Zeynep Ton

Author, Speaker & Adjunct Associate Professor at MIT Sloan School of Management

  • Home
  • About
  • Book
  • Blog
  • Research
  • Media
    • Press
    • Videos
    • Media Kit
  • Contact

Using Clutter to Improve Sales: The Wrong Choice

April 10, 2011 by Zeynep Ton 4 Comments

New York Times had a recent piece about how retailers like Dollar General, JC Penney, Old Navy and Wal-Mart are increasing clutter to improve sales.  So to get their customers to buy more, these retailers are adding more inventory and more variety to their stores, according to the article.  I think this is a really bad way to increase sales.

Yes, these companies will see a short-term increase in their same store sales.  You give customers more choices, stuff the store with inventory, and they will buy more.  And yes, Wall Street will probably love this.  The increase in same store sales growth will make the analysts think that these retailers are actually doing something right.  But of course, the analysts will miss that since this sales increase comes solely from more inventory or variety increase, it cannot be sustained.  This is just a one-time increase in sales.  You cannot keep on adding more and more inventory to the store.

More importantly, this is a bad long-term decision. It does not benefit employees because their operating environment has now been made more complicated.  It will not benefit store operations because employees will be less productive and make more errors when their stores are cluttered.    It surely does not benefit the environment because this will increase waste from obsolete inventory. And it probably doesn’t even benefit the customer.  Store clutter leads to customer confusion.  Some customers even responded on the New York Times article’s comment section saying they regretted buying stuff they didn’t need.

Here is an idea. How about offering fewer but better products and investing in employees so they are knowledgeable about these products and they can educate their customers about the value they are receiving?   This is exactly what retailers like Trader Joe’s, Mercadona of Spain, and Costco are doing.   And you want to know how they compare to their competitors in terms of sales?  Not too bad! Trader Joe’s sales per square foot is more than double the supermarket average.  Mercadona’s is more than 50% higher than that of their largest competitor, Carrefour.  Costco’s is more than 30% higher than that of Sam’s Club. 

Today, I also learned about another retailer that has the same strategy: Patagonia.  I met the Director of Advanced Research and Development at Patagonia at a panel I was moderating at HBS Retail and Luxury Goods Conference.   When someone asked a question about how Patagonia responded to the economic crisis, he mentioned that they did so by cutting their product variety in half.  In half!  It took them 18 months to do so, but their customers loved it, their employees loved it, and their performance showed it.  Of course, one reason Patagonia was able to do this was because they had invested in their store employees so that their employees could intelligently talk to the customers about the products they carry.   

The panelist also mentioned that Patagonia’s salespeople are taught to encourage customers to only buy things that they need—not waste resources on stuff they don’t need.  Why would they do this?  Because this is aligned with their mission: Build the best product, cause no unnecessary harm and use business to inspire and implement solutions to the environmental crisis.  Kudos to Patagonia!

Filed Under: Uncategorized Tagged With: inventory, low wage/supply chain labor, product variety, retail

Product Variety and Mugs at Disneyland

March 2, 2011 by Zeynep Ton 2 Comments

There have been so many things to write about the last few weeks but so little time to do it.  I moderated a panel on work-life balance a couple weeks ago at HBS and I hope to write about it during the next few weeks.  But now, while it’s fresh on my mind, I want to write about high levels of product variety.

On February 23rd, the Wall Street Journal reported about proliferation of toothpaste SKUs.  According to the article, in January 2011, there were 352 distinct types or sizes of toothpaste at retail stores.  When one examines the functions, flavors, and sizes, there could actually be more than 2,000 combinations of toothpaste!  The functions include whitening, plaque prevention, gingivitis prevention, cavity protection, tartar control, long-lasting fresh breath, and baking soda & peroxide.  The flavors include brisk mint, frosty mint, cool mint, crisp mint, “cinnamint”, vanilla, watermelon, and bubble gum.  Toothpaste comes in gel or paste and there are multiple sizes.  So maybe 352 is not that bad after all.   

But 352 is utterly confusing to consumers.  How on earth are we supposed to know exactly what we need when there are so many choices?  And the costs of this confusion are well documented in the marketing literature.  But as an operations professor, what worries me the most is all the waste associated with high product variety.  Clearly there are manufacturing costs associated with high product variety.  But there are also inventory related costs.  While it is easy to forecast consumption of toothpaste, it’s really hard to do so at the item level when there are hundreds of different types.  The difficulty of forecasting translates into poor management of inventory.  And there are costs at the store level (I wrote an academic paper on this topic).  High product variety drives store employees crazy because it complicates their operating environment.

On a lighter note, I was at Disneyland with my family this weekend and I ran into a situation at a store that struck me.  My kids are really into Lego so our trip included spending time at a Lego store.  While my kids were amazed by the huge creations at the store, including a giraffe that took more than 250,00 pieces of legos to create, I kept staring at the section that displayed hundreds of different mugs differentiated by names.  Here is a photo of a small section:

Yes, maybe some people are excited to walk out of the store with a mug that shows their name.  But with the proliferation of names in a multicultural world, how many of the customers will actually be frustrated that their name is not in there?  Speaking of my family, none of our four names were available.  Maybe we are just a weird family, but I imagine there are many families that visit Disneyland that will encounter similar disappointment. 

I have no idea how much a machine that does on-demand printing would cost, but the operations junkie in me kept thinking that there must be a better way to manage this situation.  

Filed Under: Uncategorized Tagged With: product variety, retail

  • Facebook
  • Twitter
  • Google+
  • LinkedIn
  • RSS

Follow on Facebook

Topics

  • Uncategorized

Subscribe to the Mailing List

Join Zeynep's mailing list for occasional updates.

* indicates required

More from the Blog

  • Questions Investors Should Be Asking Low-Wage Employers February 7, 2017
  • The U.S. Needs a ‘Good Jobs’ Revolution in Retail September 6, 2015
  • Scoring Retailers on The Good Jobs Strategy September 6, 2015
  • Process tips for case method teaching May 31, 2015
  • Why CEOs Should Follow the Market Basket Protests July 25, 2014

Follow on Twitter

Tweets by @zeynepton

© Copyright 2022 Zeynep Ton. All Rights Reserved · Website by Moxie Design Studios