Dive Brief:
- Lowe’s has made progress on its SKU rationalization efforts to drive inventory productivity, leading to a 50-basis-point increase in Q3 gross margin, according to a Nov. 19 earnings call.
- The retailer is set to achieve its goal of slashing 15% of SKUs by the end of 2025, William Boltz, EVP of merchandising, told analysts.
- “We've seen really good sell-through results thus far on the inventory that we're exiting there. That really was the core of the composition of the 50 basis points that we saw in Q3,” EVP and CFO Brandon Sink said.
Dive Insight:
Lowe’s ended Q3 with inventory at $17.2 billion, down approximately $400 million compared to the previous year, Sink told analysts.
“This net decrease also reflects the inclusion of inventory from recent acquisitions of approximately $600 million and higher tariffs,” he said.
Lowe's credited the gains from lower inventory to several productivity initiatives. Sink said the retailer leveraged artificial intelligence inventory solutions to optimize demand planning, allocation and replenishment while also bolstering its SKU rationalization efforts.
Lowe’s efforts to optimize its inventory mix is part of its supplier diversification strategy. In June, executives said the company is taking a disciplined approach to reviewing its inventory, including individual SKUs, product categories, line structures and assortments.
SKU management is a critical tool for retailers, and one several have leaned on in recent years. For instance, SKU reductions have been a “big win” for discount retailer Dollar General, CEO and Director Todd Vasos told analysts in June. At the time, Vasos said Dollar General cut 1,000 SKUs last year and intended to cut more this year.
Advance Auto Parts has also been targeting unproductive SKUs as part of a larger inventory overhaul. Last year, the auto parts retailer expected to undertake up to 250 line reviews.
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