Retailers trimming assortments are leaning on SKU reductions to clean up balance sheets as shoppers pull back on discretionary spending under pressure from higher gas and grocery costs. On recent earnings calls, companies across categories detailed plans to cut stock keeping units, or SKUs, to simplify offerings and improve profitability.
In March, Dollar General said it removed 1,500 SKUs. In August, Under Armour said it has reduced SKUs by 25% over the past few years and plans another 25% cut, while BJ’s Wholesale Club said it intends to pare roughly 20% of SKUs. In September, Lululemon said it reduced North America SKUs by 15%.
Retailers say tighter assortments can steady sales, reduce exposure to unwanted inventory and limit markdowns. The trade-off is less consumer choice, a compromise many chains are willing to make in pursuit of stronger margins and cleaner inventories.
Shrink to grow with SKU reductions
When certain products do not sell, retailers resort to markdowns that erode profits. Some promotion is expected with new bets that miss, but excessive discounting can become a structural drag. Guggenheim Securities senior retail analyst Simeon Siegel said discounting should correct mistakes and be done quickly, adding that zero markdowns would imply too little fashion risk.
Under Armour and Lululemon have recently faced investor backlash tied to heavier-than-expected promotions. Under Armour’s operating income turned negative in fiscal 2025 and 2026. Executives said they will not chase unhealthy volume or short-term revenue. “Today, we’re managing for quality. Fewer products with greater purpose, tighter execution and a clear reason to buy,” Chief Executive Kevin Plank told investors in August, adding the company aims to sell more at full price across a narrower lineup. Siegel said that when a company signals it is willing to shrink revenue, the objective is to regain pricing power.
Lululemon grew sales by more than 500 million dollars from fiscal 2024 to 2025, yet operating profit fell by about 300 million dollars over the same period, and shares are down around 65% over two years. Siegel said fewer options do not necessarily mean fewer units sold and argued the brand has more work to do beyond cutting SKUs. He cautioned that even strong products in excess can dilute brand value. Lululemon reported 6.3 billion dollars in U.S. sales in fiscal 2025. Siegel said brands often reach a healthy saturation range around 3 billion to 4 billion dollars domestically. Beyond that, he said, scale can erode both product and perception. He noted Nike as an exception, with 20 billion dollars in North American sales in fiscal 2026, although the company said it is rebalancing its portfolio and has reduced revenue from classic footwear franchises by more than 2 billion dollars in fiscal 2026.
Inventory management
For small-box chains such as Dollar General and big-box warehouse clubs like BJ’s, tighter assortments do not necessarily translate into higher prices. Instead, simplifying choices across thousands of brands can improve inventory flow and sharpen the value proposition.
“When you shrink a box and focus more on curation, you’re getting smaller, but you’re trying to reestablish why someone is walking into your box in the first place,” Siegel said. He added that while curation can improve the shopping experience, it does not always deliver immediate bottom-line gains.
BJ’s CEO Robert Eddy said reducing duplicative choices, for example by trimming the number of body wash scents, funnels demand into remaining items and frees space for new categories. “That is sourcing sales growth as well and giving us the formula where we can cut SKUs and see sales go up and see margin dollars go up,” he said on the company’s fiscal 2026 second-quarter call in August.
Dollar General said in June 2025 that eliminating 1,000 SKUs the prior year opened shelf space for best-sellers and lifted sales. By March 2026 it had removed up to 1,500 SKUs, which the company said improved supply chain productivity. “Being more productive means getting product to the shelf faster and being there for the consumer with the right amount of items as quickly as we can,” CEO Todd Vasos said on the fiscal 2026 second-quarter call, adding that further SKU rationalization would be more surgical.
Getting it right
Pruning assortments is challenging to execute. Box retailers risk driving shoppers to competitors that still carry discontinued items. BJ’s acknowledged a prior round of cuts fell flat. “We just cut SKUs which cut sales, and then we added some SKUs back,” Eddy said, noting the current approach is to remove unnecessary choice. For example, in traditional soda the chain no longer carries cans, one-liters and two-liters of the same product simultaneously.
Publicly traded brands face another hurdle when telling investors that near-term sales may need to decline to restore long-term health. “It’s hard for a company ever to say we need to shrink anything, but it’s dramatically harder to say we need to shrink revenues,” Siegel said. He added that brands often overshoot a healthy peak by forcing growth, then correct sharply.
Rising fuel expenses have added to the pressure on margins, as seen when fuel costs surge and squeeze transportation budgets. For retailers, that makes getting inventory bets and assortment size right even more critical.
Dollar General and BJ’s are among the chains trying to demonstrate that SKU rationalization can drive both sales and profit improvement. Whether their strategies become a template for the broader sector will depend on how shoppers respond to tighter shelves and fewer options.