Bruce Thorn: That’s a good question. I don’t feel like we’ve changed our strategy, I think if there is certain parts of it, that we accentuate and some things that were delayed back from when we started this in 2019, primarily in the increased penetration or desire to have more bargains and treasures than essentials like we essentially are nice. They add to the basket and their solutions and they build consistency and trust in the shop. But they’re not that differentiating for us. Bargains where we can be off price, compared to other retailers and treasures, where we can delight her are differentiating and it’s something that just got delayed, because of the pandemic. We had already opened up going back to that type of an assortment before the pandemic hit and the pandemic delayed it.
If you recall, when I joined the company about four years ago, the company was only in closeouts to about 9% penetration of the entire store that dropped to 5% or so, 5%, 6% during the pandemic, because it was only included consumables in the CPG companies pulled back on the availability closeout. We opened up those bargains back in ’20 to cross all categories, saw nice growth that helped us to continue to offer those deals, if you will. And now with the rich environment and opportunity out there and the need to meet our customer’s where we can. This is a great opportunity to lean into what we always wanted to do. So the bargains and treasures has been a strategic pillar for what we want to do and why we exist for her to help her live big and save lots.
And now this is just the right time to accelerate into that. And being a value creator, the thing is that this is all about communicating clearly the value we have many times unless you’re a professional shopper, you won’t know that our deal or what our price is way better than what they can get somewhere else. And we just need to be very clear about that. And so, tightening up our end caps to have more bargains and treasures rather than essentials, which are not competitive, but needed is a more compelling shop. Having tickets on all our products with the comparable is makes it easy and makes her feel good about what she’s shopping. That value perception grows. The rural stores growth has been one that we’ve been talking, but we’ve been talking about that we have many underserved markets and what we see in the rural stores, and we put out there higher number of stores of growth potential.
We still see that, but it’s just we’re curtailing it a bit now dealing with the tough economic times. But quite frankly, we think there’s a tremendous opportunity in the rural markets where it’s underserved. And definitely there are very limited competitors that can sell everything from a fork to a sectional or a bedroom set. And we do that, I think we have a great opportunity to be that off price home solution for her. And so that isn’t necessarily a tweak, it’s something that’s just becoming more and more evident. Omnichannel has always been there, when we joined the company, Jonathan and I a few years back, it was less than 0.5% of the sales, it’s now 7% of the sales. Most of that is through the store 60%-plus, 40% BOPIS. All those things were strategic pillars for the last several years and are continuing to give us competitive advantage against our competition and the off price roll.
And driving productivity, we’ve taken up hundreds of millions of dollars in structural costs and we’ll continue to do that as we get better at running our company. So I don’t see it as a change strategy, I see it as a honing of the key priorities going through this topic on Joe.
Joe Feldman: That’s a great answer, Bruce. Thank you so much for clarifying. Appreciate it. Good luck, guys.
Bruce Thorn: Thank you, Joe.
Operator: Our next question is from the line of Kate McShane with Goldman Sachs. Please proceed with your question.
Kate McShane: Hi, good morning. Thanks for taking our questions. Our first question was if you saw any acceleration in higher income consumers trading down into your store? And how you’re thinking about the role of trade down playing out in Q4?
Bruce Thorn: Good morning, Kate. I’ll take this question, I believe trade down is happening, I think it’s happening in our box and into our box. What we’re seeing customers do is trade down from best to better, to good. And we’re also seeing customers coming into our box and that’s realized through a higher percentage of higher income household customers. And so that’s good. I think we’re — we’ve got a great assortment for trade down. And I think as recession looms and things get difficult and our customers spend through their savings, we’re well positioned especially with our Broyhill line that covers all our home categories and furniture. We’re seeing that, that customer is usually 2 times the household income of our core customer.
Real Living is also playing in nicely. In fact, Real Living sales have outpaced Broyhill sales for the first time this year. Both of them have grown 10% year-over-year despite this tough economic condition we’re in, which is another indicator of the trade down that’s happening. Once again, we’re going to go in the lawn and garden season here in Q1, Q2. We’ve got a heck of assortment, I think we’ve got the best patio furniture assortment, casibels, umbrellas, than anyone out there in terms of value. It’s just tremendous value we offer. We’ve always seen that customer being 2 times the household income of our core customer and we’ll continue to get that trade down there. So along with all the other bargains and treasures that we’ll be adding, the opening price points, I think we’re going to have a very compelling assortment and a delightful shopping experience for those trade down customers.
Kate McShane: Okay, thank you. And our second question was just on the reduction of SKUs, I know you mentioned in your prepared comments a couple of places where you reduced SKUs, is this a broader initiative or is it more opportunistic at this point?
Bruce Thorn: No, it’s a broader initiative, something that we’ve been looking at throughout the last several years, especially with the pandemic that just delayed it, because that’s which she was shopping and we — but we also knew even while we’re doing well in those areas, which are predominantly in the essentials, which is for the most part food and consumables and make up the majority of that. We always realized we have redundancy. And the example I gave in the opening remarks like six lines or six different packaging types or sizes of neosporin. We’re not a drugstore, we’re not a drugstore. We don’t need that. By freeing up this redundancy and unproductive SKU base in those essentials, we’re able to offer more solutions in the essentials, other than six type of neosporin, and also able to fuel the open to buy for our differentiating assortment changes in bargains and treasures and that’s what exactly what we’re doing.
So it’s just — what this does is it allows us to accelerate that initiative that was already in the making.
Kate McShane: Thank you.
Bruce Thorn: You got it.
Operator: Our next question is from the line of Anthony Chukumba with Loop Capital Markets. Please proceed with your questions.
Anthony Chukumba: Good morning. Thanks for taking my questions. I guess my first just a real quick housekeeping question. Maybe it was just my line, but Jonathan you cut out when you were running through your SG&A expense deleverage drivers. Can you just run through those again real quickly?
Jonathan Ramsden: Yes, I’d be happy to recap what we said on that. Let just make sure I have it in front of me. So you’re talking about Q3 or our guidance for Q4, just to be clear?
Anthony Chukumba: Q3, Q3.
Jonathan Ramsden: Yes. So in terms of the improvement we’ve drilled versus our outlook and last year, so payroll costs, general office and equity compensation were all down. And then we did have some higher expense in distribution and outbound transportation that offset that.
