The world of retail is more vicious than a pirate attack, but the globe's largest retailers have shown that they're unwilling to spare even the most successful companies in their assault on prices. Wal-Mart
Carrefour's chief Lars Olofsson promised to cut 15% of the French chain's food products worldwide. More surprising is his take on the company's non-food business. According to the Wall Street Journal:
For now, Mr. Olofsson hasn't tinkered with Carrefour's nonfood categories, from television sets to clothing to cutlery, which have been a source of sales declines. Earlier this year, he said Carrefour could eliminate as much as 50% of the nonfood offerings because he believes the company can no longer compete in every category.
Carrefour is meeting with its 20 biggest suppliers, such as Procter & Gamble
The narrowing of product lines cuts directly into the strategies of consumer good giants such as P&G and Colgate-Palmolive
However, will this strategy work? Wal-Mart's experience suggests not. After cutting products last year, Wal-Mart has recently reversed course. The company found that it was losing competitors because it didn't offer a wide enough selection. Instead, consumers simply picked up stakes and moved to Lowe's
More importantly, because cutting product lines cuts into the strategic direction of suppliers, it suggests how retailers are hitting a wall when it comes to increasing profit. And that could spell bad news for the sector in the near term.
Fool contributor Jim Royal, Ph.D., owns shares of P&G. Lowe's Companies and Wal-Mart are Motley Fool Inside Value recommendations. Diageo and Procter & Gamble are Income Investor recommendations. Motley Fool Options has recommended writing puts on Lowe's Companies. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.