Improving Your Planogram Quality

Improving Your Planogram Quality

By J Kent Smith,Director of Consultancy, Galleria


TABLE OF CONTENTSINTRODUCTION 3

CHARACTERISTICS OF GREAT PLANOGRAMS 4

HOW DO I KNOW IF THERE IS A PROBLEM? 6

SO, HOW DO I DO THIS? 8

OPTIMIZATION CHECKLIST FOR GALLERIA USERS 10

GALLERIA CUSTOMER-CENTRIC MERCHANDISING™ 12

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The art and science of planogramming has been practised for decades. While tools have become more sophisticated and data more plentiful, many merchants struggle with the same fundamental problems their predecessors did in the 1980s and earlier. The inventory versus assortment tug-of-war remains largely unregulated. Regarding inventory, store and supply chain requirements are often loosely defined and relegated behind the category manager’s and supplier’s needs. Within assortment, the notions of space elasticity and substitutability remain just that, notions, and are potentially compromised by fees and a “better safe than sorry” mentality that reduces the impact of analytics. Further, this is all underscored by the prevailing approach of creating, at best, cluster planograms based on average data. Worse yet, there are still many retailers that only create a few size options for its stores

to choose from. This leaves the “last mile” of strategy execution solely in the hands of the in-store merchandiser who is not privy to the category strategy.

Today, evidence indicates that retailers continue to see a high level of out-of-stocks. While the average grocer now stocks 8,000 more items than it did a decade ago, its sales productivity has not improved—it has actually fallen in real terms. In addition, traditional grocers’ share of retail food sales has fallen steadily over the past decade.

There is no doubt that planograms are better than they were 10 to 20 years ago due to significant research on shopping behavior. But why, after so many years, do most retailers lack the means to create space plans that optimally balance inventory, assortment and presentation requirements? Further, in our customer-centric driven industry, why are so many retailers still treating all stores the same, with an “averages” approach to planogram production? Together, space and inventory represent massive capital investments for any retailer—so why aren’t retailers more focused on making the right investment for each category at each store?


BALANCE: The key to any system is balance. Down playing any stakeholder’s requirements will inevitably compromise the entire system. For example, if operations’ requirements are not satisfied, they will struggle to deliver the programs to standard; the consumer experience will suffer, and then so will shareholders.

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CHARACTERISTICS OF GREAT PLANOGRAMS

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RESOURCES:INVENTORY

SPACE

LABOUR

PROGRAMS:VERSIONS

FREQUENCY

STANDARDS

RESULTS:SHARE

SALES

PROFITS

OPERATORSWHAT ARE THE DELIVERABLES?

CUSTOMERSIS THE BRAND

PROPOSITION VALUABLE?

SHAREHOLDERSWHAT IS

PROFITABLE?

1. Customer-Centric: A planogram is customer-centric when the space plan, with its assortment, grouping and placement techniques, is driven by a rich understanding of how customers shop, while still recognizing that patterns and emphasis often differ store by store. America has seen significant growth in cultural, lifestyle and income diversity over the past two decades, not to mention a staggering increase in consumer choices, all of which has driven changing consumption patterns. For example, should a store that serves primarily one or two person households living in condominiums really have the same assortment and presentation approach as a store selling to large families? While having one consumer decision tree outlined is preferred to none, developing a unique tree for each materially different cluster will serve each store better. Even if each tree shares the same nodes and branches, the emphasis on each will differ—with consequences for space, relative placement and assortment. Key customer- centric planogram characteristics include:

° Clusters developed based on similar buying patterns within product categories across different stores, with top down rules applied to ensure supply chain efficiencies are maintained

° Consumer decision trees crafted into displays to make it easy for customers to find what they want, while exposing them to new, helpful alternatives and compliments

° Store-specific planograms based on truly store specific demand, space, and lead times

° Uncluttered displays and consistent placement methods

° Helpful cues such as signage and fixturing – logically used with due consideration for changes on a store basis and over time



(Continued)

There has been significant

growth in cultural, lifestyle

and income diversity over the

past two decades, which has

driven changing consumption

patterns.

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2. Operationally Sound: Strong consideration is given to empowering stores and the supply chain, with the space and information they need to implement and sustain the planogram, day in and day out. It’s not enough to simply assume that whatever the plan, it’s up to the store to set and sustain it. The most successful retailers empower its stores to succeed. This includes:

° Ensuring new items are available on time

° Clearly defined rules of engagement around planogram compliance

° Ensuring planograms are accurate and easy to interpret

° Capacities that reflect consumer demand and an efficient replenishment method

° Utilizing labor saving fixtures

3. Financially Viable: A planogram’s sales and margins relative to the inventory and space must be consistent with the financial requirements for the category. This includes:

° Measuring and weighing financial performance relative to the category objective

° Displaying merchandise in proportion to realize these intentions

° Ensuring investments in case packs and slow selling SKUs are rationalized

° Correctly sizing macro space over time, and by store

° Appropriate transition funding is in place – labor, markdown, and others

It’s not enough to simply

assume that whatever the

plan, it’s up to the store to

set and sustain it.

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HOW DO I KNOW IF THERE IS A PROBLEM?

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FIVE MOST COMMON SYMPTOMS OF POOR PLANNOGRAMMING

How do you know that there are problems in space management—that they are not as consumer-centric, operationally sound, and financially viable as possible? The clearest sign is declining overall performance, but even before these become egregious there are telling symptoms that are easy to spot. Planogram quality issues manifest themselves in stores. The five most common symptoms are:

1. Stock outs…yet lots of stock. A display that is stuffed to brim in many places yet has consistent stock outs is a clear indication of an unbalanced planogram strategy. Poor ordering practices and supply chain issues are typically assigned the blame—but when the conditions are studied in depth, a different picture often appears: the missing stock was actually available in the store. The problem was that capacity on the shelf was lacking. Also, overstuffed shelves often point to capacities insufficient to support case packs, poor promotional sell thru, and/or excess capacity for slow moving products—the display was filled as per protocol, but no one was buying the items! The result is higher inventory and labor costs.

2. Compliance Issues. As a Category Manager, Merchandiser, or District Supervisor, are you seeing lots of ‘freelancing’ on planograms? If capacities are not consistent with demand, store staff will begin to adjust them over time—intentionally or not. Tired of restocking from the backroom and seeing sales lost through stock-outs, staff often begins to morph the display to accommodate demand. The trouble is that this process is ad-hoc, imperfect and subject to the immediate conditions of the display. Over time, this

(Continued)

STOCK OUTS… YET LOTS OF STOCK

COMPLIANCE ISSUES

HIGH MARK-DOWN

COSTS

HIGH CHURN DISORGANIZATION

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process can cause strange occurrences —including items being dropped, items spreading across shelves and interrupted sequencing. By solving one problem, this process creates many others.

3. Disorganization. Does your display look like your teenager’s closet? Things thrown everywhere? While store disciplines play a role, this is often caused when stores order inventory to keep up with demand, but simultaneously have too much space for some items and not enough for others.

4. High mark-down costs. Change is a constant in retail, but the costs can be staggering. Excess capacities for slow sellers tend to be filled, driving high shelf days-of-supply. This causes retailers to have to discount deeper and longer to clear this excess inventory.

5. High churn. The above issues tend to reduce performance over time, giving the illusion that the program is dated and needs to be changed.

When these issues occur, retailers often attempt to treat the symptoms: more stock, decrees from corporate offices that stores must set the planogram exactly as designed, regional management harping on display ‘housekeeping’, special procedures for new item introductions and requests for more ‘transition assistance’ from suppliers. True, enough of these actions will reduce the symptoms, but collectively these methodologies are quite expensive, not just in terms of funds but also in terms of energy. After all, wouldn’t retailers rather all focus on selling more merchandise?

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SO, HOW DO I DO THIS?

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SO, HOW DO I DO THIS? 1. Establish the company’s space management doctrine. The doctrine should be a concise yet complete documentation of how the craft is to be carried out in the organization. It should consist of the groups’ vision, mission, principles, and objectives. The doctrine should also articulate the generalized process and provide guidance on special circumstances, reporting and metrics, and other key components of the program. Such a document serves many purposes and provides many benefits. First, it compels the organization to carefully think through the practice details and gain consensus in order to write it down. There is a certain commitment that comes with ink. Second, it becomes the center point for ongoing debate and a library for the outcomes. Third, it serves as an excellent training and refresher document for staff. Fourth, it provides certainty for stakeholders as to what to expect in an engagement and outcome. 2. Use simple, time-tested tools like checklists and scorecards. It sounds old fashion, but nothing seems to suffice quite like a simple checklist when it comes to guaranteeing that all the steps and considerations have taken place. Not only does a checklist ensure the merchandiser does not forget anything, it has the effect of establishing certainty amongst the stakeholders. This is because everyone will know what steps need be taken and what questions need to be asked, enabling all parties to prepare for and rely upon the process. Certainly, the checklist cannot and should not attempt to foresee every category’s nuances—but that doesn’t stop them from being effective. The checklist is a direct derivative of the merchandising doctrine.

3. Plumb the right data—and only the right data. Making sense of modern data warehouses has been likened to trying to drink from a fire hose. Do not succumb to the temptation to fill every single available field with data just because it is available, or because it might be “neat”. There are retailers who have expended the time and energy to fit their systems with over 40 SKU level performance metrics - of which six or less are ever used in decision making. Expend the energy first to determine which metrics are necessary to fulfill the objectives in the doctrine, then scrub the data as best as possible. Finally, educate users how to interpret the data. It is better for everyone to understand how to use six data fields rather than no one understanding how to use any of the 40.

(Continued)

Making sense of modern

data warehouses has been

likened to trying to drink

from a fire hose.

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SO, HOW DO I DO THIS? 4. Have the right tools. While most planogramming software has reached maturity—meaning the merchandiser can represent just about any approach—the majority are limited in their ability to optimize on store or even cluster basis. If one wants to leverage the diversity in the marketplace and realize a competitive advantage, each store needs to be considered separately. One needs a truly store-specific planogramming tool that optimizes each plan within the framework of blocking, assortment and other strategic elements— and does so with rapid automation.

5. Build the right plans. Some plans lend themselves to optimization and evolution; others do not. Although it seems to run against the historical view of compliance, a planogram should remain inherently flexible in design. This is not so much to let stores customize them on site, but to maximize store-specific optimization and enable assortment changes that always occur over a planogram’s lifecycle. Flexibility can be easily built into planograms by including shelf continuity, simple pegging, the ability to allocate subcategory space based on anticipated demand and changes, and by ensuring that any custom fixturing and signage is adequately flexible. Of course, Galleria’s Customer-Centric Merchandising™ solution automates this process and gives the category manager control to manage the process.

6. Get macro space right...over time. Many of the footages assigned to categories today have roots that trace back to the original store plan and category ranges that often date back many years. Further, few people ever argue for less space. However, much has changed over the years, including each category’s relative share of sales, importance to consumers and contribution to the brand. Some argue they need to get Macro Space right first. But resetting every store is extremely costly and would take years to fund. Why deny the benefits of store specific planograms for so long? Activities to get Macro and Micro space right should be taken in parallel.

7. Focus training on objectives. Many training programs (if they even exist) focus on how to use software, versus how to apply it to the business. With a doctrine established, such programs can focus on how to achieve results - with the software being an enabler and not an end to itself.

8. Measure and report. Investments in space and inventory represent two of the largest assets on any retailer’s balance sheet. The common miss in most reporting is the denominator: performance should be measured in relation to the supporting investment—that is to divide it by inventory and/ or space. Sales are one thing—but sales per foot, for example, can only express one of many major investments required to support it.

Sales are one thing—but

sales per foot, for example,

can express one of many

major investments required

to support it.

9OPTIMIZATION CHECKLIST

FOR GALLERIA USERS

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OPTIMIZATION CHECKLIST FOR GALLERIA USERS

When a retailer has made the leap to store-specific customer-centricity, planogram construction takes on a new meaning. Rather than focus on ensuring planograms are exactly the same everywhere—as if customers are—emphasis should now placed on ensuring strategic continuity with local adaption. This means designing a planogram with components that can be flexed according to demand and opportunity, all while ensuring the overarching message remains intact.

The more progressive retailers have realized the only way to achieve true customer-centricity while ensuring operational and financial requirements are met, is to planogram at the store specific level. It is critical to set inventory levels for every item based on each store’s specific merchandising space and unique demand to optimize inventory on the sales floor. By automating and optimizing inventory this way, these leading retailers can generate thousands of store-specific optimized plans to meet consumer demand and reduce out-of-stocks. Galleria’s Customer-Centric Merchandising solution is the only proven solution that can synchronize the assortment and space planning objectives–and do so with rapid automation.

Prior to importing your planogram template, performing the following best practices in your manual space management tool will result in a much more effective and functional Galleria planogram.

It is essential to set inventory

levels for every item based

on each store’s specific

merchandising space and

unique demand.

(Continued)

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Validate the following items:

Category Management:

3 Does the template follow your corporate merchandising strategy guidelines?

3 Does the planogram follow category best practice and/or latest category decision tree (CDT)?

Section:

3 Is each section segmented as desired?

3 Clean out unallocated items in the cache or cart

3 Verify base dimensions

3 Does top shelf merchandising break the gondola height?

Fixtures (Elements):

3 Are all element attributes populated? i.e. merchandisable depth vs. actual element depth, section merchandisable depth, etc.

3 Has shelf continuity been maximized?

3 Are shelf linear dimensions equal to the desired section/bay width or do they break?

3 Eliminate any floating fixtures

3 Verify all element dimensions

Products:

3 Validate all product attributes. i.e. squeeze, primary key, etc.

3 Are any discontinued products included on the template?

3 Are there any duplicate UPCs on planogram or in product feed?

3 Are there products on the planogram that do not exist in the product feed?

Positions:

3 Check for any floating positions

3 Do duplicate locations exist on the planogram, rather than multiple facings?


OPTIMIZATION CHECKLIST FOR GALLERIA USERS

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GALLERIA CUSTOMER- CENTRIC MERCHANDISING™

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GALLERIA CUSTOMER-CENTRIC MERCHANDISING™

Founded in 1989, Galleria is a market leading provider of automated customer-centric merchandising solutions to retailers and manufacturers. A pioneer in retail assortment and space planning, Galleria was the first to launch a solution able to synchronize product assortment and space planning, which automatically produces up to thousands of store-specific planograms in just seconds.

Galleria designs, develops and delivers automated customer-centric merchandising software solutions and provides consultancy services, enabling customers to optimize their inventory – ensuring they get the right product, to the right store, in the right capacity. More specifically, Galleria works with its customers to develop category strategies that satisfy merchandising needs around the world. The net result is that retailers and CPG manufacturers realize significant benefits including increased sales, enhanced margins, reduced waste/mark-down and accelerated inventory turns.

For more information on how Galleria can help your organization achieve true customer-centric merchandising, please visit www.galleria-rts.com, dial 1-866-899-0852 or e-mail us at [email protected].

CUSTOMER CENTRICITY

° Increased customer satisfaction through customer-centric assortments

° Sales increases of up to 18 percent

° Margin improvements of up to 5 percent

INVENTORY OPTIMIZATION

° Product availability increases of up to 8 percent

° Reduced inventory value of up to 15 percent

° Reduction in wastage of up to 20 percent

IMPROVED IN-STORE EXECUTION

° Improved planogram compliance by more than 95 percent

° Reduced operational costs up to 10 percent

° Reduced category space up to 10 percent

BENEFITS PROVIDED BY GALLERIA’S CUSTOMER CENTRIC MERCHANDISING SOLUTION

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Improving Your Planogram Quality

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