Does a Wider Assortment Pay? Evidence on Range Breadth and Profitability

Do wider assortments improve profitability?

Wider assortments can deliver both beneficial effects such as increased sales and profits, as well as negative consequences including information overload and choice avoidance. In the 1990s, the Food Marketing Institute conducted studies showing that retailers can cut costs and increase profits by strategically reducing assortment size without sacrificing sales. A meta-analysis of 1,936 assortment size effects across 95 academic papers published between 1970 and 2021 found a mean assortment size benefit elasticity of 0.082, suggesting a modest positive relationship that varies by context.

Analytics by McKinsey on some grocery retailers found that merchandising assortment plans helped them reduce the number of SKUs by 36% whilst increasing sales and gross margins by up to 2%. Research from Bain shows categories growing sales 17% to 19% after reducing SKUs by up to 42%, and McKinsey documents 2% to 4% gross margin gains from eliminating value-destroying variants.

What are retailers disclosing about SKU cuts in 2026?

During earnings calls this year, a range of retailers have highlighted efforts to reduce the number of items they sell. In March, Dollar General said it trimmed 1,500 SKUs. In August, Under Armour said it shrunk SKUs by 25% over the past few years and plans to cut another 25%, whilst BJ's Wholesale Club said it plans to reduce roughly 20% of SKUs. In September, Lululemon said it cut North America SKUs by 15%.

BJ's CEO Robert Eddy said reducing choice, such as cutting the number of scents of body wash, pushes sales into the remaining products on shelves and then makes room for more product categories that weren't previously offered. "That is sourcing sales growth as well and sort of giving us the formula where we can cut SKUs, and see sales go up, and see margin dollars go up," Eddy said on the company's fiscal 2026 second-quarter earnings call in August.

In June 2025, Dollar General said the elimination of 1,000 SKUs from the previous year opened up more shelf space for its best-selling products and added to its top line. By March 2026, the company said, it had reduced up to 1,500 SKUs, providing benefits to the overall supply chain.

How does assortment breadth affect operational costs?

The cost penalty of excessive breadth emerges across multiple operational dimensions. Each SKU ties up capital. Holding many slow-moving SKUs increases average inventory value and the percentage of working capital devoted to stock, reducing return on assets. More SKUs usually mean less accurate forecasting for each item. Poor forecasts produce stockouts (lost sales) or overstocks (markdowns and obsolescence), both harming margin.

A higher SKU count increases picking complexity, travel time, slotting needs and training. Labour cost per order rises, reducing operational margins. Roughly 20% of SKUs drive 80% of profit, whilst the rest either contribute marginally or destroy value. Over 70% of SKUs in a typical retail assortment contribute less than 10% of total revenue.

What does the fashion sector reveal about range complexity?

Lululemon increased sales by more than 500 million dollars between fiscal 2024 and fiscal 2025, whilst operating profit declined by approximately 300 million dollars over the same period. The disconnect between revenue growth and profit decline illustrates the margin pressure that can accompany bloated assortments in premium fashion.

Between 2020 and 2026, Zara focused on limited SKU releases, creating scarcity and driving demand. In contrast, H&M expanded its product range, offering more variety but facing challenges in inventory turnover. In 2026, H&M carried 30,000 SKUs with a 70% sell-through rate, whilst Zara carried 20,000 SKUs with an 85% sell-through rate.

Inditex, the owner of Zara, reported total sales of 39.9 billion euros in fiscal 2025, a 3.2% increase year-over-year, and net income of 6.2 billion euros, up 6%. Gross margin reached 58.3%, an expansion of 42 basis points. Inventory was 2% lower as of 31 January 2026 versus the same date in 2025. The combination of margin expansion and inventory reduction suggests Inditex's disciplined assortment strategy supports both profitability and working capital efficiency.

When does assortment expansion make sense?

The relationship between assortment size and performance is non-linear. In a natural experiment conducted by an online grocer in which 94% of categories experienced dramatic cuts in the number of SKUs offered, particularly low-selling SKUs, sales increased an average of 11% across the 42 categories examined. The finding underscores that pruning underperformers can redirect customer demand to higher-velocity items.

However, context matters substantially. An increase in assortment size can lead to beneficial effects such as assortment preference, perceived choice satisfaction, confidence, freedom and purchase incidence. The optimal point depends on category dynamics, customer segments and operational capability. Assortment discipline drives profitability more reliably than assortment breadth.

Marks & Spencer is refreshing two-thirds of its assortment each season whilst dedicating one-third to core basics. Fashion, Home & Beauty sales increased 3.5% in the fiscal year 2024 ending March 2025. Its premium Autograph range performed particularly strongly, with sales up 47% over the same period. The mixed approach,churn in trend categories, stability in basics,suggests that segmented assortment strategies can balance novelty with operational efficiency.

What trade-offs do merchandisers face?

Merchandising teams confront a multidimensional optimisation problem. Wider assortments can attract diverse customer segments and reduce the risk of stockouts, but they also dilute focus, complicate supply chains and increase markdown exposure. Faster trend cycles and uneven demand result in overstock and tie up working capital in inventory. The number of days fashion companies held inventory before turning it into sales rose 4% from 2023 to 2024, inflating warehousing and logistics expenses.

The financial penalty can be severe. Across eight public apparel companies, a 55.3% median gross margin converted to just 6.7% operating margin. The category loses roughly 48 points between the gross and operating line. Returns, customer acquisition costs and tariffs consume margin, but inventory complexity compounds the pressure.

Practical constraints shape the decision. Optimising the assortment of a 1,000-store retailer that carries 10,000 SKUs requires deeper analysis than any spreadsheet can deliver. A fashion retailer with shelf space for 17 SKUs of jeans can optimise the combination of brands, colours and styles that are best for each location. Localised assortment planning, supported by data infrastructure, allows retailers to capture category depth where it matters most without carrying universal breadth.

Researched and drafted with AI support, reviewed and released by the editorial team.

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