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July 1992 |
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THE FOURTH DIMENSION
Getting 40 Percent More Merchandise on the Shelf Without Adding a Brick! |
by Stephen J. Alexander
President, Automotive In-Store Marketing |
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| Stephen J. Alexander |
Retail space management surely had its origins firmly rooted with the first merchant arranging the goods for sale in a defined location. Merchandising space probably transcended from bare ground, then onto a piece of cloth, followed by some sort of elevated wood planking and, in the modern era, onto either metal shelving, peg wall or vendor-supplied displays which dominate today’s in-store merchandising environment.
Over the centuries, even as the merchants developed the art of merchandising, the same problem always had to be solved: how to maximize profits within a defined physical space.
Over the same span of time, the tools available to better manage retail selling space likewise have undergone a technological metamorphosis; beginning with simply eyeballing or drawing simple diagrams in order to arrange the merchandise to fit within a given space; evolving into today’s electronic space management software programs.
While that fact is true, all such methods of arranging and rearranging products for sale in a fixed space have one common flaw. They can only improve profitability marginally because the products’ locations or mix are manipulated within or on the existing fixture. Included in this observation is full consideration for the process of moving existing shelves up or down and also adding shelving.
As the cost to acquire and maintain merchandising space came to be recognized as a powerful influence on profits, merchants first began to seek ways to figure out how to get more goods in the same existing space and still hopefully match inventory investments levels to market demand, Products were vertically stacked, put one behind the other side by side.
In absolute terms, since the beginning of merchandising, products have usually been merely rearranged or remixed by hand. The computer now enables a space manager to do the planogramming tasks faster, derive a theoretical profitability analysis, provide for the ability to quickly perform alternative “what if” analysis gross inventory improvements, consider consumer shopability patterns (if such research has been studied and inputted), communicate planogram information (plots, reports and “live” photos) to remote locations and other merchandising and space management tasks.
But now, as we prepare to leave the 20th century, retail merchants and vendors alike are now beginning to recognize that they only looked at solving part of the problem. Because of the overwhelming costs of the “real estate”, floor space, and fixtures, the imperative issue is getting more goods into less space.
With new store construction costs now costing as much as $60 per sq. ft., including site operation, retailers can no longer cling to the premise that bigger stores are better. In simple mathematical terms, reducing a 15,000-sq. ft. store, the aggregate initial savings, construction and fixturing combined, can approximate, in this example, $230,000. That’s not small change. In addition, the overall efficiency calculations need to take into consideration savings in operating costs resulting from any significant downsizing.
Parts proliferation.
Then, in the automotive aftermarket there is the never-ending problem of parts proliferation. The pressures to obtain efficient use of space in any size store become even more enormous. Questions dealing with which parts or accessories should receive increased or decreased stocking levels are constantly forced to the front for serious consideration.
The “bigger is better” store philosophy is now being critically reviewed by retailers and subsequently restated to read “smaller, more efficient stores with more profit generating products are mandatory”.
To solve space-management problems, the personal computer made possible the arrival of electronic space-management systems. Compared to life without such systems, amazing results could be obtained by skilled operators, directed by skilled merchandisers who understood the relevant issues within their industry, class of trade or category.
Space managers were able to increase profits by more efficiently dealing with such issues as out-of-stocks, reduction of overstocks and the concomitant lowering of inventory investment and better product presentations.
Still, industry after industry have convinced themselves that now that space management decisions could be made on a computer, the results would be magically optimal. Experience tells a different story.
All too often, space-management operators are undertrained and underskilled. And the results show this fact clearly. Baseless mathematical assumptions, software limitations and false conceptual thinking often lead to nothing more that “garbage in – garbage out” results.
If the operators and managers do not thoroughly understand the formulas (algorithms) and concepts built into off-the-shelf electronic space management systems, they can produce major errors masked within pretty pictures of the merchandise and endless piles of paper printouts in support of impractical, unworkable or plain erroneous conclusions.
Often, there is a wide chasm in the knowledge levels between product and marketing executives, space managers, and their operators. This translates into a major communications gap and results in, at the very least, interpretative failure. When measured in terms of wasted time, effort and lack of profit results, the initial costs alone are enormous. The future unrealized profits only continue to reinforce the errors.
In addition, the embarrassment from showing planogramming solutions filled with errors and holes can be quite damaging where a vendor-generated, space management plan is produced (in response to a retailers’ invitation to provide important brand or category space management proposals), which are then cross analyzed by the retailer against both other vendor planogram submissions as well as the retailer’s internal space management analysis.
While granting the proposition that electronic space management has gone a long way toward revolutionizing retailing in such industries as food and health and beauty aids, there is a revolution happening within that revolution with an approach that extends the power of these systems and produces profitability, facings gains and overall sales gain not heretofore available.
The revolution with a revolution is called “CUBIC™ SPACE MANAGEMENT”, a four dimensional approach that has produced up to a 17 percent increase in category or store profits—versus one to five percent gains in the hands of an experienced space-management software operator – 40 to 85 percent more goods or facings in existing retail space, up to 27 percent overall sales gains, up to 18 percents sales gains in high-profit goods within a given category and a store labor savings of 12 percent.
Vendor product managers and retail buyers, who already have too much of an adversarial relationship, are often heard to state that the results from conventional electronic space management systems boil down to a “pretty-picture” war between competing vendors and a lack of vendor understanding of the primary goal of the retailer; increase trading area versus the vendor goal of increasing brand share.
So, what is missing from the existing electronic space management capability equation that prevents vendors and retailers from obtaining optimal profit and product movement performance? To understand the answers requires knowing the inherent limitations of off-the-shelf electronic space management systems.
First, shopability knowledge – electronic systems do not possess artificial intelligence that allows for adequate consideration of the variables with respect to the consumer’s methods of shopping a product or category.
Second, sophisticated merchandising technology — space management systems alone merely move products around on existing fixturing or, at best, have been used to create very rudimentary fixturing alternatives.
Third, major profit increases – existing systems operators usually only have the experience and background to produce marginal single-digit increases in profitability as a result of product location manipulation; whether planogramming on the existing fixturing or factoring in simple fixturing that can be created on the electronic system.
Fourth, product presentation – electronic space management systems operators have not tapped the capability of incorporating sophisticated fixture design and merchandising technologies, which are crucial to creating superior product presentation along with achieving a serious reduction in labor costs.
And finally, seldom do the most skilled operators have the means to incorporate years of learned and tested in-store merchandising expertise into a two-dimensional system and get three-dimensional CUBIC™ results.
Never the less, existing electronic space management systems are an essential component of the CUBIC™ process of creating substantially improved product movement and profit performance levels. For it is on the basic capabilities of such electronic space management systems that CUBIC™ Space Management incorporates its unique techniques.
CUBIC™ Space Management is not just another technology. It is nothing short of a “sea change” in terms of what it can deliver in terms of the positive impact on product movement, profitability and improve merchandising. This improvement will produce more profits per cubic unit of measurement and enable the retailer or vendor to create substantial increases in facings or total items stocked within the same or far less space currently being allocated to the product or category.
CUBIC™ results show there is room to debate the old Will Rogers quote which said, in effect, “They aren’t making any more real estate”, because the CUBIC™ system does enable a vendor or retailer to pack ten lbs. Of product into a space that was believed to have the capacity to hold only seven lbs.
Today, astute retailers and vendors are beginning to ask some very hard questions of space management planners and operators, questions that are designed to probe the limits and depths of profit and product movement analysis. For example, such key inquiries will include:
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| "The 'bigger is better' store philosophy is now being critically reviewed by retailers and subsequently restated to read “smaller, more efficient stores with more profit generating products are mandatory.” |
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1. How do I make room for future product growth and, at the same time, put the profits now carried into substantially less space while simultaneously increasing sales and profits?
2. How can I, in existing stores, substantially increase the amount of items or facings within the same space currently assigned to a section or category?
3. Can my planners, in new stores yet to be constructed, design the building to be significantly smaller while still carrying the same amount of merchandise stocked in larger stores and produce more profits and product movement than the current levels in my larger stores?
The CUBIC™ solution provides answers and dramatic solutions to all of these questions and more. Just dealing with the problem of where to put all the new items or “flavors” of hot-selling products that seem to proliferate like supercharged rabbits cam produce much consternation. Too often the response is limited to eliminating “dogs” and thereby achieving limited success.
Some products demand more volume such as high-movement goods. Other items demand more facings and a lower inventory level than can be provided on stock shelving and pegboard such as high-profit, low movement goods. Some categories demand a mixture of both.
All existing electronic space management systems view products in a two-and –a-half dimensional manner, not a true three-dimensional as often claimed. The planograms generated show the front and the side of the product, in two dimensions, along with similar views of the gondola or peg wall. Some systems even show and “isometric” or “orthographic” third view of the merchandise on the fixture; the remaining one-half dimension.
But, all the thinking and evaluation is still only two-dimensional. As an example, consider four packages which take up one cubic foot of space, This space includes the “air” above the packages to the next overhead shelf plus the “air” behind or in front of the packages – found with pegged goods and behind shelved items. Off-the-shelf conventional space management systems calculate those four packages as occupying one cubic foot. Thus, this number drives all future erroneous profit calculations per cubic feet for that item.
Another common example of miscalculation of values occurs when another product’s size allows fitting eight packages into the same cubic foot of space previously assigned in the prior four-package example. Even though the eight packages fit into the four-package space – because the air-to-package size ratio is better – the contribution to profits from the eight-package group will still be grossly miscalculated with conventional space management programs because the product would be reported as occupying one cubic foot in both the four-package and eight-package situations.
Off-the-shelf management systems calculate a current “stock fixture” cubic foot, which can only hold four packages, as equally efficient as a CUBIC™ retrofitted fixture that packs eight packages into the same cubic foot. CUBIC™ analysis correct this “theoretical” three-dimensional miscalculation by allowing product space and the CUBIC™ profit values; i.e., profits to volume, to be ranked accurately based on a performance grid.
The same problem is three dimensionalized in facing counts. If the existing gondola has 300 packages facing the consumer and the typical presence of material amounts of valuable “air” space, CUBIC™ product locational miscalculations will through various techniques truly eliminate the maximum amount of dead air space and, on average, result in an increase in facings approaching 40 percent, or in this example 420 facings.
In fact, when comparing CUBIC™ results with some off-the-shelf systems, some systems have erroneously reported that the replanogrammed gondola has less facings than the existing original gondola planogram. This occurs because of the way in which facings are counted.
The problem occurs when the CUBIC™ refixtured planogram is cross analyzed back onto a conventional electronic space management system. In this example, CUBIC™ analysis determined that substantially more facings were possible by the elimination of certain shelves, and stacking the product using special angle devices and vertical stabilizers.
The space occupies by shelving and the existing finger spacing just below the shelves in question used a huge amount of space that could be made available for product presentation. Anew fixture configuration was designed. Three of the seven shelves were removed, enabling the retailer to display an additional 630 packages per shelf; or a total of 1,890 packages gain.
As Illustration #1 shows, conventional systems count as facings only the packages that “touch” the actual shelf, and ignore the packages that are vertically stacked above the bottom item. CUBIC™ counts every package that faces the consumer as a true facing; beginning with the bottom item touching the shelf called a “CUBIC™ Footing:. Having an erroneous space utilization calculation is compounded in three dimensional, product-to-space performance calculations and will have a material impact on miscalculating certain critical sales to inventory ratios.
In addition, by way of incorporating a sophisticated merchandising design technique directly into the proposed planogram, CUBIC™ methods allow rapid evaluation of planogramming versus refixturing alternatives.
The best way to demonstrate CUBIC™ space management techniques are the results shown in Illustration #2. Segment A shows a one-foot wide and side-view section of an existing automotive chemical gondola. Segment B shows the same area retrofitted with CUBIC™-designed angles, gravity-fed shelving, in which more than 33 percent more facings and units were added without increasing the overall height of either gondola back-wall spine or the product.
The results obtainable in this illustration become even more dramatic in Segment C. Using the same shelf retrofits and adding one additional shelf to the existing 60 ft. gondola back wall spine raises the overall height of the product four feet. Thus, for a 6 2/3 percent net height increase, facings and units are now increased 50 percent.
In the final analysis, better use of cubic space boils down to a measure of space efficiency; the ratio which compares the cubic amount of merchandise on a fixture to the cubic volume of space available. Minimizing wasted dead space is crucial to maximizing inventory to space performance as shown in Illustration #3.
This example is but one of dozens of CUBIC™ space management and refixturing techniques to increase volume and/or facings within the exact same cubic retail selling space; all utilizing a substantial amount of the original existing fixtures, thus, minimizing retrofitting costs.
With CUBIC™ Space Management, the first step is to do a traditional analysis using the retailer or vendor’s existing electronic space management software program. CUBIC™ then combines that analysis of existing data, such as stocking levels, movement, profitability, return on inventory investment (ROII), return on space, etc., with its proprietary ranking techniques designed to create profit and volume maximization, labor minimization and inventory optimalization. CUBIC™ also incorporates into the equation various other criteria set by the retailer or vendor.
Then CUBIC™ analysis is merged with vendor and retailer specific marketing and merchandising philosophies, along with carefully researched consumer purchasing habit information. The results are then implemented into a new planogram or a series of planograms. These CUBIC™ planograms are then subjected to an in-store testing process in selected stores based on geographic, demographic and store-size considerations and measured against the CUBIC™ electronic models.
PLANOGRAM EXECUTION.
The final part of the CUBIC™ equation is to decide how to execute the planogram; given the practical limitations of all existing stock fixturing, which are built to solve a theoretical “average” of unnamed and unsized products.
CUBIC™’s fourth dimension is its ability to combine existing space management system capabilities and special CUBIC™ profit and movement value assignments for products, along with a special analytical technique which incorporates original custom refixturing design and the most sophisticated merchandising design techniques in use today. Plus, the system is infinitely expandable because of the ability to continuously add new merchandising thinking and methods.
The CUBIC™ fourth dimensional results become a powerful and profitable “In-Line Marketing Strategy”, which when properly executed by retailers and vendors, creates merchandising leadership and significantly higher profits and movement with reduced labor costs. In today’s competitive retail environment, nothing short of superior performance on the “real estate” will insure survival in the 1990s and beyond.
Perhaps Lewis Carroll had CUBIC™ in mind when in his book, THROUGH THE LOOKING GLASS, he composed the Queen’s exclamation: “It takes all the running you can do to keep the same place. If you wants to get somewhere else, you must run at least twice as fast as that!”
Just the thought of adding 40 percent more merchandise, obtaining up to a 17 percent increase in category or store profits, getting up to 27 percent overall sales gains, achieving up to 18 percent sales gains in high-profit goods within a given category and lowering store labor costs 12 percent – all without adding a single brick – surely intrigues the mind.
Stephen J. Alexander is an aftermarket consultant, speaker and monthly columnist for Aftermarket Business Magazine. To learn more about other in-store merchandising and marketing issues, contact Stephen Alexander, Automotive In-Store Marketing at 239-395-9203 or e-mail him at salexander@autoinstore.com.
COPYRIGHT NOTICE:"Reprinted with permission from Aftermarket Business, July, 1992, page 40. Copyright by Advanstar Communications, Inc. Advanstar Communications, Inc. retains all rights to this material." To subscribe to Aftermarket Business, call 1-218-723-9477 or email fulfill@superfill.com.
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