12/2/2011

Space Allocation Management in Retail

Allocating space to products and categories in retail
Retail Management

Retail Management

Space Allocation Management in Retail

Allocating space to products and categories in retail

Contributing Members
Name
Avinash Murmu Amrit V Lakra Swapnil P Barjo Kunal Hansda Maxwell P Hembrom Arpit R Arthur

Roll No.
11 13 15 25 31 59

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Table of Contents
Introduction to Topic .......................................................................................................... 3 What is Retail Space Allocation? ........................................................................................ 3 Importance of Retail Space Allocation ............................................................................... 4 Objectives in Retail space allocation ................................................................................... 4 Integrated retail space ......................................................................................................... 5 Matrix to understand retail space allocation strategy ........................................................ 5 Retail space allocation process............................................................................................ 6 Stage 1: Measuring retail space ....................................................................................... 6 Stage 2: Dividing the space into selling areas ................................................................. 6 Stage 3: Determine the layout ......................................................................................... 7 Stage 4: Determining the space allocation of the product lines ..................................... 7 Measuring retail space efficiency ........................................................................................ 7 Approaches to allocating space with respect to sales ......................................................... 8 Historical sales data......................................................................................................... 8
Advantages ..........................................................................................................................................8 Disadvantages .....................................................................................................................................8

Market share .................................................................................................................... 8 Projected sales ................................................................................................................. 9

Advantages .......................................................................................................................................... 9 Disadvantages ..................................................................................................................................... 9

Challenges of space planning and allocation ...................................................................... 9 Retail space allocation systems ......................................................................................... 10 Application of IT to Retail space allocation ....................................................................... 11

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Introduction to Topic
According to recent study conducted by BOOZ and CO. as leading global management company firm The shelf may well be the most precious real estate in the consumer-retail value chain: In some categories, as much as 80 percent of all purchase decisions are made at the point of sale. According to them the shelf is the point where the consumer meets the retailer, the brand, and the product. In a retail format the crucial purchasing decision is taken at the point of retail contact. In the retail format where the consumers have the opportunities to browse the product and display of products on the shelf is crucial to help the consumer decide what to buy from the many alternative brands and complementary products. So display of product is of utmost importance. It is crucial for retailer to manage this product display space, as he has limited space and many products. Allocation of right amount of space to right product or right product category can help the retailer optimize his profits from sales

What is Retail Space Allocation?

Merchandising is an integral part of the retail and manufacturer business process. The shelf is the only place in the whole supply chain where the needs of the manufacturer, retailer and consumer come together. It is the selection and positioning of the optimum product range for a store to meet consumer demand, achieve retailer and manufacturer objectives and enabling the consumer to easily find the required products. Effective merchandising means selecting the optimum range for the store's demographic profile, displaying it in a visually appealing manner and ensuring the correct space is allocated to minimise out of stocks whilst fulfilling demand. In short, merchandising is all about balance. Balancing supply with demand, visual display with space management and assortment range with depth. Computer generated planograms allow the store, shelves & items to be represented electronically allowing retailers and manufacturers to achieve this balance prior to making changes at store.

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Importance of Retail Space Allocation

There are many reasons why an organisation needs to use space management tools. Below are some of the main advantages you will realise by implementing a Space Management tool: 1. Align the presentation at shelf to that of corporate marketing guidelines, which ensures that the marketing message matches the final shelf presentation to the consumer. 2. Assist in the determination of range and assortment by giving you tools to interrogate store data. The result of this is better outcomes based on geography and demographics. 3. Space Management tools will provide a tool to allow you to communicate better and work more collaboratively with your retail partners making communication regarding category & space plans more efficient. 4. Highlight those products that are in over (or under) stock situations. The results of better management of this area is reduced investment in slow moving products, thus reducing risk of write downs giving better return on inventory investment (ROII) for all stock.

Objectives in Retail space allocation

It avoids from over-stocking shelves with products that waste space, and also avoids understocking shelves with products that result in lost sales opportunities. Conform to overall corporate direction and brand criteria. The objective is to use space effectively whether floor, page or virtual. It helps in optimizing short and long term investment into retail space. Provide a logical, convenient and inspiring product-customer interface. The following are the objectives of retail space allocation; To avoid over stocking shelves with products which waste space and tie up working capital. To avoid under-stocking shelves and avoid lost sales opportunity. Conform to overall corporate direction of retail positioning and brand image. Provide aesthetic environment so that consumers can have a good retail experience. Designing allocation in such a way that space productivity can be measured monitored and modified as and when required.
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Integrated retail space

The exercise of retail space allocation cannot be done in isolation. The overall exercise must be integrated with the overall organizational objects and be aligned with the business objectives. This can be done by understanding the retail objectives, aligning the space allocation objectives with the marketing, branding and positioning objectives. The concept of space elasticity has to be accounted for when considering the retail space allocation plan. The aesthetics and display has also to take into consideration how the retail outlet has been branded and positioned. A retail store which targets premium consumers might require more space just to give the consumers a private experience. A Big Bazar where some people shop with the whole family might need more spaces between isles to that the kids can run around.

Matrix to understand retail space allocation strategy

The following matrix summarizes the types of products need more attention in terms of retail space allocation. 1. Profit builders: This type of products has high margins but sales turnover are low. The focus of space allocation here is more on the quality of space rather than the quantity of space. 2. Star Performers: These types of products have high profit margins and high sales turnover. These types of products bring in the most profits. Here the strategy is to allocate more quality space to these types of products. 3. Traffic builders: These types of products have high sales volume turnover but low profit margin. These products draw a huge traffic but do not provide high profit margins so these products should be kept besides high profit margin products which are impulse buys. 4. Space waster: These products have low sales volume turnover and low profit margin. These should be removed from the shelf space.

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Retail space allocation process

A retailer goes through a number of stages when allocating space to products.

Stage 1: Measuring retail space

The total amount of space should be measurable. In store terms this would be physical space, the width, length and height should be taken into account. In non-store terms this would be the target number of pages in a catalogue r on a web site.

Stage 2: Dividing the space into selling areas

At this stage the process is concerned with dividing the total retail into selling areas, usually defined by product category or department. The space devoted will normally be determined by historical estimate of forecast category/department performance and will be expressed as a total spatial measure (for example, number of square meters). Sometimes the space will be allocated on the basis of the number of fixtures that will be given to each category.

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Stage 3: Determine the layout

At this stage product adjacencies will be decided and the location of the selling areas will be determined. Individual outlet characteristics will influence this stage of planning process; for example, location of entrances, set walkways around the store, lift and escalators, pillars and divisions, payment areas all need to be taken into consideration in a store plan. In a catalogue the product categories that are going to go at the front of the book need to be decided. The relationship between one product category and another also have to be considered when determining the layout

Stage 4: Determining the space allocation of the product lines

This involves the allocation of space on individual fixtures to each product line or stock keeping unit. The availability and characteristics of fixtures, individual product performances, product features and characteristics of fixtures, individual product performances, product features and characteristics and the compatibility of products will all have a bearing on these decisions. Many retailers use sophisticated computerized space allocation systems at this stage.

Measuring retail space efficiency

Sales per Square Foot The sales per square foot data is most commonly used for planning inventory purchases. It can also roughly calculate return on investment and it is used to determine rent on a retail location. When measuring sales per square foot, keep in mind that selling space does not include the stock room or any area where products are not displayed. Total Net Sales Square Feet of Selling Space = Sales per Square Foot of Selling Space Sales per Linear Foot of Shelf Space A retail store with wall units and other shelf space may want to use sales per linear foot of shelf space to determine a product or product category's allotment of space. Total Net Sales Linear Feet of Shelving = Sales per Linear Foot

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Approaches to allocating space with respect to sales

There are few approaches in allocating space according to sales

Historical sales data

Advantages Easy to access Will indicate local preferences and influences Disadvantages Will not allow for the potential of product lines that the store does not carry or for new products Does not allow for current and forecasted changes in trading environment Sales data may be net f returns, therefore where stress have a high level of returns from other branches or non-store channels, this will distort the sales figure recorded and could undermine the potential sales of product categories.

Market share
In this case the sales figures relate to the sales of that particular product in all retailers in the market. This approach is sometimes referred to as the level run down principle, and it assumes that individual products sell at the same rate in all retail outlets Advantages Easy to access (from published market reports) High demand products will be well supported, which is likely to appeal to the mass consumer Provides some indication of space allocation that is appropriate for the products that are new to a given retailer, although not new to market. Disadvantages New r emerging products and categories will not be given the space allocation that their potential could warrant

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The product selection may appear mundane, or non-specialist, as it reflects the mass market rather than being tailored to individual store/outlet catchment profile Local preferences are not catered for It may be inappropriate to shrink the space of a declining category faster than sales would indicate to prevent the product selection looking outdated

Projected sales
Advantages Projected sales are likely to be based on historical sales as far as possible, and will therefore reflect individual outlet characteristics Incorporate (estimated) sales figures for new products and categories Historical figures may have been affected by stock control r quality problems, which can be accounted for in the projected sales figure Disadvantages Actual sales may not meet projected sales, resulting in space being devoted to slow sellers while the faster selling products are underrepresented

Challenges of space planning and allocation

Audits of space allocation are very important from time to time as it helps the retails to be successful. This audit takes consideration the various retail functions and activities for which space is used and analysis done to find out the loopholes, in order to give a valid solution. It compares the performance of each function or activity with others in relation to space occupied. There are spaces in the retail which are categorized on the basis of the volume of sales from that particular space allocated to a product. The categories are; 1. HOT SPOTS 2. WARM SPOTS 3. COLD SPOTS

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Hot Spot Analysis: Hot Spots are areas where the sales of merchandise are the highest in terms of volume... Similarly there are warm spots and cold spots in a retail store, where the sales of merchandise in terms of volume are low. An analysis of these hot spots, warm spots and cold spots are done periodically and steps taken to convert cold spots to warm spots to hot spots while retaining the best sales and turnover of the hot spots. Such audits reveal non-treaded space, where there is no customer traffic, and less treaded space which has low traffic. The possible reasons for these are analyzed and bottlenecks are identified and removed to ensure that there are no non-treaded and black whole areas. The bottlenecks can be with reference to the assortment, price of the product etc. Efficiency of Selling Space to Non-Selling Space: The utilization of selling and s=non-selling space - back area, facilities area etc. - are periodically monitored for their efficiency in deliveries. A good retailer always aims to optimize selling space to improve the bottom line while taking care not to compromise on the efficiency of deliveries of the non-selling space.

Retail space allocation systems

The retail space allocation system is used in managing the retail in an efficient manner. The various components of retail space allocation system are; Hardware Compatibility: The system has been designed to run under PCs running 32 bit Windows environments such as Windows 95/98 or NT because this is the configuration that most retails use. Connectivity: The integrated DBM support provides a straightforward manner in which to load the necessary database information to initiate the optimization process. Using DBM libraries we ensure that the system is able to read the users data in standard formats such as SQL, Oracle, Access, Excel, Text and others. Visualization: The system has the ability to display all available information regarding the current optimization problem. It displays the number of allocated resources, space utilization etc. It also displays the resource summary that present in the store and the inventory.
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Ease of use: Space administrators can easily use our software enabling them to configure the system as well as to interpret, modify and save the solutions produced. A file set containing the required database information for the optimization problem must be loaded into the system. This file set splits the database into three groups: resources, rooms and constraints. Resources is the list of all resources to be considered in the optimization problem together with appropriate information such as name, level, owner, group, quantity, share, priority, space requirement and use. Rooms contains the available rooms to be used in the allocation problem together with the required data for each particular room such as label, size, resource, building, floor, adjacent rooms, owner, type and use. Constraints list all standard and problem specific constraints to be used in the optimization process. The specification and modification of constraints can be controlled using a specially designed window through which the user is able to define label, constraint, subject, target, type, weighting and priority for each constraint.

Application of IT to Retail space allocation

There are few companies which provide services in products which help retailers in allocation products on the shelves. The software uses the historical datas as well as the day to day transactions details and sets the future trends on the sales. It also helps in setting up new business, by designing presentation in 3D views and sales analysis. It produces gap analysis to understand the lost opportunities. The software maximizes visual impact on shelf, and understands hot spots. Solutions provided by retail space allocation software

Space Optimisation Software Solutions Visual Merchandising Software Solutions Space Planning & Visual Merchandising Consulting Specialised Training for Software and Industry Concepts Upgrade Support & Technical Services across Asia Pacific Expertise in Category & Space Management Solutions

Following are the software which is used by retail organizations: Planograms

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SAS Retail Smart Apollo Space Planning Software Space Planning Software, Retail Space Planning, Planograms Oracle Retail Macro Space Management and many more which caters the service

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