CHAPTER 8 ALLOCATING SPACE TO PRODUCTS

LEARNING OBJECTIVES Understand the concept of retail space and how its productivity is measured Become familiar with the stages in the space allocation process Appreciate retailer objectives in space allocation plans Understand the relationship between space, sales and profits Appreciate the practical challenges of space planning and allocation Assess the contribution of IT to space allocation

SPACE MANAGEMENT OBJECTIVES Use space effectively whether floor, page or virtual Optimise short- and long-term returns on investment into retail space Provide a logical, convenient and inspiring product-customer interface Make right selection of products available Communication of retailer’s brand identity

THE SPACE MANAGEMENT PROCESS (TABLE 8.1)

STAGE 1: MEASURING RETAIL SPACE

SPACE PRODUCTIVITY Sales volume and profitability can be measured in relation to the amount of space used to generate them This provides productivity measures, e.g.  sales per square metre  profit per square metre  sales per cubic or linear metre  profits per catalogue page

STAGE 2: DIVIDING SPACE INTO SELLING AREAS Allocation of space to product department or category Usually based on previous performance indication, typically sales Some products require disproportionately large area (e.g. furniture) others can withstand disproportionately smaller area (e.g. jewellery) Category life-cycle may influence amount of space

STAGE 3: DETERMINE LAYOUT AND PRODUCT ADJACENCIES Converting numerical data into a workable outlet layout, considering inflexible elements:  entrances, walkways, checkouts Consider space quality Consider logical flow through products and complementary categories

PRODUCT ADJACENCIES

STAGE 4: ALLOCATING SPACE TO INDIVIDUAL PRODUCTS Products, like categories are often allocated space on the basis of sales.  Advantage: product is less likely to sell out  Disadvantage: may not be profitable Different sales figures have advantages and disadvantages (see Box 8.2)  historical sales  market share  projected sales

STAGE 4 CONTINUED Space elasticity is a term for the relationship between an increase in space given to a product line and the resulting increase in sales Space elasticity is not uniform amongst products or across stores Generally staple products have lower space elasticity than impulse buys Cross elasticity is the relationship between the increase in sale of one product and the resulting increase in sale of another product

STAGE 4 CONTINUED Allocating space according to product profitability  Advantage: best and most space devoted to products that bring best profit margins  Disadvantages: wasting space because of low space elasticity consumers may have difficulty finding products Long term customer satisfaction must be considered in space allocation plans

STAGE 4: PRATICAL AND CUSTOMER CONSIDERATIONS Seasonality Product characteristics: size, weight, hazards, chilled and frozen, fragile, expensive, contamination Customer characteristics  pester power  mobility Fixture limitation

SPACE ALLOCATION SYSTEMS Inputs:  Product information costs, sales, dimensions, complementary products  Fixture information specific requirements of product (e.g. shelf level), dimensions, number available  Product manager knowledge/experience space and cross elasticity, stock holding objective, life-cycle stage Output  Planogram or visual display map

SPACE ALLOCATION SYSTEMS Advantages:  optimises space productivity  maintains consistent corporate identity  allows retailers to experiment with visual display  helps to achieve efficient assortment (see ECR)  moving towards store specific planograms Disadvantages:  costs  not appropriate for small retailers or where displays are frequently changed (e.g. independent fashion retailer)

SPACE ALLOCATION AND CATEGORY MANAGMENT Many would argue that space planning and allocation and category management go hand in hand. Space planning systems help retailers to fine tune category assortment and analyse product and category performance Planograms by category ensure stores are implementing category plans Consumer behaviour (decision sequence) can be accounted for within the space allocation plans