More choice has traditionally looked like a sign of strength. A broader product range can reach more customers, occupy more shelf space and protect a company from dependence on a small number of products.
But variety has a cost that is rarely visible in the product catalogue. Every additional SKU can create its own forecast, inventory requirement, supplier relationship, packaging specification, production changeover, quality process, marketing decision and service obligation.
When capital is cheap and demand is expanding, companies can tolerate a surprising amount of this complexity. When growth is uneven, inventories are expensive and management wants faster cash conversion, the economics change.
That is why product simplification is showing up in current corporate strategies across very different industries. The objective is not necessarily to sell less. It is to concentrate demand, inventory and management attention behind products that justify the operational system required to support them.
Under Armour is making the trade-off explicit
Under Armour provides one of the clearest current examples. In its July 2026 annual report, CEO Kevin Plank said the company was embracing a philosophy of selling more of fewer products and reported that it had reduced SKUs by approximately 25% over two years. Management argued that fewer products with more concentrated demand could create healthier economics for both the company and its partners.
The context is important. Fiscal 2026 revenue declined 4% to about $5 billion, while gross margin fell 240 basis points to 45.5%, with tariffs a major factor. Portfolio simplification is therefore not being presented as an easy growth story. Under Armour explicitly acknowledged that some choices could pressure revenue in the short term while aiming for a more durable and profitable business.
That illustrates the central trade-off. Removing products can reduce sales. The strategic question is whether the revenue being removed carries enough margin, customer relevance and future potential to compensate for the complexity it creates.
A SKU is also an operating commitment
Product variety becomes expensive because an SKU is more than a line on a website. It is an operating commitment.
A low-volume product may require unique components that suppliers must continue to make. It may need dedicated packaging. Forecasting teams must estimate demand. Warehouses need locations for it. Sales teams need training. Service departments need parts and documentation. Production planners may need to interrupt longer, more efficient runs to manufacture it.
None of these costs alone has to be large. The problem is multiplication. When thousands of low-volume variants accumulate over time, complexity can become distributed so widely that no single business unit sees its total cost.
This is why simplification often produces benefits outside the conventional cost-of-goods calculation. It can improve forecast quality, increase purchasing leverage, reduce changeovers, lower obsolete inventory and make marketing investment less fragmented.
Smith+Nephew connects portfolio rationalisation directly to capital
Medical-technology company Smith+Nephew makes the working-capital logic unusually visible. Its 2025 annual report describes a group-wide inventory portfolio rationalisation programme intended to structurally reduce inventory and improve capital efficiency. The company expects the programme to release $500 million of capital employed over time.
The programme also carried an immediate accounting cost: Smith+Nephew recognised a $159 million non-cash excess and obsolescence provision in 2025. That is an important reminder that simplification can surface costs that were already embedded in the balance sheet.
Inventory is capital. Products that sell slowly or require specialised stock can absorb cash long after their strategic relevance has weakened. Removing them can therefore be as much a financing decision as a merchandising or operational decision.
This is one reason product rationalisation becomes more attractive when management is measured against return on invested capital rather than revenue alone.
Industrial companies face a different form of complexity
The same principle applies in industrial markets, even when product variety is less visible to consumers.
Flowserve's 2025 annual report describes a complexity-reduction initiative called CORE that focuses on product rationalisation and continuous improvement of the overall portfolio. The company said the programme had been implemented across all of its main product segments and was part of a broader portfolio-excellence system.
Industrial complexity can be especially durable because products may remain in service for decades. A pump, valve, component or control system can create aftermarket obligations, technical documentation, spare-parts requirements and engineering support long after the original sale.
That makes simplification different from simply cancelling unpopular consumer products. Companies need to distinguish between stopping new sales, maintaining existing installed bases and supporting strategically important variants for key customers.
Complexity can hide inside apparently attractive revenue
One reason portfolios become bloated is that individual products can remain profitable on an accounting basis while performing poorly once their full operational burden is considered.
A niche product may have a high gross margin but low volume, unpredictable demand and unique materials. Another may generate respectable revenue but require extensive discounting, sales support or inventory. A third may be important to a small group of customers but complicate manufacturing for higher-volume lines.
Traditional product P&Ls do not always capture these effects cleanly because many complexity costs sit in shared overhead, logistics or working capital rather than being attributed directly to an SKU.
The result is a portfolio in which the least strategically important products can consume a disproportionate share of management attention and physical resources.
Fewer products can concentrate demand
The strongest case for simplification is not merely cost reduction. It is demand concentration.
If customers who previously bought several similar products can be migrated toward fewer core offerings, each remaining SKU may become easier to forecast and replenish. Production runs can lengthen. Purchasing volumes can consolidate around fewer components. Marketing support can be concentrated rather than spread thinly across many launches.
This is the logic behind Under Armour's argument that fewer products can create healthier economics. The benefit depends on demand actually transferring to retained products. If customers simply leave the brand, simplification destroys value rather than creating it.
That is why strong portfolio rationalisation requires customer evidence, not an arbitrary SKU target.
The revenue-quality question
Product simplification also changes how managers think about revenue quality.
Two dollars of revenue are not necessarily equal if one comes from a high-volume product using common components and the other comes from a low-volume variant that requires unique inventory, discounts and service support.
A portfolio review can therefore identify revenue that is operationally expensive even when it appears attractive at the top line. This does not mean every complicated product should be eliminated. Some products provide strategic differentiation, protect key relationships or generate high lifetime value through service and aftermarket sales.
The relevant question is whether complexity is being paid for. A specialised product should ideally earn specialised economics.
Simplification can go too far
There is a powerful counterargument to the simplification trend: variety exists because customers are different.
Cutting variants can remove the precise feature, size, configuration or price point that brought a customer into the portfolio. It can weaken shelf presence, leave gaps for competitors and make a company more dependent on fewer large products. In technology and industrial markets, excessive standardisation can also suppress experimentation and make innovation more incremental.
The risk is particularly high when management treats SKU reduction as an across-the-board cost programme rather than a portfolio decision. A target such as 'reduce products by 20%' has no inherent economic meaning unless it is tied to demand, margin, working capital and strategic role.
Good simplification therefore keeps optionality where it matters and removes duplication where it does not.
The hardest products to remove may be the oldest
Legacy products often survive because they still have customers, internal champions or historical significance. Their costs are also difficult to see because the systems supporting them were built long ago.
Yet these products can be among the most expensive to maintain. Small production runs, ageing suppliers and declining demand create the conditions for poor forecast accuracy and high unit costs. The installed base may also require continuing service long after new sales no longer justify the operational footprint.
Companies therefore need an explicit end-of-life discipline. That includes customer migration, replacement products, last-time buys, spare-parts planning and clear economic thresholds for continued support.
Without that discipline, portfolios expand through innovation but rarely contract through retirement. Complexity then becomes cumulative.
A smaller portfolio can be a growth strategy
The most interesting aspect of product rationalisation is that it can support growth rather than simply defend margins.
Capital released from slow-moving inventory can be redirected toward stronger franchises. Engineering resources can focus on fewer platforms. Marketing can support launches with enough scale to matter. Suppliers can receive clearer volume commitments. Sales teams can explain the portfolio more easily.
This is why the best simplification programmes are not about shrinking for its own sake. They are about increasing the economic weight of what remains.
A company with fewer products can still innovate rapidly if it builds new offerings on common platforms, retires weak variants deliberately and keeps a clear distinction between useful customer choice and operational duplication.
The portfolio is becoming an operating system
The deeper lesson is that a product portfolio is not merely a collection of things a company sells. It determines how much inventory the company holds, how many components it buys, how frequently factories change over, how much data must be maintained and how management attention is distributed.
As a result, portfolio design increasingly belongs in the same conversation as working capital, supply-chain resilience and capital efficiency.
The companies cutting product variety are not necessarily rejecting choice. They are asking a harder question: how much operational complexity should the business accept for each additional unit of choice it offers?
In a more capital-conscious environment, the answer is becoming less generous.
References
1. Under Armour — Fiscal 2026 Annual Report, July 15, 2026
2. Smith+Nephew — Annual Report 2025: Improving Capital Efficiency Through Portfolio Simplification
3. Flowserve — 2025 Annual Report, CORE Complexity Reduction Programme
4. Flowserve — 2026 Interim Filing on CORE and Portfolio Optimisation
5. Sleep Number — Investor Presentation on Portfolio Simplification