In business, growth is generally thought as a good thing — sell more, make more.
Growing companies, such as those in the outdoor industry, are able to expand their ideas into new product categories to further fuel gains, leverage supply chains and increase margins. See Black Diamond expanding into apparel, or Nemo getting into sleeping bags.
But when you get to be the size of The North Face or Adidas, all that growth can get out of hand. Suddenly there are too many SKUs for both manufacturer and retailer to track. Adidas has more than 47,000 different products, officials said. Brand’s resources, instead of being capitalized, get spread thin. Not to mention hundreds of styles and colors go out of fashion with every passing year, if not season.
“In an effort to meet our consumer demand and better focus our presentation at retail, we're implementing a global product line rationalization program with the goal of reducing SKUs [at The North Face] by 15 percent by fall 2013,” said Steve Rendle, outdoor group president at the brand’s parent firm VF Corp., on the company's conference call.
A similar message came from Adidas CEO Herbert Hainer, who told German newspaper Frankfurter Allgemeine Zeitung in early April that he plans for a 25 percent cut in product styles.
"We just have too many products," Hainer said. He added that 20 percent of Adidas’ products account for 80 percent of the company’s sales.
Both Hainer and Rendle said the reductions at their respective companies would lead to more efficiency and higher margins.
But before you stand and salute these words of wisdom, remember that executives are infamous for sugarcoating almost every move. In more blunt terms, both brands are saying they have a chunk of products that just aren’t selling well, or aren’t pulling in the right margins.
Still, one of the reasons The North Face and Adidas likely are so successful, is that they know when it’s time to cut the dead weight.
Weigh in below or on Facebook: Which TNF or Adidas products should stay, which should go?