Gain Benefits From Space Management Technology

Do you take a manual, subjective approach to space management for your store? If so, how long does the process take? And, are you confident your product sets (i.e. the products on shelves) are placed and maintained at a level necessary to drive sales and profitability? Don Summerfield, VP and cofounder of Pharmaca Integrative Pharmacy (Pharmaca), asked himself these very questions and discovered the answers were not in the retailer's favor.

Unorganized Product Sets Lead To Inventory, Time Problems
Headquartered in Boulder, CO, Pharmaca is an integrative pharmacy and retailer, boasting $85 million in annual revenue. For years, Pharmaca tackled space and merchandise management without effective tools. In other words, when shelving products, category managers randomly selected what they felt was the appropriate shelf and number of facings per product (i.e. actual number of a certain product on the shelves), causing major inventory problems. "We had to guesstimate how much product to order per set because we lacked a planogram," says Summerfield. "Because the setting process was so subjective, our category managers often over-ordered or under-ordered products. We wasted money when we over-ordered products. And, in the case of under-ordered products, category managers had to place additional orders, which was an inefficient use of their time."

Category managers typically spent three weeks setting each of its eight existing stores. During the three weeks, category managers received products, shelved them, tagged shelves with shelf tags, and conducted a final review of the store to make sure all was in order. Because category managers spent three weeks away from the home office setting stores, they did not allocate enough time to other important job functions such as vendor negotiations for vendor promotions. For instance, because category managers did not allocate enough time for essential vendor negotiations, Pharmaca's monthly promotions suffered because the pharmacy did not receive enough vendor support in terms of advertising money and discounts.

Category managers were not the only people tasked with setting shelves. Pharmaca's vendors often came to the stores to assist with setting products. When the vendors arrived at the store, Pharmaca provided them with a store map, which pointed out the location of their brand. "When the vendors found their products, they rearranged the order to put their product where they felt was the prime location," says Summerfield. "But that meant more work for us, because we had to reset products after the vendor left."

By its third anniversary, Pharmaca planned to open six additional locations. Summerfield realized the company could not afford to have category managers spend three weeks setting each new store. "Six additional stores meant that the team would be away from the home office for almost six months of the year setting stores," says Summerfield. "It would be unrealistic to grow the company at the pace we needed to and continue this manual setting process."

Does An Integrated Space Management Solution Make Sense For You?
To alleviate the problem, Summerfield researched the Food Marketing Institute for information on inventory management, space management, and space planning. Research results helped Summerfield determine that bringing space management in house was not an option for a small company like Pharmaca. Summerfield could not invest time or money in the application or the IT resources it takes to operate and maintain such an application. Therefore, an outsourced, integrated space and merchandise management solution was the answer to the company's problems. The company chose Planogramming Solutions, Inc (PSi) space management and category management integrated solution. PSi offers Pharmaca the ability to financially analyze, manage, and construct the graphical illustrations, which define the layout of the products in their stores and on their shelves via planograms. "We now have an efficient way to maintain our merchandise sets to the specifications that our category managers require," says Summerfield. "We have a host of category management and analytical reports that cover everything from sales to gross profit by store, department, category, and planogram." Category managers and other retail executives access PSi's analytical tools online, including planograms, sales reports, space management reports, which are updated on weekly basis. The planograms are updated on a monthly basis.

Product placement and improved sales are just two very basic reasons a retailer should be implementing planograms in their stores. In order to optimize shelf layout and receive a return on your investment, a planogram should be properly executed and maintained. Indeed, after resetting its eight exiting stores with PSi planograms, Pharmaca experienced nearly a 30% increase in retail sales. Category managers no longer have to be involved in setting the store, as Pharmaca has hired retail clerks at a much lower labor cost to set the store. "We provide the retail clerks with the planogram, and instruct them to set shelves based on the picture," says Summerfield. As a result of PSi's integrated solution and planograms, Pharmaca has reduced time spent on space and merchandise management from three weeks to one week.