Space Planning is More Than a Merchandising Tactic
For most retail implementations, Space Planning is focused on the right side of this continuum. The tactics of Space Planning. To be honest, those are table stakes. It is what you have to do to be able to get a seat in the game of retail. Do the right side well and there are benefits that impact the bottom line. Reset efficiencies. Reduced restocking. Improved customer experience leading to more sales. Less shrink. The fractional percentages that build to create an efficient and profitable operation.
Like I said: table stakes.
Now dig into those retailers who are long lived and iterate through generations of successful store concepts on the market. They leverage Space Planning in an entirely different manner. One that pushes their benefits from the right side of the continuum to the left side.
Those retailers use space planning for its strategic advantages. Retailers who understand the marginal return on space by category – and even by item – make better investment decisions that add up to weighty benefits.
Strategic Advantages like:
Knowing the right store size by location. And they do not build or lease stores that will become operational problems. For example, stores that are too small for their volume and are a nightmare to operate without disappointing customers with out of stocks. Or stores that are too big and take up too much inventory to “look like they’re in business” for their low footfall. Which inevitably leads to markdowns and stranded inventory.
Understanding the return on space in stores versus online. That means Category Managers know where items are going to sell: online or in stores. So they stage their products for customers in stores while balancing the breadth of assortment by supplementing it with an endless online aisle.
Connecting long-term strategic changes to future store remodels. They integrate future customer shopping changes and category trends with ongoing store investments so that remodels accurately predict growing and shrinking categories. When retailers are more proactive, they take advantage of early mover sales – when categories and products are most profitable. When retailers react to changes during a mass shift, they end up participating in the a less profitable stage in a category or product’s lifecycle.
Leveraging the correct lever to improve sales. When retailers measure return on advertising, return on inventory, return on space, return on labor by category, they can lean into the single best tactic to efficiently drive sales. Not every business reacts similarly based on its investment.
- Example #1: DSW has large stores because shoppers want to see a wide breadth of selection when they go to the store. They really do not need to invest in advertising or labor. Because shoppers have said that the stores and their SPACE for shoes is what drives the sales. Not a person to measure their feet. Or BOGO sales every weekend. Investing in those things will only dilute DSW’s profits.
- Example #2: Want to sell major appliances? The return on labor for appliances has the highest payback in sales. Don’t invest in space to show every item in every finish. Have a sales person and a tablet complete the sale. Want to sell the detergent for those appliances? Return on inventory and space is your best bet. So give detergent plenty of bulk displays and let it sell – at regular price. Want to sell sodas to go into the refrigerators? Return on advertising says that investing in ads and promotions will drive those sales. Which means you have to know which lever drives each business. Invest in the wrong lever and you dilute your profits. And if your company only measures return on inventory and advertising – it is missing the strategic insight on return on space.
Can Retailers Change?
From our vantage point, we see retailers who only understand how to drive value out of space tactics. When that happens, space planning is an overhead expense. A cost of doing business. Sadly, they usually have made all of the investments they need in systems and people. If they would just invest a fraction more into reporting, analytics, testing and process, they could transform that expense department into a strategic advantage.
If you’d like to gain strategic advantages with your Space Planning investment- and schedule an assessment of your retail space planning maturity – contact us now.
There is a new Retailer Space Planning Charter sponsored by ARC – the Association of Retail and Consumer Professionals (the parent of the Category Management Association) – which is NOW ACCEPTING NEW MEMBERS from the retail industry. If you are a Space Planning leader looking for industry standards, best practices, and networking with other executives, I urge you to use the “Join Now” button to learn more.