How does Sportsman’s Warehouse decide which fishing SKUs to drop?

Sportsman’s Warehouse (NASDAQ: SPWH) is making some hard decisions about which products belong on its shelves. On the company’s March 2026 earnings call, President and CEO Paul Stone told analysts that the outdoor gear chain had cut about 40% of the SKUs in its fishing category and removed roughly 30% of its vendors in that category.

Those cuts are part of a broader inventory tightening. Sportsman’s Warehouse ended 2025 with inventory down approximately $29.1 million year over year. Management is focused on improving in-stock levels for the products that drive most of the company’s sales and trimming the long tail of slower-moving items that tie up working capital and shelf space.

A decision about whether to drop a product, a store, or an entire product line is a classic managerial accounting problem. The general rule is simple: compare the contribution margin the company would lose by dropping the product to the costs the company would actually save by dropping it. Only avoidable costs count. Costs that will continue regardless of the decision, like allocated corporate overhead or rent on a lease the company still has to pay, should not influence the analysis. If the avoidable costs saved exceed the contribution margin lost, dropping the product will increase operating income.

View a quick tutorial video about the drop-a-product decision at this [link] and then answer the following questions.

Note to instructors: This post is assignable in Pearson’s MyLab and has questions that are auto-graded.

Discussion Questions

1. What is the general rule a manager should use when deciding whether to drop a product, an SKU, or an entire product line?

2. Why are only avoidable fixed costs relevant to a drop-a-product decision? What happens if a manager mistakenly includes unavoidable allocated costs in the analysis?

3. Sportsman’s Warehouse cut about 40% of SKUs in its fishing category and removed about 30% of its vendors. Beyond the quantitative analysis of contribution margin and avoidable costs, what qualitative factors should management have considered?

4. Some SKUs on Sportsman’s Warehouse’s shelves might look unprofitable on their own but still help the store sell other, more profitable items. How should management handle those kinds of products in a drop-a-product analysis?

5. When a retailer drops 40% of SKUs in a single category, what could go wrong, and what steps could management take to reduce those risks?