Optimized space and assortments
How they can reduce the environmental impact of retail operations
In the rush to match rising customer expectations on environmental issues, retailer’s environmental impact has been under increased scrutiny both from pressure groups and new legislation designed to reduce environmental damage from pollution, noise and development.
Many retailers have been quick to announce a host of green initiatives in a bid to enhance their corporate social responsibility programmes. Most of these initiatives have been of a type that customers can readily understand, such as:
- Utilising trucks that are more fuel efficient
- Transferring road freight to the railway
- Encouraging customers to adopt reusable bags
- Use less, and more sustainable packaging
- Sourcing more local products
- Encouraging staff to work from home, saving on commuting
- Supporting environmental projects in the community
- Making stores more energy efficient by installing alternative energy sources such as wind or solar generation
However whilst these initiatives make for good headlines, the actual environmental benefit from many of these schemes and programmes has been fairly limited. This in turn is leading to further pressure from groups and threats of legislation being imposed. There is another environmental angle affecting retailers that has been largely overlooked until now – store space and assortments.
The ‘average store’
Galleria, the leading provider of Retail and Category Optimisation solutions, believes that delivering the right product to the right stores in the appropriate quantities delivers significant and positive environmental benefits as well as significantly enhanced sales and customer satisfaction.
Traditionally retailers have tried to pack as many different products into all of their stores without giving consideration to what customers actually buy or the store space available to them to merchandise those products. Under pressure to deliver ever increasing sales and accommodate new products, many retailers have simply adopted a ‘one size fits all’ approach to store space and assortment planning meaning in many cases all stores carry the same assortment regardless of the space available or the local demand for those products.
Other retailers have tried to determine the mathematical average across all of their stores and then develop assortment and space planning decisions based on it. This is no better than a one size fits all approach with the same obstacles and constraints.
Stores vary for a variety of reasons including, physical size, type of store, floor layout, fixture type and size, consumer demand patterns, local variation and more. No Two stores will be truly identical or even average.
For a retailer trying to adopt a one size fits all policy to all of its stores will result in a number of problems and issues:
Too many products are on sale, not enough space to merchandise best-selling products and too much space devoted to poor selling lines and even some products which won’t fit onto the shelves at all due to a generic planogram approach being used.
High level of wastage
From an environmental point of view this means millions of tonnes of unnecessary freight is being moved around the country to stores which will often end up having to return it or waste it because of lack of demand. This results in even more road transport and waste going to landfill which is both damaging to the environment and the retailers bottom line.
Poor customer satisfaction
If a customer enters the store looking to do a full week’s shopping they’ll be hoping to find everything they need under one roof. A shopper visiting a store will frequently find their favourite products are out of stock because not enough space has been devoted to them and they have sold out. The customer may purchase an alternative brand or substitute for another product but more likely they not make any purchase and will be forced to shop elsewhere.
This means the customer will be forced to travel to another store, potentially some distance away in order to purchase the products to complete their shop. If this were one or two people having to do this the environmental impact would be minimal but millions of people worldwide are forced to do this every week. The result is an increase in unnecessary travel which causes not just localised and global pollution but also noise pollution and traffic jams.
Store sales not achieving potential
On top of the environmental impact the impact on sales is also negative with sales lost to competitors because customers are unable to purchase items they actually want, when they want them. Customer loyalty is reduced and the lifetime value of the customer is significantly reduced.
The solution: optimise assortment and space
Synchronisation and optimisation of assortment and space planning is an essential move towards reducing the environmental impact of retail stores. It allows retailers to create localised customer-centric merchandising plans that ensure the right products will be present at the right time and in the right capacity in every store.
Retailers who do not synchronise their assortment and space planning functions often find it difficult to create customer-centric merchandising plans and run into hurdles that could otherwise be avoided. A retailer can implement strategic initiatives such as computer assisted ordering (CAO) and advanced forecasting systems to calculate optimal inventory based on replenishment cycles, case pack and lead times for each store, but, if the merchandise space is not factored into the equation, the optimum stock that was calculated may not necessarily fit on the shelf meaning all the efforts and expense of shipping goods to store will have been wasted.
Galleria’s store-specific inventory optimisation translates optimum stock calculations into executable customer-centric merchandising plans, ensuring that the right quantity of stock is delivered to the selling floor to fit the available space.
To achieve the benefits of synchronised assortment and space planning, retailers need to perform these processes at a store-specific level to create operational customer-centric merchandise plans. To do this data on each stores fixtures and fittings, type, space etc are all fed into the demand intelligence layer, the common repository for all data required to calculate the assortments and space allocations. By knowing each individual store details, store specific merchandising plans can then be generated allowing the retailer to move away from a ‘one size fits all’ approach.
A leading U.S. retailer that has applied Galleria’s Customer-Centric Merchandising solution across the majority of its categories has seen planogram compliance increase to more than 95% ensuring that the right products are able to fit on the shelves in each individual store.
With the assortment and space planning information combined, the retailer has a far clearer understanding of how every product in every assortment is consuming space and how they should be merchandised in each store.
The solution understands how many units a particular item sells per week, how many facings it requires and the exact amount of space it will consume in each store. This enables the retailer to allocate space to the best performing products and eliminate those that merely take up space.
Understanding products and space
By developing optimised space and assortments there is a substantial increase in planogram compliance, that is merchandise plans delivered against a planned design for each store. Averages store plans become a thing of the past and each store assortment and space plans have been optimised taking into account the constraints of each store and local demand intelligence. The net result of this provides significant environmental, sales and customer satisfaction benefits:
- 1. Greater availability
Recently there has been a lot of discussion about food miles – how far our food and other goods have travelled to get to our stores throughout its production. Whilst this is a significant issue moving large quantities of goods around the globe is relatively efficient. Just as valid but rarely mentioned are customer miles – the distance a customer travels from their home or business to a store to purchase goods. Customers visiting a store expecting to find a specific product will not have to travel to other stores if it is on display every time. One stop shopping reduces customer miles, enhances customer loyalty and increases the lifetime value of the customer.
- 2. Reduced wastage
Store-specific planning greatly increases the match between what local customers want and what is on the shelf, increasing stock turns and therefore reducing waste. In contrast, generalised plans over-supply slow-moving items, inevitably increasing wastage. Less waste means less perishable goods ending up in landfill and fewer truck miles returning unwanted hard goods to distribution centres across the country.
- 3. Making every shelf inch count
Retailers are beginning to talk about the carbon footprint not only of stores and products but also of display space. Galleria implementations have a proven effect on overall sales increases, store by store. This naturally makes the utilisation of the finite space in each store more efficient. Retailers in challenging economic times will appreciate the benefits that can be achieved in optimising existing stores rather than relying on continual store expansions to grow the business. This means fewer controversial and expensive planning applications and a reduction is pollution attributed to the building on new stores.
- 4. More efficient deliveries
With good assortment and space planning, trucks only carry what is needed. The recent hike in world fuel prices has once again highlighted our dependence on oil for transportation. With a typical truck only managing 8-10 miles per gallon, it makes no economic or environmental sense to ship products to stores whose customers don’t particularly want them. It’s not only a waste of our natural resources but also a waste of money that will only hurt the business bottom line and keep prices high for customers.
- 5. Increases sales and Customer Satisfaction
Retailers who have implemented Galleria’s solutions have seen a significant increase in sales, in some categories over 20% increases have been seen. Coupled with a reduction is wastage of over 8% it’s clear to see how quickly the investment in the solutions can pay for itself. How many more sq. ft of retail space would have to be built to achieve those kinds of figures and at what cost to our environment?
It’s not just the retailer who wins from increased sales. Retailers using Galleria solutions are seeing real improvements in customer satisfaction levels with complaints about range and stock levels down markedly.
In a previous era where transportation was inexpensive and people were less worried about the effect of our day to day activities have on our world, customers would buy what they were offered or travel elsewhere, no-one questioned the environmental impact, and the industry could get away with badly-optimised plans. This is no longer the case. For retailers who are looking to increase sales in a sustainable way and reduce their environmental impact then Galleria has the answer.