Friday, April 11, 2008

Retail Space Productivity

A new buzz word has emerged in the retail space relevant to both retailers and manufacturers: Space Productivity Optimization (SPO) also referred to as Store Mapping or Store Configuration Database or Space Measurement. Similarly to Category Management which was a buzz work for 2 decades before it became an established practice with a definition that everyone agreed to, SPO made a shy appearance about 3 years ago when RGIS (a then inventory services company) started experimenting with a few retailers a software company and a consulting group.

Even though Category Management as a discipline theoretically covers both the macro (product category level) and the micro (item level within product category) space in a retail store it has focused mainly in the micro space. Store mapping is here to address the missing link: the macro space. Retailers view the macro space as “real estate” that needs to return a given profit per square foot thus their continuous effort is to optimize product category space allocation. This need was not as acute as long as revenues and profits were satisfactory to shareholders. As competition in the retail space grows, optimization at the micro space (mainly driven by major manufacturers such as Procter & Gamble, Coca Cola, Kraft and Nestle) is not enough anymore. Retailers in Europe have started much earlier to focus on macro space productivity since they have higher space limitations than the US and they were not allowed to stay open during weekends. A proof for this is that the main software companies that have applications that can meet the macro space needs of large retailers are based out of the UK. It seems that 2007 has been the year that same store revenue increase has become a much more important and difficult objective than in previous years in the USA.

It is almost shocking that major retailers (among the top 20 in the world) do not really know where their products are in their individual stores. Most of them know where the individual stock keeping units (SKUs) should be within a product category and how many facings each one should have on the shelves but they do not know where the product categories are actually located in each store. There are 2 pieces of information that if known can have a tremendous impact in decision making when it comes to macro space allocation: Product Category Adjacencies and Linear Shelf or Square Feet occupied by each category. A simple example will illuminate the point: if we take 2 grocery stores that both sell beer and chips and one of them has chips placed to the right of beer and one has chips 2 aisles further next to other snacks, chances are, that chips sales will be higher in the store that has them after beer in the traffic flow. Now add another variable in the mix the former store has 8 linear ft of chips whilst the latter 12 ft and decision making between the buyers or category managers of beer and chips becomes even more complicated if the right data is not available.

We often hear that the Department VPs of major retailers meet once a month or once a quarter to discuss reallocation of space and the only data they have to base their decisions on is sales per product category per store. If they are lucky they might get space information by product category from a sample of stores, but other than that department space allocation decisions are based on assumptions, gut feeling and who can yell louder!

One way to fix what is wrong with the picture painted in the previous paragraph is as follows:
Decide what software and hardware to use for Initial Data Collection, Data Maintenance, Workflow Management or Interdepartmental Collaboration and the analytical tool that can connect POS data to the now updated floor plans for the creation of Heat Maps.
Decide who will collect the data to build the library of updated merchandised floor plans usually in AutoCAD format (DWG) and how and when this will be done.
Find a cost effective way to maintain the data fresh for acceptable intervals e.g. monthly, quarterly or every time a reset takes place in a store.
Define a process that will allow the constant optimization of space productivity through collaboration between the retailer HQ, the store and the people responsible for the execution of changes/resets.

Space Productivity Optimization with its 2 main deliverables : a merchandised floor plan (usually a CAD drawing) that shows the exact locations of the fixtures with the product categories on them and a query enabled database with all the adjacency and square footage information can be the answer to all these complex questions that retailers and manufacturers constantly debate about.

3 comments:

Unknown said...

Hi there! great stuff, glad to drop by your page and found these very interesting and informative. Thanks for sharing, keep it up!
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