Page 71 - DMGT552_VISUAL_MERCHANDISING

Visual Merchandising

Notes
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Caution Online retail has challenged traditional retailers. Before online retail became
prominent, retailers such as Barnes & Noble found themselves in a comfortable competitive
position, knowing that through their nationwide retail outlets they had built a barrier to
entry into their markets. However, the Internet allowed small companies – such as
Amazon.com - to overcome this barrier with great ease, creating a new competitive dynamic
that many traditional retailers are still attempting to adjust to.

Store Space Management: Once a retailer decides what to buy from vendors and how much of it
to allocate to specific stores, someone needs to decide where in the stores the products will sit.
This is a very important step in retail since store layouts are crucial to the shopping experience.
Products need to be easy to locate, near related products, and have the correct facings. Should
this product be on the end cap? Should it be at eye level? Should it have 8 facings or 10? Space
management is about maximising every inch of the selling floor. Not only do their formats
vary, but there’s usually a degree of localisation that makes them even more unique. So often
the corporate PoG is treated as advice only and compliance is low. The answer is more
collaboration between headquarters and the store. An increase of 10% in compliance can decrease
stock-outs by 1%, and that leads to higher sales.
Space Allocation: The allocation of space to products within a retail outlet links the designed
selling environment to the financial productivity of the retail space. Space management has to
consider the long-term objectives concerning market positioning and customer loyalty, alongside
short-term objectives concerning stock-turn, sales and profits. A retail outlet that looks beautifully
spacious will not stay that way if there are not enough products selling to sustain the business,
yet if the store is full to bursting with merchandise some customers may choose not to enter the
foray. Retail space is costly and increasingly scarce and so whatever the visual merchandising
strategy is, an adequate return must be made.
The usual method for measuring retail performance is according to the amount of sales (or
profits) generated by a given amount of space. Sales per square metre are a commonly used
method of assessing the value of retail space, but linear and cubic measures can also be
appropriate. Space planning needs to take account of not only the amount of space allocated, but
also the quality of space; for example, the space nearest the front of the store and the till areas are
usually the most productive. Certain practicalities also have to be taken into consideration, such
as the size and weight of the merchandise.
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 maximisation 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, maximising
product profitability or maximising customer satisfaction, and a retailer may be faced with
making trade-off decisions in order to achieve those objectives.

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Caution 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.

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