Successful Space

Before tapping tech to allocate your space, you must know how much space you really have.

Retail merchandise improvement continues to be an important lever for retailers as they work to improve consumer relevancy. Indeed, many tier-one retailers are using space optimization to increase localization throughout their stores, and improved allocation of microspace (the determination of individual SKU location and facings within a fixture), and macrospace (the determination of category and department locations within a store) within brick-and-mortar retail can result in 1 percent to 3 percent improved revenue and 2 percent to 4 percent improved volume.

However, correct execution of the activities and change management associated with space optimization is critical to its success — as much as 50 percent of the potential improvement associated with space planning and optimization is at risk of failure in execution.

A 2010 Gartner study of 150 global retailers across mass, drug, grocery and specialty segments revealed that 54 percent of those surveyed expected increased profits from space planning and optimization, while 51 percent of those same retailers expected increased sales per square foot. As anticipated, consumer packaged goods categories continue to appear as a leading area where space determination focus is placed.

Improving Space Determination

As noted above, retailers can realize a revenue improvement of 1 percent to 3 percent, and have the opportunity to realize 2 percent to 4 percent improved volume, as a result of investments in space determination. Additionally, merchandise space determination can be a significant contributor to retail localization strategies. However, the process of improving the use of space is far from a clear win. More than half of the benefits mentioned are at risk if shortcuts are taken and key conditions aren't present throughout the improvement process. Space planning and optimization also require more business process improvements than other forms of merchandise optimization. However, improvements in merchandise space allocation are dependent on six pillars of achievement.

When asked, many retailers believe they have an accurate record of space in their stores. However, in most cases, the actual is different from the plan when contemplating the use and location of fixtures and merchandise. Space inventories for each location describing the actual allocation of space at the macrolevel and microlevel provide foundational information for improvement.

The actual space allocated to a department or category typically varies by a meaningful amount. For example, fixture height and shelf depth may vary from one store to another, based on the purchase year or fixture manufacturer. Physical variances, such as support beams, cause slight yet important inconsistencies against the plan.

Throughout the improvement process, retailers report the importance of an accurate depiction of individual locations for store, department, category and fixture measurements. In addition, successful retailers report the need to accurately record the location and associated facings for every item under consideration. Average space depictions based on store type or assigned prototype reduce the benefits that can be realized through space improvement processes.

Finally, as changes occur within the plan, a record of each planogram, effective date, end date and other relevant information must be recorded to provide the right level of data for analysis and optimization. Knowing the plan today is just as important as understanding the plan six months ago. Records of the plans and associated volumes will translate into demand signals that aid in understanding how consumers respond to space changes across the enterprise.

Compliance

A portrayal of space allocation by location and item is typically accurate only at the moment of measurement. Within hours, changes occur that distort the actual allocation of space vs. the plan. Maintaining space compliance requires strict discipline from store operations. Each store associate must be trained to exactly follow the planogram and avoid the tendency to spread and fill for aesthetics.

Successful retailers understand that an empty shelf location is better for the long-term success of space improvement, rather than compensating for an out-of-stock condition by spreading and filling an item location. Allowing this condition to exist will certainly require a cultural shift for many retailers. Best-in-class retailers provide hand-held digital access to the planogram details for shelf-edge access by store employees. Further, they also invest store labor hours in the effort of item research and shelf alignment to the plan.

Planning

Space planning is defined as the effort required to determine the macrospace or microspace allocations for a given location through predetermined rules. Most retailers use a practice of delivering space plans via store groupings (clusters), based on prototype size or sales volume of specific categories. Cluster-specific space plans provide retailers a tool to achieve limited localized space plans. While they offer good representations of the average consumer at an average location within a cluster, they lack location-/SKU-specific variances resulting from location-specific consumer demand signals.

Analytics

The inclusion of consumer insights data is critical to determining space allocation. Most merchants have the ability to use a series of reports to reveal a small number of demand signals (changes in sales volume as space allocations change) associated with optimal display space. However, a large portion of consumer demand signals are hidden or difficult to perceive. Through inquiries and reports, key assumptions can be formulated and tested in the stores.

This effort, however, is time-consuming and specific to individual items and locations. A detailed analysis of every item in a category and every location is simply not possible for merchants tasked with determining the best use of space at the macrolevel or microlevel. Companies that offer their merchants tools for fixture inventories, compliance tracking, planning and analytics will only reach the level of localization that time and human resources allow. Given the size of most retailers with more than $1 billion in annual revenue, the number of discrete space decisions (SKU/location) is simply too great to be accomplished through analytics alone. Therefore, analytical tools are valuable, but as an ingredient for success, not the full answer to achieving the available benefits.

Space Optimization

Gartner defines space optimization as a process that leverages consumer demand models to recommend optimal space determination at the macrolevel and microlevel, given a set of business rules and goals. The benefit of space optimization is that it can deliver a unique space planogram for each store location that recognizes the opportunities and constraints of fixtures, floor space, consumer behaviors and supply chain logistics.

Fundamental to optimization are consumer demand models. These models are developed using nonlinear algorithms, describing consumer demand preferences and the impacts of measurable causal conditions. True space optimization offers retailers the ability to create distinct space allocations, reflecting consumer behaviors. However, without accurate fixture inventories, department space allocations, space compliance, space planning and analytics, the full benefits of space optimization aren't achievable.

Each activity builds upon the last, resulting in the ultimate use of space within a given location for a given item. Retailers reporting their success in space improvement indicate that the full benefits are achieved only when all six pillars of success are present.

Link Assortment and Space Decisions

Best-in-class retailers create merchandise assortments that are space-aware. Traditionally, space allocation decisions are made after the merchandise assortment has been determined. This linear approach is comparable to creating a square peg and attempting to force it into a round hole. Merchants spending weeks and countless hours determining the right assortments are undermined when space-allocation decisions are made independently, and by planners who may not fully understand the business logic behind the assortment decisions. A space-aware assortment will ensure associated mandatory positioning will meet the minimum constraints of available fixtures within corresponding stores.

Following are conditions retailers should work to avoid when building a space allocation program, as they will struggle in their efforts to improve space determination when these conditions exist within the organization:

Decision Silos With Limited Collaboration

■ Lack of integration in an end-to-end business process

■ Misalignment with other strategic levers (assortment, price, promotion)

■ Linear planning vs. iterative and collaborative planning

■ Lack of detailed visibility of fixtures and the space constraints of each location

Cluster-focused vs. Consumer-focused

■ No real consumer data used in the process or analytical evaluation

■ Store clusters represent averages vs. real consumer demand preferences

■ Space decisions don't incorporate consumer buying decisions

■ Plans are cluster-level vs. store-specific

Lack of Integration to Inventory

■ Retailer lacks inventory constraint visibility

■ Inventory lead times aren't contemplated in the execution of space decisions

■ Demand changes based on space decisions aren't communicated to buying and replenishment systems

Lack of Demand Signal Science

■ No real demand modeling science used to recommend space configurations by store

■ Lack of predictive capabilities that include substitutability, loyalty and halo effects of space decisions

There are a number of software vendors offering modules supporting space determination. Following are a list of such vendors, for which Gartner will develop a summary of focus and classification to be published as a companion to this research: Aldata, FICO, Galleria, JDA Software, Klee Commerce, Koppermann, Nielsen, Oracle Retail, RGIS, Retail Tactics, Retail Optimization, SAS Institute, SoftSolutions, Torex and Visual Retailing.

Supervalu Links Fee-free Coinstar Cash-ins with Gift Cards

Supervalu shoppers can cash in their coins free when they choose the grocer's gift card option at in-store Coinstar kiosks in about 1,000 stores across the country.

“We are very pleased with the results of the pilot program with Coinstar and look forward to a program expansion starting in June,” said Mark Schumacher, director of financial services at Minneapolis-based Supervalu. “This agreement provides our customers the opportunity to receive the full value of their coins with no fees when they choose the gift card option”

Supervalu and Coinstar began their collaboration on the gift card project in January 2010 at 78 Albertsons stores in Washington and Oregon.

Bellevue, Wash.-based Coinstar's fee-free coin counting service allows consumers to put the full value of their change onto a gift card or e-certificate from a variety of national retailers.