June 14, 2017

How retail space management unlocks new digital services and boosts efficiency

Mikko Nordlund

Principal Consultant, Tieto

Retailers are innovating new digital end-customer services at a fast pace. Especially in the Nordic grocery market, the vast majority of business is still made in brick-and-mortar stores. However, digital also helps to enable multichannel services and increase customer convenience. This blog discusses why retail micro space management and accurate store-specific product location information can be valuable assets for retailers.

Retail space – the most expensive asset in addition to workforce and inventory – plays both a strategic and a tactical role. Like the old phrase says that three most important sources of competitive advantage are 1) location, 2) location, and 3) location. While online retailers have been challenging this, the majority of retail business is still done in physical stores. This means that store locations, macro space allocation and micro space management continue to be hot topics. Let us focus on micro space i.e. planogram level. Many retailers have been using planograms as a way to centrally control and ensure that stores comply to the brand's format requirements. But detailed space information has also many other uses. HHere are three examples.

1. Product location services for customers

Retailers with accurate store specific planogram information can use this information to develop new services for customers. Think about a customer who prepares her/his shopping list with a mobile service. By applying the store-specific planograms and exact product location information, shopping lists could be organized in the same order as goods are in store. And for customers in store it would be easy to guide them to the product they are looking for. While this might be a convenience factor for consumers, it can also help retailer to increase its sales by making it easier to find items.

2. Optimized multichannel picking

When grocery companies expand to eCommerce, picking is usually done in stores. Many retail companies have found that picking takes a lot of resources and prices paid by customers do not cover the actual expenses. Product location information can be used to optimize picking routes and eliminate excess walking related to searching for products.

3. Improved shelf replenishment efficiency

Many stores that lack location information have to frequently move pallets and roller cages back and forth between aisles - or alternatively, employees spend a lot of time in the back room to sort the goods into the right order. By using the planogram information, items could be picked from the distribution center in the same order they are put on shelf, eliminating the need to move goods around in stores. Although this might mean that picking in distribution centers becomes a bit slower, it will save time from hundreds or thousands of stores, so usually the business case is very lucrative. Customers also benefit because there are less moving pallets and roller cages between the aisles disrupting shopping.

In addition, the exact planogram information could be used in planning replenishment quantities. Best practice is to plan replenishment quantities so that they fit right on the shelf. This allows retailers to eliminate the use of store back rooms, which further improves labor efficiency and increases on-shelf-availability.

Key takeaway                                                                       

Retail space information has many other uses in addition to guiding visual merchandising in the stores. And using generic planograms is not good enough to unleash all the potential benefits of product location information.

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