What happens if range rationalization cuts the bottom 20%?
The short answer
Cutting the bottom 20% of lines in a range rationalization usually removes a small share of revenue and frees working capital, but some of that revenue walks out with customers who also buy elsewhere in the range. Model the sales that transfer to similar lines, the spend lost with customers and the stock freed, line by line.
Why it matters
A bottom-20% cut looks clean on a spreadsheet and messy in practice. Customers who relied on a cut line may take their whole basket elsewhere. Modeling transfer and loss first shows the true margin and working capital gain, and which lines to keep off the cut list.
The question to ask
Copy this into Lexi as written.
What the answer looks like
Illustrative output on sample data
Illustrative example: how Lexi answers this for a toy retailer modeling a cut of the bottom 20% of 2,400 lines.
- Revenue from those 480 lines: $3.6 million, 4% of sales
- Estimated transfer to similar lines: $1.9 million
- Other spend at risk from customers who mainly buy cut lines: $0.6 million
- Inventory freed at cost: $2.2 million
What the data shows
The net revenue loss is about $2.3 million, with $2.2 million of working capital freed.
What it means
Forty of the lines are craft refills bought by a small group of high-value customers who spend $900 a year across the range.
What to do
Keep those 40 lines, which protects most of the $0.6 million at risk, and cut the rest.
Transfer rates are estimated from past substitutions. Want me to list who buys each line?
Frequently asked questions
What is range rationalization?
Range rationalization is reviewing a product range to remove lines that cost more to carry than they return, so the remaining range is tighter and more productive. It is the same idea as SKU rationalization, and retailers often apply it to whole ranges or categories at once.
Why can a range cut lose more revenue than the lines themselves?
Some customers buy a cut line alongside many others. If that line was the reason they shopped with you, they may move their whole basket to a competitor. Checking who buys each line and what else they buy shows where the loss could spread beyond the line itself.
How often should a product range review happen?
Review each category at least once a season, timed ahead of the next buy, so cuts change orders instead of leaving stock stranded. Fast-moving categories may need a lighter monthly check. Use the same rules each time, including the customer check, so results are comparable.