The Intelligent Loss of Sales
Deliberately forgo some sales by cutting product-size and SKU variety, in exchange for compounding operational simplicity.
- Difficulty
- Moderate
- Time to result
- ~months to results
- Steps
- 4
- Confidence
- 85%
Coined by Saul Price at Fedmart and carried through to Costco, this principle says a retailer should knowingly sacrifice a portion of its addressable sales by stocking only one dominant size or format per category instead of the full range competitors offer. The lost sales (from customers who wanted a smaller can or a different size) are treated as an acceptable cost of a much larger benefit: fewer SKUs means simpler logistics, faster inventory turns, less staff time, and greater buying leverage per item. The mental model reframes 'more selection equals more revenue' as false in categories where the incremental sales don't offset the operational complexity they create — as long as the remaining single option is genuinely high quality and a great deal.
Origin
Developed by Saul Price during his time running Fedmart in the 1950s-60s, and inherited directly into Price Club and Costco's SKU strategy.
Core principles
- 01Not all sales are worth keeping if they add disproportionate operational complexity.
- 02The remaining SKU must still be the best quality-to-price option in its category, or customers won't accept less choice.
- 03Fewer SKUs compounds into faster turns, simpler logistics, and stronger buyer leverage.
- 04Cutting selection only works if it's paired with genuine trust in quality.
How to run it
- 1
Audit product variants
For each category, list every size, flavor, or SKU variant currently offered and estimate how much volume each one contributes.
- 2
Identify the 'good enough' standard size
Choose the single size or format that satisfies the largest share of customer need, even if it isn't ideal for every edge case.
Pro tip Look for the size a business customer, not just a household, would buy — it tends to be the most efficient unit.
- 3
Deliberately drop the smaller or niche variants
Discontinue the SKUs that only serve a minority of customers, accepting that some of their purchases will be lost entirely.
Watch out This is the point most companies flinch at — losing any sale feels wrong until you count the compounding savings.
- 4
Reinvest the freed-up complexity
Redirect the warehouse space, buyer attention, and working capital freed up by fewer SKUs into faster inventory turns, deeper supplier negotiations, and lower prices on the remaining assortment.
In the wild
At Fedmart, Saul Price chose to carry only the eight-ounce can of household lubricating oil, even though competitors also sold a three-ounce can that served customers who only needed a small amount.
→ Fedmart lost some sales from small-quantity buyers, but reduced its SKU count and gained the operational benefits of a simpler, more concentrated assortment.
Costco stocks its jumbo cashews in a single 2.5-pound container rather than offering multiple smaller pack sizes the way a typical grocery store would.
→ The single large size simplifies shelving and logistics and reinforces the bulk-buying culture that drives Costco's overall low-SKU strategy.
Common mistakes
Confusing this with just cutting selection
The trade-off only works if the remaining SKU is the highest-quality, best-value option in its category; cutting selection without ensuring quality just frustrates customers.
Failing to measure the trade-off
Saul Price and later Costco buyers explicitly weighed the sales lost from smaller pack sizes against the savings gained; skipping that math risks eliminating profitable niches by accident.
Is it for you?
Not ideal for
Categories where customer trust in a curated single option hasn't been earned yet, or where variety itself is the core value proposition (e.g., specialty boutiques).
From the transcript
“the intelligent loss of sales”
“But it was worth it to us to forego that because by only having the eight-ounce can, we could reduce the number of SKUs that…”
From the episode
Costco