparel line down to grow your revenue, all while reducing team stress and eliminating company burnout, I can help you. Set up a 100% Free Call with my team today to book your VIP Day with Unmarked Street to get started.

Head over to my personal profile page at Rachel Erickson, PMP to find an easy link in my Featured Section!