Planograms Meet Inventory Management

Planograms Meet Inventory Management
March 3, 2021 Omnibus

— THE CORE OF RETAIL

Let’s start with the most basic question.

What is a physical store?

A possible answer: a place where an assortment of select product categories is arranged in space so that it provides value for many customers.

How about virtual products, like lottery, betting, money transfers, and other retail services? How do they fit in the definition above? Well, thanks for asking. Sure, these categories are gaining momentum, but for the sake of clarity we’ll leave them out of the equation for now.

Next question: Why do we set such simple almost stupid questions?

Because physical retail – especially as experienced in store chains – is such a complex discipline that we need simple frames that help us grasp its core. By this, we can easier understand the basic mechanics and channel our efforts to the right places without losing organizational and personal energy all over the place.

Now, back to the store where we have products and product categories organized in retail space. Here, in front of shelves, the customers make buying decisions. They either buy product X or not. It’s a crucial touchpoint, the moment of truth for all the included – retailers, vendors, and shoppers.

According to widely quoted POPAI in-store research up to 82% shopping decisions in grocery & convenience stores are made at that precise moment. The remaining 18% are made before entering the store but that doesn’t mean the assortments and layouts at retailers’ stores don’t have an impact on future buyers’ behaviour!

This makes a clear confirmation: retail space organization is a crucial variable of every retailers’ success.

Just one more punch. A few years ago, I’ve encountered another strongly validated research prepared for convenience stores (gas stations). As here in Central Europe these are usually around 100 square metres big, all the products are within reach of a shopper. Still, when a really top top top brand was located out of the most frequently visited shopping path, the sales of that top top top brand fell sharply. In other words: more than 1/2 of buying decision for the top top top brand is triggered only by direct encounter with the product. It doesn’t really matter if the same product is available few metres away. 

Let’s just repeat: 82% of the buying decisions are made in front of shelves and retail space organization is a crucial variable of success.

— PLANOGRAMS AS PICTURES OF SUCCESS

As retailers and vendors are physically absent at the moment of truth, they’ve found a substitute. They define shelf interaction with shoppers through planograms. These are spatial representations of products, tactically and visually arranged for increasing sales.

On the visual side, planograms directly interact with the wants and needs of customers. They are just as much shopping psychology as it gets. Correctly prepared, they follow the rules of human perception: similarity, proximity, continuity, and other formal shapes that link to gestalt psychology.

On the tactical side, planograms bring together financial goals (profitability, margin, ROI …) with the shopping patterns of customers.

But there is also a backside – each product in a planogram takes shelf space, has the exact number of facings, and a set quantity. By this set quantity of products, planograms connect directly to inventory management. If a retailer wants to maintain the presentation provided by planogram, she/he must provide the right inventory. Ideally, so that the right products are in the right quantities brought to the right shelf at the right time according to the planogram.

— PLANOGRAMS ARE MARRIED TO STOCK

Yes, retail planograms and inventory are closely related. One cannot exist without the other.

They are the alchemy of retail – the hard and the soft brought together.

The hard stands for inventory management – mathematical, algorithm dependent.

The soft for visually attractive planogramming – connected to customer perception and behaviour in stores.

Half engineering. Half communication to customers. Add some creativity for special effects and higher basket size / value / volume.

Yes, planograms and inventory are brought together in a kind of a retail marriage that should be carefully groomed to thrive and provide customers’ value over time.

— GUIDELINES FOR SUCCESSFUL MARRIAGE OF PLANOGRAMS AND STOCK

As all marriages this one also allows us to provide some guidelines for success:

  1. One doesn’t work without the other.
     
    In digital times, there is always a temptation to overemphasize the mathematical, the measurable part. Some retailers put all the emphasis on inventory optimization. But from a certain point, this is a useless waste of resources.
    A great inventory system with wrongly put planograms – that don’t connect with customers – will make you a below-average retailer, at best. Even in a digital world, shoppers don’t buy inventory levels but own needs and desires packaged in products put on the shelf. On the other hand, visually fantastic planograms that strike the eye are useless when inventory management is full of errors and doesn’t provide the right products on time. A balance between both systems, partners, is of crucial value here. It takes two.
  2. Apply different skills for a successful marriage 

    Inventory levels are usually optimization problems. Engineers, IT guys, logically thinking girls, and guys that see the world through algorithms are the right ones for solving these. But don’t rely on the same bunch of experts when defining the visual touchpoint with customers. Visual merchandising demands a different set of skills – ideally someone with equally developed analytical and aesthetic powers. As this is hard to get, get at least feedback from someone on the creative side of the human spectrum. A general rule: if women say the planogram sucks – it sucks! Change it.

  3. Escape the “math trap”Up to a point planogramming backed by inventory management should cater to shoppers’ past needs reflected through sales data. But don’t underestimate the more or less informed guesses at future developments. Otherwise, you’ll miss the opportunities. There was no category of energy beverages when Red Bull started. The same goes for functional waters or organic products. Etc. If you’d just rely on past data, you’d miss a lot.
  4. Flexibility, not rigidityIn digital times, where the long tail of products is available at the tip of fingers in online stores, this one is more and more important. Don’t tie up your retail hands with rigid planograms and inventory management systems. They should be able to support faster in / outs and support seasonal exhibitions. This principle is at the core of our #leverages method and also our view of successful retailing for digital times.
  5. The experiment in test environmentSuccessful experimenting is a refreshment for this marriage as well. But do it in a test or pilot store where errors don’t cost too much. The same goes for the introduction of innovations and the development of new store formats. Omnibus’s #leverages workshop provides you a framework for putting changes at work in a test environment. All the necessary steps are included.
  6. Gain additional value from actionable insightsMeasure, learn, improve. That’s the basic equation. Digital planogramming and stock replenishment systems will get enough data to feed your process. The regular KPIs will give you an orientation so that you can steer your retail well. But for added value, you should build on a valuable combination of different data points where insights are born. By implementing those you can tap into vast treasures. The insights might come from your team or you might get them by consultants who have a special experience. #leverages for successful retail spaces provide such a platform at the moment as they combine the psychology of shopping with proven results.
  7. Define the proceduresThe more you define the core procedures, the better the results. Also, try to be as simple as possible in rules. Organize feedback loop through area, store, and shelf managers. Additionally, provide clear instructions for filling the shelves. Automated stock replenishment should greatly decrease ordering time and errors. Just let the store managers know what you expect from them. Set up the platform where all the instructions are available according to permissions at any time. One special area that signals the power of your procedures is managing surplus stock in store which is usually connected to seasonality, promotions, or new planograms. Create outlet procedures, segment and concentrate the products and make it a trigger for additional buys (if necessary). Once established, regularly update the procedures; new categories arrive, changed shopping habits call for different customer decision trees, etc.
  8. Retail strategyThe retail strategy should hold both your planograms and inventory together. Or to put it the other way around. Both planograms and inventory should support your retail strategy. Define the strategy, then prepare the critical tasks / obstacles, then prepare the solutions. If you want to differentiate your store chain on seasonal products, you’d need procedures that increase the stock turnover and regularly clean the leftover stock away.
  9. Last but not least.Although the processes are getting more and more digital and machine learning savvy, the customers in physical stores still encounter the situation as it is. Regularly check the stores and use field feedback for changes. Also, install compliance measuring into the process.

— DO YOU WANT TO INCREASE SALES & DECREASE STOCK?

We passionately believe in the principle of ONE.

You can read tons of books about riding a bicycle but just ONE trial (of course accompanied by a fall, hopefully not too painful 😉) will bring you much closer to learn to ride. A fall or two, then ONE ride is enough to prove that you are a rider. Only ONE ride!

One successful marriage of planograms with inventory is also enough. It will prove the concept not only for that particular store but for all the stores in the network. ONE ride.

— BUT HOW DO I GET TO A SUCCESSFUL PILOT STORE?

Our workshop #leverages for successful retail stores provides a complete framework for successful store space layouts. It will direct your steps towards the pilot store – we shall begin with customer psychology, provide analytical tools with key KPIs, mathematical sales vs space model backed by smart tactics, and built-in actionable insights that increase sales basket and accelerate inventory turnover.

#leverages stand for a bundle of years of experience, proven theory, tactical levers, and hypotheses based on best practices and recently proven in a remodeled store. Here you can read about the impact of #leverages at work. In a recent supermarket store remodeling powered by #leverages some categories have inventory levels cut to half while at the same time increased the sales.

If you’d like to know more about the mechanics and possible start of using them for your success, get a free PDF.

Additionally, on the inventory management side, we provide a possible connection to robust software from our partners which blends #leverages for successful store space and automated store replenishment with in-built mechanisms of optimization.

So why hesitate? It’s always just the right time to instill a little bit of additional flair into the planogram and inventory management marriage, uhm, equation. We have unique #leverages proven in recent remodeling and a great workshop that will bring you all the way to the pilot store. If you’d like to decrease the inventory, improve the sales and organize your retail space for success – contact us now.

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