Sales-based hurdle rates remain one of the best tools for determining which products deserve a spot on the shelves. But sometimes lowering them is a smart move.
Determining which products deserve a spot on the shelves — and which no longer merit the space — used to be a fairly straight-forward proposition. Retailers simply calculated units (or in some cases, dollars) per SKU per store per week. Those that landed above a certain number, also known as the hurdle rate, were in; those that fell below were out. It was that simple. But like everything else in today’s increasingly complex retail landscape, deciding what stays, what goes and what gets added in the first place has gotten a lot more complicated in recent years. Hurdle rates are still the most important variable, but they’re no longer set in stone, and they’re not the only determining factor.
“Hurdle rates alone are actually a really narrow constraint, though there are still plenty of retailers that just draw a line in the sand, and if you’re above that, you stay in distribution,” reports Don Stuart, managing director at Wilton, Conn.-based Cadent Consulting. “But more sophisticated, progressive retailers are moving beyond simply ranking items or utilizing the 80/20 rule and applying more advanced metrics. They’re factoring in whether an item is adding true variety, growth trends, gross margin return on investment, if it offers true incrementality, etc.”