The Increasingly Strategic Importance of Space Planning to Retail Businesses

Just a few years ago space planning was pretty much only about planograms – creating a pictorial representation of the products on a shelf, in 2-D, to provide to stores with a standard merchandising instruction…

Planogram compliance was almost impossible

Due to the vast differences between stores in a chain only a handful were able to fully comply with the planogram even when retailers attempted to offer a range of planograms to support groups of stores in different size ranges. So with this approach, practically ten-sizes-fit-all, compliance was nigh on impossible – it simply didn’t work. Stores had to interpret how to implement their size-group planogram to best fit their actual space, and in so doing reliably deviated from the intent of the central team.

Planograms won’t work if created in isolation

Additionally planograms tended to be created in isolation with no link back to planning or replenishment tools, so display quantities and facings were determined by 2 different parties, often in 2 different retail functions. The consequences could of course significantly impact the stock position, further impairing the operational implementation of the planogram as ordered quantities and displayed quantities varied wildly.

Macro Space Allocation on historic performance is a self-fulfilling prophecy!

At the macro end, space was generally carved up based on historic performance, and became something of a self-fulfilling prophecy. With little communication between departments the lessons learnt from past performance that informed the range planning process didn’t include much insight into the allocated space which would have constrained performance. The outputs of range planning rarely put forward a case for increased (or decreased)  space allocation and there was almost no thought of the impact on the shopper of cross-category adjacencies. Plans, where they existed in graphical format at all, were often created in PowerPoint and therefore were not to scale. They simple offered a visual representations of the intended layout of the store, for stores to work from, as a guide.

Lack of a joined up range and space planning process was the major cause of the issues

Due to the lack of a joined up range and space process the value of space planning, in the past, was minimal. This perpetuated a situation of minimal visibility / recognition of the importance of the space planning function by retail senior management.

Thanks to Category Management thinking this is now beginning to change…

Thankfully something has changed in recent years. This shift could in part be attributed to the influence of category partners further up the supply chain, adopting category management principles and providing a merchandising service to retailers that enabled both parties to see uplifted sales. At the board level the space planner could perhaps thank retail landlords – due to policy of upwards only rent reviews each Sq Ft of space was becoming an increasing drain on profits – so if no one else was interested at least a smart FD would want to take profit return on real estate a bit more seriously, and the ones with all the answers were the space planners…

Retail Space planning is of strategic importance to the retailer

Whatever the driving forces it does appear that right now space planning is rising to the fore and is beginning to stamp its strategic importance on retail. With staff, rent and product being the top 3 cost drivers to a retail business it’s not entirely surprising that a function which has significantly impact on 2 out of 3 is getting more attention, becoming more well appreciated, and being valued more highly.

Better space planning increases revenues and improves return on space

Space planning can be the enabler of increased revenue through utilising the space in which products are placed better. As touched on above, the return on space metric is a return on rent metric, so canny retailers can now use space-performance KPIs to focus teams on sweating the investments in their outlets. The shift will force B&M functions to consider range, space, assortment, planogram and display stocks vs. sales performance and profitability per square foot to conclude what the right ranges are, cluster by cluster, to drive their business growth and profitability. What’s more, with the increasing availability of space planning tools, it is now possible to support a fully integrated process form initial store survey, captured in 3D AutoCAD, right through to the visualization of the placement of product (and also POS) on a fixture to allow a whole store image, to-scale, to be created.

Benchmarks indicate it is well worth investing in more sophisticated space planning tools

The benefits to the retailer of adopting sophisticated space planning and management principles are astronomic – benchmarks indicated retailers have realised up to 5% sales increase as a result of better merchandised, clearly presented products. At Retail Acumen we have worked with various retailers to prove the size of the prize from implementing simple range and space optimization techniques – so we can speak from experience!

The influence on multi-channel and increasingly demanding consumers makes well presented stores an absolute must-have!

Of course, in today’s market we can’t turn a blind eye to multi-channel… With e-tailing increasingly more convenient and with consumers feeling increasingly comfortable transacting their purchase online it’s clear that there is a threat to traditional bricks and mortar retailing. As luring shoppers into stores has become more about the “experience” traditional space planning methods will not be enough to keep you ahead of the fickle consumers’ demands. Only an integrated approach to range and space planning, that results in a visual merchandising instructing considerate of product, fixtures and marcomms will achieve a well thought out implementation of experiential retailing. Retailers who still wish to have a strong high-street presence will have an advantage – being able to opportunistically draw in consumers to interact with their brand experience. Keeping traditional retail environments alive will depend on retailers being able to deliver the brand benefits that only a presence from physical stores can achieve, and benefits that are beyond the cost of the rental for prime retail units. Regardless of where the ultimate sales transaction takes place, creating stores that capture the customer imagination will increase retention, increase time browsing and experiencing the product, and therefore enhance sales across all channels to market. And only one function is in a position to express to the operations teams precisely how stores should look and be stocked… It’s over to you space planners – your time is now!