Monstromart Alert! When it comes to Retail, is Less actually More?

3,79,872 light bulbs!

Sample this: a basic search on Amazon.in throws up 3,79,872 choices for light bulbs, 24,841 for toothpaste, 2,16,857 for school bags and 98,517 options for men's shirts (at 7:30 am today).

This is hardly a surprise - as of 2014, the average American supermarket carried 42,214 items—nearly five times the amount in 1975. Starbucks offers more than 87,000 beverage blends. Amazon stocks as many clothes as all the products in 250 Walmarts combined. Here's what I need - 2 types of light bulbs, 1 toothpaste, 2 school bags for the kids, and I don't buy shirts online, the search was just to check out the options.

The light bulb is a good place to start: I have a need to choice ratio of 1:1,89,926.

Does that really work? But shouldn't it? Are we constantly being fed on the idea of customer choice and more is better? Isn't volume the hallmark of capitalism and online retail's success? Aren't those numbers exactly why big retailers like Amazon or Costco or Walmart boast of buying & merchandising, supply chain, warehousing muscle?

I am sure that volumes lead to economies of scale, and may end up offering customers better prices.

But what of customer experience? How does she feel when faced with such infinite arrays of products but very limited, finite time to choose? For consumers, evaluating all these options can feel more like a time-wasting burden than a privilege. In The Guardian in October 2015, columnist Stuart Jeffries says what’s happening now evoked visions of The Simpsons' Monstromart: a mega-supermarket whose slogan is “Where Shopping is a Baffling Ordeal.”

Paradox of Choice

In the widely cited 2004 book The Paradox of Choice, psychologist Barry Schwartz argues that beyond a certain point, “choice no longer liberates, but debilitates.” Schwartz cites an influential study that found shoppers at a high-end grocery store were far more likely to purchase jam after they had visited a sampling booth featuring six choices as opposed to 24, along with later research that produced similar results with chocolate, speed dating, and 401(k) plans. (great video here).

In an HBR article, Schwartz maintained that choice was good for us, but its relationship to satisfaction appeared to be more complicated than we had assumed. There is diminishing marginal utility in having alternatives; each new option subtracts a little from the feeling of well-being, until the marginal benefits of added choice level off. What’s more, psychologists and business academics alike have largely ignored another outcome of choice: More of it requires increased time and effort and can lead to anxiety, regret, excessively high expectations, and self-blame if the choices don’t work out. When the number of available options is small, these costs are negligible, but the costs grow with the number of options. Eventually, each new option makes us feel worse off than we did before.

For Retailers

These considerations are inspiring retailers to keep it simple. Last year, Walmart reduced its average number of store displays by 15% in an effort to tame its sprawling image. British grocery chain Tesco slashed its inventory by 30%. Paintmaker Glidden drastically thinned its color palette from 1,000 to 282. Procter & Gamble reduced its range of Head & Shoulders shampoos by nearly half—and ended up seeing a 10% bump in sales. And in 2015, Tesco chief executive Dave Lewis  decided to scrap 30,000 of the 90,000 products from Tesco’s shelves. This was, in part, a response to the growing market shares of Aldi and Lidl, which only offer between 2,000 and 3,000 lines. For instance, Tesco used to offer 28 tomato ketchups while in Aldi there is just one in one size; Tesco offered 224 kinds of air freshener, Aldi only 12 – which, to my mind, is still at least 11 too many.

This obviously has cost benefits for retailers. I remember when I had joined Metro Cash & Carry in Bangalore back in 2006, when the German wholesale giant was hellbent on replicating a very European model for Indian B2B customers. 100,000 sq.ft. stores, spread across 7-8 acres of land, almost 20,000 SKUs - you name it and we were bringing it to replicate a very Bulgarian shopping experience.

To their credit, it didn't take too long for the MCC leadership to understand the flaw in this argument - factors like buying power disparities, lack of quality choices and the cost and availability of real estate all came as sobering realisations. And as this article quoted in 2013, the new vision was to go smaller, more local: A company spokesman was quoted to have said that, "We have realised that the Indian market is very different from the global market. So in the last 12 to 18 months we have indigenised our store model. The new formats would be smaller, focusing only on a few categories rather than being large generalist stores that stock all products. We understand that everybody does not need everything." The result: 50,000 sq.ft. of sales area (half the size of its previous store formats), and stock only 8,000 to 10,000 stock keeping units (SKUs) instead of 18,000 SKUs.

The results are showing - more stores, faster openings, more customised and segmented offerings (IT focused in Whitefield, Bangalore, for instance) and better margins. The realisation is in line with what Steve Dresser of the retail consultancy Grocery Insight had said in 2013: “Ranges in superstores are a real point of difference versus the discounters who, with their smaller assortment, are able to drive down prices and offer a speedy shopping experience...A customer likes to look at one tomato ketchup and know it’s of sufficient quality, a good price, and then purchase it. This is where the discounters have gained traction and, crucially in food retail, momentum.” And: “Having less items also makes it easier for staff to fill up the shelves and they are less likely to have to fill up during the day, which is expensive,” he said. “People do want choice but there has to be a happy medium.”

For Customers

Back to the customer, me, I was still searching for the right school bags. The kids have woken up and joined me, and the chaos is clearly not helping. And we all agree that this bewildering set of choices can be irritating and frustrating after a point, and we abandoned our cart and decided to look elsewhere. Working with a number of e-retail companies at UBQT, I realised that I was the perfect case study of common customer behaviour.

Two thoughts, to close.

One, when the stocks of Radhakishan Damani’s Avenue Supermarts Ltd, which runs D-Mart, debuted on the stock exchanges last Tuesday at a nearly 115% premium to its issue price, it doubled its investors’ wealth. Avenue Supermarts’ market capitalization stands at Rs.39,916.44 crore, more than the aggregate of all of its key listed rivals including Future Retail Ltd, Shoppers’ Stop Ltd and Trent Ltd, which total to Rs.36,631.79 crore. The trick - what seems to be working for D-Mart is offering limited merchandise at prices lower than its rivals. If Future Retail’s large format stores like Big Bazaar stock 30,0000-50,000 units on average, a D-Mart store stocks just 40-50% of that merchandise.

And two, millennials, however, are keenly aware of the downsides of unlimited choice. Whether deciding between career paths or ice cream flavors, this generation has grown having 25 different options staring them in the face—while social media has greatly amplified the temptation to compare their choices to their friends’. In The New Yorker, millennial columnist Maria Konnikova writes: “We’re surrounded by great choices to make, great places to be, great things to do… But when we’re made to commit to one, just think of everything that gets away.”

Amen to that.