Space Planning: The Next Generation

Space planning, as part of the bigger merchandise management process, requires a balance between art and science. The aesthetic human touch is still necessary when it comes to designing a shelf or wall display, but in recent years, technology has enabled retailers to automate the technical decisions of product location based on inventory, assortment, store sales, and customer analysis. New product introductions are not slowing and margins are not getting any larger, so retailers need to look at the way they plan before they can reach the recent goal of store optimization. Although space planning has always been a necessary part of merchandise management, retailers should not only automate their planogramming processes, but also integrate their systems to include financial, assortment, and promotional plans in their store design decisions, regardless of their vertical markets.

Take A Deeper Look At Your Shelves
The majority of retailers have some kind of basic space planning system that allows them to paint a picture of their store shelves and rounders, but technology now enables them to back up that picture with store analysis. "Many retail planogram systems are still islands rather than truly integrated merchandising systems," said Lori Schafer, CEO at Marketmax, Inc. (Wakefield, MA). "Many times the planogramming department doesn't even communicate with the buyers or assortment planners. Ideally, a merchandising system should have one integrated database where all of the financial, assortment, store floor plans, and historical data can be accessed."

Kevin Stadler, senior VP of collaborative business solutions at JDA Software Group (Scottsdale, AZ), suggests retailers integrate their planogramming systems to a relational database where data can be accessed or reassembled in many different ways without having to reorganize the database tables. Once this information is accessible, retailers have an X-ray view into each individual store. "Technology allows retailers to overlay space designs with information such as sales, inventory, and out-of-stocks. From there, automated space planning software clearly highlights, for example, areas of the store where a retailer is not allotting enough space for fast-moving items or too much space for slow-moving items," Stadler said.

Unique Store Plans Increase Profitability
Merchandise planning is a game of recognizing the most profitable items in your assortment while maintaining a balance of variety and selection for the consumer. At the same time, it is important to ensure that what you are planning is actually in your stores' inventory. The older methods of space and merchandise planning assume that you would have the same products on the shelves during the summer season everywhere across the country. It may seem ridiculous to think that a store in Maine and one in Florida would allot the same amount of space for swimsuits in March, but it happens. In fact, a study conducted by the Efficient Consumer Response group revealed that retailers can gain as much as a 40% improvement on gross margin return when they space plan on a more regional basis. "As retailers take a more granular approach to space planning, they are seeing that they might need more than one space plan per region," Stadler said. "As you get more specific, you start focusing on customer demographics or income for particular stores."

United Kingdom retailer Marks & Spencer operates more than 300 stores and recently implemented retail space planning software that will enable it to create store-specific space plans. Based on weekly updated assortments in each category, the retailer is producing 6,500 unique weekly plans now (125 plans per week in each of 52 stores to start), while it continues to roll out the solution to the entire chain. The company hopes this will help it to better manage in-store displays and improve product availability on its shelves. "Recent technology allows retailers to automatically produce a planogram from a financial and aesthetic perspective. It would have taken a company like Marks & Spencer a planogramming staff of more than 100 people to create such specific plans in the past. Now it is possible to optimize inventory on a store level with minimal cost," Schafer said. Eventually, retailers will be able to design store planograms not only by store but also by the time of day. Since customers shop for different things at certain times of the day, retailers can benefit from adjusting their floor plans accordingly.

No matter what your vertical market focus, space planning is a universal need. Every retailer has a constraint of space and margins are not getting any larger. The challenges for a grocery store might be balancing new product introductions and product assortment, whereas a specialty retailer might look at the best way to use its rack capacity or productivity per square foot. But in an industry that is looking for the secret to optimization, space planning is one crucial component for attaining that goal.