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My boss is convinced that if I delete a published product from our retail theme, this will affect our Page Rank. Is there any truth to this?

At the moment I am 'hiding' all of our discontinued products, but obviously as time goes by, our items list will only get bigger and bigger.

If deleting a product does affect our Page Rank, what's the alternative?

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Yes and no. SEO is a complex concept, but I'm going to narrow down to removing content:

If you have a modest amount (e.g. ten pages) of content and then delete a regular page, you will probaly notice that because you've removed 10% of your pages.
If you delete high quality content, pages with high amounts of visitors or pages where people spend a lot of time on, you will notice this.

If you have a large website (e.g. 1000 pages) and you remove that same page, you've now removed 0.1% of your pages.

In both cases you will loose some PR, yes. The quality of that page and the size of your site determines how much.

The counter argument for keeping the pages is for your visitors. What if they go to your page, but the page now says "Discontinued!". Would this have a negative effect (if so, delete the page) or a positive effect because you inform your clients (then keep the page).

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Pages for discontinued products can be dangerous for SEO. Users will come to the site looking to purchase those products and will be disappointed. Google pays attention to when visitors leave your site unhappy. If they find they are sending visitors to your site and you are making too many unhappy, Google will downgrade your rankings for your entire site.

If your discontinued product pages are still useful for users, then keep them up. If you have manuals, support, and discussion on the pages that users are actually using, that is a different story. Those users won't be disappointed that they can't buy.

There has been a lot written about how to handle discontinued products from an SEO standpoint. Here is a guide from Moz about it that walks through all the options with the pros and cons of each.

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