Efficient Retail Floor Space Management 2.0 (Macroplanning)

Efficient Retail Floor Space Management 2.0 (Macroplanning)
February 15, 2021 Omnibus

(The article was first published on Feb 15, 2021 – latest update Mar 19, 2022)

The way retailers organize and arrange product categories within their floor space crucially impacts customer shopping behaviour.

The store operators intuitively know this. Just by moving an ice-cream (highly impulse category!) refrigerator from a barely visible corner closer to highly frequented cash registers they can manifold the sales.

The example illustrated below shows another insight into the mechanics. One important grocery category has been moved around the supermarket store space. 4 different positions have been tested: A, B, C, D.

Analysis: The same category at 4 different store positions (A – D)

Let’s look at the position D first: Category has plenty of allocated space. But in the long inner aisle, away from the eyes of the shoppers, the category makes only 13% shopping basket incidence.

When we move the observed category to a strikingly visible position A – also closeer to the cash registers – that changed the basket incidence to 31%. Not to be overlooked: shoppers approach the category frontally (which is the main difference from the position B where the access to the category is from the side).

Huge basket incidence impact linked directly to a position of a category.

The impact varies from category to category – based on space elasticity. In our case we are dealing with an impulse category. In grocery stores, categories like chocolates, beer, beverages, salty snacks, candies, biscuits, etc. are clearly such categories. Buyers usually don’t plan to buy them, but exposed to their immediate presence it’s hard to stop the urge to have them!

The shopping basket impact for the planned category would be considerately smaller.

Knowing the effects of category repositionings and impact on sales, successful retailers and suppliers approach space management systematically.  They carefully study shopper profiles and incorporate their findings into store layouts.

— FROM ONE PRODUCT CATEGORY TO THE MANY

Of course, store carries many different categories, subcategories and segments. When you move one category to the more favourable position, this usually impacts all the others. It’s a bit like a game of sliding puzzle – the one with one piece missing.

The goal of the space management game should follow some rules:

  • move the space elastic, impulse categories near the areas of higher shopper frequency
  • move the space inelastic, planned categories to the areas of lower shopper frequency
  • move the “browsing intensive” categories like fruit, vegetables or seasonal products to the front
  • store corners are sensitive areas where you should allocate chosen frequently bought categories which attract core shoppers (eg. milk or bread in grocery stores)
  • etc → more on this particular retail floor space management game here

— THE GOAL OF EFFICIENT STORE SPACES

What is the measure of the efficient retail space management game?

Out of many definitions, we’ll quote the one working well for our retail projects.

Efficient store space management is such spatial layout of retail merchandise and services that fulfills listed conditions:

1) convincingly satisfies the basic shopping intention / goal of a customer
2) guarantees profitability to a retailer by tactical proficiency
3) ensures fast stock turnover supported by a balanced flow of input and output quantities of products.

As an upgrade, we can add two more conditions:

4) extending customers’ desires towards unplanned purchases in a non-intruding way
5) ensuring space flexibility over time as customers’ intentions are dependent on seasons (capability of adjusting shelves and other elements in a floorplan).

— STORE REMODELING EXAMPLE

The 5 points above have also served as a guiding principle in our remodeling of a partner’s supermarket store.

We made space-to-sales analysis, set bold hypotheses, resized the categories, and moved them around the store (and also reduced gondolas with shelves to open the space a little). All this was packed into a new retail store layout.

And the results? Stock decrease by 8%, store profitability increased by 5%, and space profitability increased by 20%. 

As other variables – like assortment, price level, logistics, promotions – were left mostly intact, the result is directly linked to the floor space management decisions.

— CATEGORY-BASED FLOOR SPACE MANAGEMENT

In the case described above, we’ve made space management decisions and optimization based on past sales, category elasticity, trend & future potential, other attributes of  categories.

As categories are the primarily organizing unit, the practice might be called category-based floor space management.

A brief explanation:

Product categories are usually defined as discrete groups that consumers perceive as similar or related. What is “something that protects and comforts the human foot?” Yes, a shoe. And this shoe makes a typical category within a larger segment of clothing etc. The hierarchy of such product categories is called Consumer Decision Tree (CDT).

The more CDT reflects the shopping habits the better.

We can also say that this principle is very aligned with the traditional category management. Raised in the 1990s, category management as a native computer-aided discipline highly excels in analytical capabilities particular to this area of retail management. In hands of a capable floor space manager Heatmaps, frequency of category buying, space to sales analysis, and all sorts of retail mathematics for each particular store are reachable within hours, if not minutes.

— ADVANCED FLOOR SPACE MANAGEMENT

Up to a point category-based floor space management provides many business benefits: easier store navigation, lower inventory levels, less time for filling the shelves, sales effects.

But space organization based on categories is just part of the formula. There are clear limits to it.

The limits have to do with the fundamentals of shopping behaviour.

Shoppers are not only buying with brains but with all 5 senses. Or put differently: not only rationally, but also with emotions. The stores organized only by logical, engineering principles are usually not on the thriving edge of retail. Especially now, when the digital revolution and internet thoroughly overhauled shopping habits and changed shopper expectations.

— DIFFERENT SPACE ORGANIZING PRINCIPLES

Just take your regular grocery supermarket store into focus. You might find different levels of product arrangement:

CATEGORY-BASED

Might be a prevailing arrangement principle – you get all the dairy products or non-alcohol beverages in one place. This makes it easier for a buyer to stock up on routinely bought categories.

EXPERIENCE-BASED

But there is a part of the store where you expect products from different categories put together as pleasantly as possible. In the deli you expect cheeses to be placed close to sliced meat, vegetable spreads. Oh, yes, and maybe some local wine or a bottle of chianti. How about homemade biscuits? Also. So here we exit a plain category-based arrangement. We better call it an experience-based arrangement. Visual merchandising gains importance in these areas.

MISSION-BASED

From here to mission-based is just a step. Heat & Eat department, On-the-go, Ready for Dinner, etc. Here we can find smoothies, sliced fruit, sandwiches, dips, salads, etc. all placed together. Higher added value for the customer – if we have a base of customers that’s big enough.

THEME-BASED

An even higher level of arrangement, based on seasonality (Summer Party) or specific societal rituals (Back To School), or even attitudes or ethical shopping. The Fair Trade section could be a confirmation of the latter.

The same principles apply also to specialty stores. In consumer electronics, the gaming section means much more than ordering recently published games into racks. Gaming could start with gaming chairs, special equipment, provide experience, build community, etc.

Not to mention, the one and only, IKEA. Their categories are connected on a higher level. It’s far from putting all the sofas together, all the wardrobes together, all the beds together, which was the regular arrangement principle in furniture stores before IKEA turned furniture selling into home design. A bit overlooked power of Ikea is organically inscribed in the DNA of the company as we know it. It gives that special “IKEA feel”.

— LEVERS FOR SUCCESSFUL RETAIL SPACES

In 2022, a commisioned project gave us opportunity to test bolder hypotheses for store layouts. We combined data science with team project workshops for store remodeling.

Results?

Expanding category-based layout in the direction of experience-, mission- and theme-based gave us even more wind in the sails of the sales success.

The remodeled pilot store once again decreased stock inventory levels.

Only this time, the sales increased up to 25% vs previous year.

We have to emphasize the methodology of growth measurement is sound. Apples to apples. Trend values before the project start subtracted, corona effects devaluated. The actual rise on the yearly level was thus 40%! Also, the relative measures were put to use. Remodeled store KPIs were checked against all the other similar stores in the network (against cluster). Plus, against total of all stores.

Result? The pilot grocery store became the most rapidly growing grocery store in the whole network of our partner retailer.

After we recuperated from a little shock (😉), we deep-dived into before / after analysis. The key takeaways were combined into a wholesome, self-standing product #levers for succesful store spaces. The basic framework is shown below. At the heart of space management efficiency are customer decision tree & space hypotheses aligned with advanced retail space organizing principles. Not only category- but also experience-, mission-, and theme- based space management!

Advanced space management suitable for digital times supports different hierarchies of product arrangement as described above.

Architects and interior designers get the inputs for drawing more creative store spaces, and the layouts could be supported through machine learning processes.

That’s what Omnibus’s retail store layout proposal method #levers is at its core. It provides 1) full flexibility but also 2) firm guidelines in this area.

If you want to know more and see how #levers can fit your case – don’t hesitate to contact us!

0 Comments

Leave a reply

Your email address will not be published.

*