Sales performance is a clear-cut, informative, and easily measurable criterion that retailers can use to decide which brands and products to stock on their shelves. But in today’s sophisticated retail marketplace, it may be too simplistic. Thus many stores have moved away from a sole reliance on the hurdle rate—a long-used threshold that indicated when a product had achieved sufficient sales to stay on the shelf—to integrate various other assessments of performance.
In more detail, the hurdle rate reflects the items sold per stockkeeping unit (SKU) per week. If a brand sold enough, it surpassed the hurdle rate. But many of the products that
currently promise to bring customers to a store—such a niche brands, organic or gluten-free options, or specialty offerings—struggle to reach this conventional milestone, especially when they are first introduced to the market.
Thus at Walmart for example, the hurdle rate for organic and gluten-free products is lower than it is for other items, giving the providers a little more breathing room to build their clientele and establish a competitive position. The retailer also relies on lower hurdle rates for discount, low cost items, in its effort to compete better with hard discount retailers. In this sense, Walmart actively adjusts its use of the hurdle rate to meet the needs of its channel partners but also to enhance its competitive positioning.
Other products also might benefit from measures that go beyond hurdle rates. For example, private-label offerings might remain on store shelves almost regardless of their sales rate, because of the image, awareness, or margin benefits they provide for the retailer. Similarly, a retailer might stock a highly innovative product that only a few consumers buy, to establish a cutting-edge reputation for itself. In the grocery market for example, many retailers ignore the hurdle rate metric when it comes to assessing the performance of meat substitutes or dairy-free foods, recognizing that there is a dedicated segment of consumers who will visit their stores just to buy these items, but they are unlikely to achieve such widespread popularity that they would move out the door in volume.

Discussion Questions:

1. What is the hurdle rate?
2. How has the use of hurdle rates changed in recent years?

Source: Denise Leathers, Retail Wire, December 17, 2018