Small eCommerce Companies Pay a Price When Offering Too Many SKUs
Unlike Amazon with unlimited warehouse space, robotics, and extensive inventory control technologies, small eCommerce companies must constantly question how many products should be sold on-line. This is also true with companies migrating to the omni-channel from retail merchants migrating to a digital retail space.
Thousands of items carried in retail generates thousands of SKUs and tens of thousands of styles. Not all can be made available online.
Both retail and online merchants must optimize the product mix to sell around Revenue Per SKU. Processes to receive and load new product in an efficient matter has an associated cost. This cost is obviously at the per-SKU level, so it only makes sense to think about gross revenue per SKU as the first variable to determine which items are (and are not) worth listing.
Small eCommerce companies trying to offer too many SKUs have consistent challenges. This may include poor eCommerce platform performance, a clunky site navigation experience, search capabilities that are not advanced enough, slow site speed, and inadequate product SEO.
With too many products, keeping site navigation simple for customers is challenging. If customers are not guided through their shopping experience in a clear way, overwhelm occurs by the abundance of information and the prospective customers leave the site.
Despite these warnings and cautions, eCommerce multi-channel sellers create a natural inventory growth over time. The physical limitations of brick and mortar storefronts limit inventory and SKU. That challenge is not true in the eCommerce space, yet it is important to understand the costs and implications of holding on to obsolete and non-moving inventory. These are real bottom-line costs which affect overall returns and profits. This is especially important for limited lifecycle SKUs, since certain items (such as holiday merchandise) are no longer in demand.
Holding on to this inventory results in slow moving stock taking up valuable storage, decreasing the efficiency of material handling, and increasing operating costs, so it is important to evaluate the associated costs and make appropriate SKU decisions.
There is an erroneous psychology behind many new eCommerce company owners who believe to avoid stockouts, they must carry a lot of excess (buffer) inventory. The old maxim proves true that 80 percent of sales come from just 20 percent of SKUs.
The stockout fear must be balanced against a calculated carrying cost per SKU. Most new eCommerce owners struggle to measure how new SKUs cannibalize sales and a SKU is not the most granular level of product identification (since a SKU has multiple sizes).
Too often SKU portfolio decisions at many companies are driven by minimizing risk rather than maximizing sales and profits. There are also regional differentiations since the best-selling SKUs in one territory are not tested in other territories.
WarehouseOS® allows eCommerce executives to identify highly profitable SKUs to maximize sales. Advanced modeling techniques and trend data analysis allows customers to increase sales by as much as ten percent. For more information on how to get your business on top of this issue (and learn more about WarehouseOS), contact us HERE.