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Retailers across the board are slashing assortments. You may notice when a product is no longer carried at your favorite store or online, and when companies start talking about it on their earnings calls, you know it's happening at a wider scale. Skus or stock keeping units are unique codes assigned to every product to keep track of inventory. Let's say you want to buy this jacket. It's SKU number might indicate the manufacturer product type, color, and size with a series of numbers and letters. Companies like Dollar General, BJ's Wholesale Club, Lululemon, and Under Armour are either planning to cut or have already cut SKUs at their stores in an effort to improve their financials. But how can intentionally reducing the number
of products and in some cases, even intentionally shrinking revenue, ultimately help a business turn things around? Public companies typically want to show investors growth quarter after quarter, and one of the ways brands can grow sales is by adding more products. But what happens when those products don't sell well, it can lead to discounting, which in turn hurts profitability. That product can also end up at off price stores like TJ Maxx, which can hurt a brand's reputation. If you have zero discounting, you're not taking enough fashion risk. If you're not taking enough
fashion risk, why do you exist? And so you absolutely need to discount. But discounting needs to be fixing mistakes. It needs to be done quickly. It needs to be done somewhat invisibly, and then we need to move on. There's a reason I believe the off pricers are such compelling business models. Tj Ross stores these businesses allow companies allow big brands to sell product invisibly. When a brand isn't selling its products at full price, that means less profit. It's one of the reasons Lululemon has been struggling lately. From 2024 to 2025, the company grew sales by about $500 million.
Yet its operating profit fell by about $300 million. The company acknowledged the negative impact of markdowns in recent earnings calls. It said it cut North American SKUs by 15%. You can reduce assortments and then try to make up for that revenue by selling more of your signature items or a brand can acknowledge that its revenues need to shrink to. The goal here is to increase the price of your remaining products. In turn, selling less of them but making more profit on each one. Lulu has a long way to go and simply cutting SKUs.
Simply saying we need to have better product is not the answer. If you're too large. The absolute best product can still be dilutive if there's too much of it in the market. And Lulu last year did $6.5 billion of American sales. 3 to $4 billion in revenue is where companies generally hit a healthy saturation level. It's a level where they can be large and still cool. Nike is an exception to this rule. One of the reasons why is because of its ability to sell distinctively different brands like Jordan. While the company doesn't specifically break out its U.S. sales, it did around $20 billion in North America in 2025.
Nike is in the midst of a massive downturn, and while it's almost certainly not going to bring domestic sales down to that 3 to $4 billion level, it's actively working to clean up its product offerings. We made meaningful progress across the business through rebalancing the product portfolio, driving momentum and growth in performance, while reducing classic footwear franchises by more than $2 billion. For big box stores like BJ's and small box stores like Dollar General, the goal of assortment reduction is different. These retailers carry thousands of individual brands, so removing certain products is more of a defensive move. It simplifies inventory management and allows
stores to refine what they're offering. From a brand perspective, if you were of something, the more expensive it can be when you shrink a box, when you take a retailer and say, I'm going to focus more on curation, you're getting smaller, but you're trying to reestablish why someone's walking into your box in the first place. And so it does get better, but it doesn't necessarily help your bottom line as much. It's more protecting. In an earnings call from June 2025. Dollar General said the elimination of 1000 SKUs from the previous year opened up more shelf space for its best selling products. By March 2026, the skew reductions reached over 1500 products, which the company said provided benefits to the overall supply chain.
The team is looking at continued skew rationalization, albeit probably more surgical in nature as we move forward, but it is still our ultimate goal to grow sales at or above the rate of inventory growth overall. Reducing assortments is much easier said than done. Box stores risk losing customers to competitors with more offerings. Bj's actually acknowledged that a previous attempt to cut skews was unsuccessful. We didn't prosecute the right opportunity in the right way. We just cut SKUs, which cut sales, and then we added some SKUs back. And so really what we're doing is removing unnecessary choice.
Think about traditional soda. We don't carry cans and two liters of the same product anymore. For individual brands, on the other hand, cutting revenue can be intentional. Under Armour's stock is down significantly. Over the past five years, its revenue has also fallen by nearly $1 billion, and its operating income, a key measure of profitability, has turned negative over the past couple of years. Under Armour shrunk their SKUs by 25% over the past few years and plans to cut another 25%. In an August 2026 earnings call, the company acknowledged that its problems would not be solved by chasing unhealthy sales volume or short term revenue.
Today, we're managing for quality fewer products with greater purpose, tighter execution and a clearer reason to buy. This mandate to the organization is incredibly straightforward. We will sell so much more of so many less products at a much higher full retail price. Under Armour feels like it has tried many times. It's had multiple fits and starts of acknowledging that it may be a better business as a smaller business. And those are the words that management says so far in the results. It seems very much a work in progress, but it's hard.
You can't Shrink in a half measure because it's very hard to do. And the worst thing you could do is try and give up. Cutting products can also make a brand less accessible. If, for example, you cannot afford to shop at a store paying full price but frequent their clearance section, the company may lose you as a customer as they work to reduce markdowns, and that may be deliberate, despite how difficult it may be to turn away that additional revenue. Because your discounted purchase wasn't a very profitable sale for the company in the first place. 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 for brands. The more people you get, the less exciting the story
becomes. For more people you get, the less specialized the product becomes. And so, so frequently we find that brands hit a peak, a healthy peak, extend past the peak by forcing it and then find their way back down pretty harshly.
