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Retail Space Allocation and Layout Setting (E)

Retail Category Management


What is the role of Category management in contemporary market? What is the relation of range and space management and product availability? Learn about space allocation and layout setting tactics.


Posted: Sep 2011

Space allocation and layout of product setting directly impact the product sellout, revenue, profit, stock levels, retailer working capital, stock-out, customer satisfaction, extra workload, etc. Indeed, the list of effects of good or wrong decisions to the retailer business is very long. If the slow moving product is given to large stock and shelf space, than we have situation where the working capital is frozen, due to low rate of return on investment.

Category management is a retail and supply management concept where the range of products is grouped into specific groups of products of similar characteristics. Category management concept was developed at the end of 80s of 20th century in the developed retail markets. Category management is among the most advanced business tools for business results improvement.

Furthermore, this produces the opportunity cost, since some more profitable products could have been sold with same resources. Finally, huge stock of low selling product can create obsolete product and write off. Opposite, if we give small space to fast selling product than we do not utilize the product strength. The shelving requires additional effort through frequent filling of small quantities. The stock out is more frequent. The customer dissatisfaction as well.

Retailers are having benefits from working with their suppliers and executing the category management. The supplier possesses category expertise, since they know their product very well. The suppliers can give additional retail space management expertise. They can offer creativity and objectivity in building selling strategy to their brands. Suppliers should offer trust and credibility. The long-term involvement should bring benefits to retailers.

One of the highest values a supplier can offer to retailer is package of services that enables them to accomplish their category goals, while alleviating a substantial portion of the work involved in managing the category.

Major retailer benefits of space management is minimizing of out-of-stock situations, thereby increasing shopper satisfaction and sales results. It leads to efficient use of labor. Space Management leads to an even sell-down throughout the category and thereby allows improved replenishment and delivery scheduling. Space management is reducing inventory investment levels through reducing of excessive inventory.

Space management principles should aim to produce appealing image of brands and retail ambient space. It should give logical brand flow and pack sequence. Merchandising should provide additional sales through stimulating the impulsive purchase. Space management should follow trends and provide the growth of products. It should provide satisfy of customer and consumer.

Retail Category ManagementContemporary space management is leveraging the science progress. It uses the state-of-the-art technology in order to process in-store actual data. It can give the best allocation methods and balance the percentage of a week’s supply by shelf within every category. This can maximize efficiency of total section,

Methods of space allocation are based on different inputs, such as:

  • Percent of a week’s supply (balance inventory to movement)

  • Percent of linear footage

  • Percent of retail sales

  • Total visual inventory (Bev. Section plus displays)

  • Buying space

  • Service frequency

  • Stocking frequency

Using a combination of inputs should develop a recommendation of the % of space per segment

Shelf Space

Several simplified models of space allocation, based on product sellout and product profitability can be found in Space Allocation Case Study.

Layout is another strong factor that affects the product performance. The layout describes the types of sets used for the product presentation. A set is the allocation and arrangement of brands and packages in the permanent space available for the specific category. The most common types of sets found in today’s retail outlets are:

  • Vertical Corporate Block Set

  • Package Set

  • Flavor Set

The type of set will directly influence the different methods used to allocate space (i.e., inventory to sales, linear footage to sales). It is critical the set type be determined prior to the development of the space management process to define the type of sales information needed.

PlanogramFinally Develop Planogram is needed for effective layout execution. The planogram is graphical representation of how the merchandising of the shelf should look like, in order to achieve the best results.

The merchandising standards ( planogram ) gives a pictorial representation of the product category. The shopper behavior information should be used to design the placement and flow of brands and packs in right way.

More space to premium products should resulting in increased profitability. The consumer satisfaction should be increased through easier shopping. The planogram should be tested on sample of outlets. If successful it should be roll out to all stores.

The category management can be a powerful tool for increasing the sales and profit through the retail space management and layout setting.

Continue Reading:

Category Management
Range and Space Management
Stock out Effects
6 Steps of Range Assortment
Space Allocation and Layout Setting
Space Allocation Case Study


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