Page 239 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes Space-allocation decisions usually need to be made at various levels of merchandise classification,
for example at departmental level, product category level and SKU (stock keeping unit) level.
Retailers usually have some historical data that can act as guidance in the allocation of space, for
example a similar store’s performance, or historical department sales figures, but the need for
the maximization of financial objectives means that space planning and allocation is under
constant review and refinement at individual store level. The allocation of space can be geared
towards different objectives, for example achieving the highest sales turnover, maximizing
product profitability or maximizing customer satisfaction, and a retailer may be faced with
making trade-off decisions in order to achieve those objectives. Those products that generate the
highest sales value may only achieve low profit margins, but concentrating on high-profit items
may put unnecessary emphasis on products that are less of concern to customers, thereby
decreasing their levels of satisfaction. The matrix suggests alternative space allocations according
to whether a product has high profitability or high sales.

Space Allocation Systems

1. Advantages:

(a) optimises space productivity
(b) maintains consistent corporate identity
(c) allows retailers to experiment with visual display
(d) helps to achieve efficient assortment (see ECR)
(e) moving towards store specific planograms

2. Disadvantages:
(a) costs
(b) not appropriate for small retailers or where displays are frequently changed (e.g.
independent fashion retailer)
Consideration of the financial implications of allocating amounts of space must be conducted
within the framework of an outlet plan that is geared to making the shopping experience of the
customer a satisfactory one. Too much emphasis on the retailer’s financial objectives could
result in a store being laid out illogically and make products difficult to find. Long-term
profitability is dependent on customer satisfaction and loyalty, and so space planning must
incorporate factors other than individual product sales and profitability. Aspects such as seasonal
goods, the physical size and weight of the product, the type of fixturing required and the need to
display complementary goods in close proximity should all have a bearing on the overall plan.
The complexity of space-allocation decisions has encouraged the use of computer-based systems
as a retail management aid. Modern space-allocation systems are able to synthesize a plethora
of quantitative and qualitative data such as product costs, sales forecasts, product sizes,
complementary purchasing potential, fixturing details and so on. The output of these systems is
a space-allocation plan or planogram that shows exactly how the products should be displayed
on the fixturing, including the number of facings of each product that the customer should see.

Although space-allocation systems have resulted in retailers using space in a much more
productive way, they do have limitations. Most large multiple retailers have a portfolio of
stores that differ in size and shape, and so unless that retailer has access to individual store input
data and the system is capable of producing customized plans for each store, the planogram will
have to be subject to a certain degree of interpretation at store level. Many retailers have tackled
this problem by grading their stores by size and producing a set of plans for the different store

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