FIRST PUBLISHED: MAR 17, 2021 — LATEST MAJOR UPDATE: MAY 15, 2023
Floor space management or organization of product categories decisively impacts buyers’ decision-making within the physical stores.
Well-organized store layout provides not only easier store navigation but also
- increases shopping basket size
- accelerates inventory turnover
- guarantees store profitability
- raises overall customer satisfaction
Without any exaggeration, we might call floor space management the key variable of retail success and overall store profitability.
One little reservation has to be added. Precautionary note: Space management isn’t an isolated activity. It’s part of the retail system and thus intrinsically connected to other retail variables.
Fundamentally speaking: The sales start and end with something of value for the customers. No shoppers, no sales. If consumers don’t trust the retailer’s brand or price/quality perception is low or the assortment sucks, the retailer can make space management miracles without any real effects. But considering you’re at least average on other variables, space management has decisive effects on store performance.
— WHAT YOU’LL LEARN FROM THE ARTICLE
- 5 key steps for preparing efficient store layouts
- How customer decision tree can help you grasp the whole assortment
- Tactical use of sales-to-space analysis
- How to leverage space elasticity of product categories
- Importance of traffic flow and relative position of categories
I’ve consciously decided to strip down the hugely complex field and focus on basic principles usable in widely different types of stores.
It’s obvious but it should be said here: the field of store macroplanning has made huge leaps in recent years. Advanced data analytics, technological progress, in-store measuring of customer behaviour, changed shopper habits, and other megatrends have changed the face of retail as much as everything else.
But: the principles remain very much the same – whether you use a piece of paper and Excel spreadsheet or the most advanced AI solution. Yes, even AI needs quality human input to give proper results.
The 5-step solution stems from my first-hand experience and profound study of the field of retail space management.
For years, I’ve been developing store formats, and preparing store layouts for retailers of different formats and branches – from pop-up bookstores to national grocery hypermarkets. That gave me the opportunity to study in-store customer behaviour, make actionable insights based on data, and also to work with different project teams – from interior designers & architects to data scientists. All the while, I’ve been gathering feedback, making A/B testing, and trying to improve the process. Thus, I’ve developed a store space organization method named #levers for successful store spaces.
Recent proof of #levers came through the remodeling of a supermarket that brought significant improvements in all key performance indicators: 18% more sales, 31% less inventory, and higher stock turnover, not to mention increased profitability of sales space.
An essential part of the #levers is also a process of preparing quality – customer-friendly and tactically enhanced – store layouts.
- STEP ONE: GRASP THE WHOLE OFFER
- STEP TWO: LINK SALES AND SPACE DATA
- STEP THREE: RETAIL SPACE TACTICS
- retail strategy
- category role
- impulse and planned categories
- seasonality patterns
- STEP FOUR: DRAWING THE STORE LAYOUT
- STEP FIVE: IMPLEMENT
— STEP ONE: GRASP THE WHOLE ASSORTMENT
First, you have to firmly grasp the whole assortment = offer you provide (or plan to provide) in your retail space.
This is not physical but conceptual grasping. Just make sure that you have all the products listed and possibly classified into categories.
The main tool for such an overview is called Customer Decision Tree (CDT). It joins similar products and services into categories, then sorts them into a hierarchy based on customers’ buying habits, wants, and needs.
Let’s take coffee as an example.
Under the umbrella, we put everything shoppers associate as coffee.
Of course, for micro-planning, we make further segmentations on the sub-category level: ground coffee, instant coffee, decaf, beans, cappuccino, craft, organic, etc. For explanation purposes, let’s just add there might be more levels of sub-categories. Say, price-level: premium, main-stream, low-budget. All this is category management stuff.
But as here we are into store layouts (macroplanning), let’s move a level up the ladder.
Family: HOT DRINKS
Here coffee is joined together with tea, hot chocolate, and milky drinks. The product categories that solve the similar need of a shopper.
One level up is …
Section: DRINKS or FOOD FOR BREAKFAST
We can put it in one or another section for now, but the final decision depends on the store channel or store strategy.
One further level up is …
Department: PACKAGED FOOD
The departments in supermarkets are usually larger groups. Besides packaged food, there might be departments like non-food, seasonal products, fresh food, deli, household, etc.
So, the hierarchy bottom-up goes like this:
SKU ⇒ brand ⇒ ground coffee ⇒ coffee ⇒ hot drinks ⇒ food for breakfast ⇒ packaged food ⇒ food
— STEP TWO: CONNECTING SALES AND SPACE DATA
After the tree is built and all the categories are well placed within the hierarchy, it’s time to add the data.
- Sales data
Margin, ROI, sales revenue, volume, and trend are the usual indicators. If possible, start with the data on an SKU (article) level, then group it into sub-categories and category levels. Then you can move further up the tree.
For grocery, the top levels might be Fresh Food, Packaged Food, Non-Food, and Services.
- Space data
Now you have to join all the elements of the tree with shelf space (m) or store area (m2) information. According to sales data, you will calculate a proportional % of shelf space. We can call it space-to-sales or space-to-movement. From our experience, we usually start with an average value between volume and value sold.
In general: if category X has a 10% sales share and category Y 5% -> then category X should have twice as much space as category Y.
— STEP THREE: RETAIL SPACE TACTICS
With the CDT clearly established and the basic statistical analysis behind us, it’s time to power up the space recommendations with the proper tactics.
Basically, we want to leverage predictable patterns of customer behaviour for reaching our strategic retail goals.
Our methodology #levers provides a whole set of tactical tools, rules, and methods based on shopper insights you can apply. 10 key tactics help you impact store KPIs. More information is available via our free web-based #levers demo. At this place, we’ll just describe some factors that should be considered for setting proper tactical decisions.
OVERALL RETAIL STRATEGY
Let’s say category Y represents organic products in a grocery store. As such, it might be strategically important as organic associates health, quality, value, etc. In that case, we will assign the above proportional share of space to that category.
Each product category should have the proper role designed. This is always made in relation to the overall retail strategy.
Destination categories are the ones you need to select as a differentiator from other retailers. They pull the consumers into the store and make you stand out from the competition. Properly used they drive store traffic and also serve as levers for additional purchases.
More on the topic of destination categories you get in the article Leverage destination categories to increase store traffic.
If coffee is your designed destination category, then you should probably have a wide or/and deep assortment of coffee products, underpinned with above-average shelf space.
Of course, expanding on one side means shrinking on the other. Some other categories’ space should be sacrificed. A bit like rolling a Rubik’s cube, yes. When you make a move all the other positions also change.
IMPULSE OR PLANNED CATEGORY
For each category, you should consider whether the shoppers’ buying decisions are more of an intent-driven or impulse nature.
Impulse categories are the ones where “a consumer experiences a sudden, often powerful and persistent urge to buy something immediately” (Rook, 1987). Might be salty snacks, carbonated soft drinks, but also shoes (notorious fact: a collection of Imelda Marcos consisted of 3000 pairs of shoes, pure impulse!).
In general, impulse categories are shelf space elastic. By extending the shelf space by 10% you increase sales of the category above 10%.
On the other hand, you might see that motivation for buying other categories is more intent-driven (planned). Often these categories are spatial inelastic and not so responsive to shelf space.
Based on the division of products into unplanned (impulse) and planned (intent-driven) we can draw a basic tactical plan for space organizations.
– decrease the unnecessary space for inelastic categories and increase the space for upward elastic categories
– decrease the unnecessary space for intent-driven categories and increase the space for impulse categories.
Finding the right balance between extending space for elastic categories and shrinking space for inelastic is more and more possible by using A/B tests in a real environment. Proper use significantly impacts the shopping basket and overall sales.
It’s also very important to discern seasonality patterns. Some categories – like candles or toys or chocolate boxes – make most of the sales during one or two particular months within the year. It doesn’t make sense to assign the shelf space according to yearly levels of sales. It’s much smarter to assign lower shelf presence during regular months and extend the space drastically during the seasonal months (by using flexible temporary displays for example).
With tactically boosted CDT, you are ready for the next step.
— STEP FOUR: DRAWING THE FLOOR SPACE PLAN (STORE LAYOUT)
SPECIALIZED TOOLS FOR DRAWING LAYOUTS
You can draw the floor space plan by using one of the retail space management / solution tools.
The author of this article is familiar with the following: JDA, Symphony (former Intactix, Aldata), Nielsen Spaceman, Planorama, DotActiv, and Iantech’s Prisma. Depends on your preferences, budget, and people onboard.
While specialized software solutions provide advanced analytical tools, even plain old Excel works for some retailers.
As Chinese leaders say: it doesn’t matter what color the cat is as long as the cat catches mice! That’s also the motto for our sales to space mathematical model #leverages.
TYPE OF STORE LAYOUT
Choose basic navigational plan of a store. How you lead the shoppers traffic flow from the entrance through merchandise interactions to the checkouts and exit area.
You can choose between different types of layouts: grid, angular, loopr, boutique, free-flow, and more.
Some clear descriptions with illustrations are provided in Kate Eby’s article The Essential Guide to Retail Store Layouts that Shape the Customer Experience.
Once again – there is no universally right or wrong layout type.
But the trends definitely go in direction of “pull” principle. Which means that the task of a good retailer is to ease up the navigation for customers, especially regular ones, and pull the shopper into the area by the carefully select assortment, nice designs, storification, etc.
Believe me, I’ve experienced how “smart”, short-term “profit-making”, but essentially unnatural category positions annoy customers – up to the level that your loyal customers might switch the retailer.
Hopefully, this won’t be your chosen strategy. Rather raise the satisfaction and shopping time by good, carefully select assortment. The right direction: remarkable retail!
Still. Remember Ikea: the trafic flow is of a forced-path nature but shoppers enjoy it, and voluntarily share their shopping time browsing and checking new life-style ideas.
But not everyone is as inventive in designint store areas as Ikea.
USE OF SHOPPING MODES
After you chose the layout, your architect might sketch a store traffic flow and basic organization of equipment a little.
Very important here is balanced way of using shopping modes.
Where customers are buying regular, unispiring products, eg. detergents, milk, etc. you just help them do it as quick as possible.
Then you provide storified areas – sometimes linked to seasonality. Here customers are willing to share more shopping time as they engage and discover the carefully select offer.
You can read more on managing shopping modes – insights from our research of traffic flows inclued – in the special article Modes of Shopping Behaviour.
FILLING THE LAYOUT WITH THE CATEGORIES
So, you’ve got it all now. A chosen store layout, a first sketch of shopping areas and traffic flow, and space recommendations for each category in CDT.
Now let’s grab all the categories and move them into a chosen floor plan.
Then lay out the space for the higher hierarchical levels from CDT.
For groceries, you might start with Packaged Food, Fresh Food, and Non-Food departments then spread the space accordingly to lower hierarchical elements.
When we do this, we encounter another important space lever: the relative position of a category regarding main traffic flow heavily influences the success of the sales.
Intent-driven or planned categories, generally not very responsive to shelf space (low space elasticity), are not very responsive to store traffic.
On the other hand, moving the carbonated soft drinks section (heavy impulse category) to the main aisle with full frontal access might triple the category shopping basket share.
For better results, you should use different shopper insights. From past observational data to more specialized in-store shopping behaviour research like our unique shopping paths research where we traced paths of shopping carts.
— STEP FIVE: IMPLEMENT STORE LAYOUT
With the well-organized and tactically enhanced store layout, you’re ready to make an action plan, prepare a timetable, and implement it.
Don’t forget to measure, learn and improve. After all, this is your pilot store. The one that will soon spread the gains over the whole chain of your stores.
— HOW OMNIBUS CAN HELP
We can help retailers from different branches in every step of the process summarized above.
From preparing a solid Consumer Decision Tree to providing floor space analysis for actionable improvements.
Our product #levers is a synthesis of years of experience, knowledge gathering, best practices, and also constantly observing shoppers and gaining practical feedback from store managers and others. It provides a method and mathematical model which heavily leans on CDT and shopper insights. It is open to adding parameters and comparing the data from different viewpoints.
Moreover: #levers is a process that structures the roadmap that gets your team from concept to store remodeling.
If you’d like to learn more, you can join our 45-minute online webinar where we will demonstrate the model on a case. Sessions are free but I’m sure you’ll gain unique insights for your purposes. Book your space soon as we’ll limit the number of visitors to provide a better experience.
Of course, if you need to transform your retail space or need to improve on a particular space management issue, you might enroll in our workshops.
We lead you through the process – from organizing input data to creating and positioning new space initiatives – and help you and your team build a pilot store step-by-step.
— THE END
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