Department stores using a scatter or free-flow approach to fixture location are generally .... Most retail management accounting systems are too insensitive ..... are shelf-talkers (also called shelf barkers), window banners, posters, shelf tickets,.
3
Retail Space Allocation by Francis Buttle
Introduction The aim of this monograph is to identify principles of retail space allocation (RSA), and discuss their role in sales creation. A number of considerations make an understanding of, and ability to apply, these principles more important today than before. Significant amongst these are the domination of multiples in a growing number of retail sectors, the continuing trend towards self-service, the diminishing number of retail outlets, the pressure on retail margins and shifts in shopper buying behaviour. Multiple Domination Multiple groups now dominate a large number of retail sectors — in foodstuffs, Sainsbury and Asda; in motor accessories, Halfords and MDC/Longlife; in menswear, the Foster group and in infant clothing Mothercare. A. C. Nielsen, the marketing research company, offer the data in Table I as evidence of concentration in retailing in Great Britain. Table I. Concentration in Retailing[1] Foods*
%
No. of stores
%
Co-ops
4,467
7.9
2,318
13.7
Multiples
4,789
8.5
10,631
62.7
Independents
47,334
81.6
4,001
23.6
Total
56,590
100
(£m) Turnover
Confectionery**
16,950
100
No. of stores
%
5,663
14.1
709
25
34,626
85.9
2,126
75
2,835
100
40,289
100
(£m) Turnover
%
*1981 estimates. **1979 Nielsen Survey, excluding F. W. Woolworth.
In food sales, multiples with only 8.5 per cent of food outlets won 62.7 per cent of sales; in confectionery, the figures show 14.1 per cent of outlets (the combined number of co-ops and multiples) winning 25 per cent of sales.
4 IJPD & MM 14,4
The independent retailer struggles to compete with the multiples who themselves are highly competitive. Astute RSA is able to convert patronage into sales. Retailers face a two-dimensional marketing problem — how to generate store traffic and how to increase sales per customer. The latter is particularly important in mature, static markets such as foods. Demand is stable so improvements in volume can only be generated by increasing market share at the expense of competition. Once a customer enters a store he can be exposed to the merchandising techniques detailed later. Self-service Trend The last Census of Distribution, undertaken over a decade ago, in 1971, indicated that whereas 96 per cent of multiple food stores were wholly or partially self-service, only 13 per cent of independents had opted for this style of retailing[2]. More recent data show that in 1976 there were 36,000 self-service grocers compared with 20,000 in 1966 and 7,700 in 1961[3]. This is evidence indeed of a shift to self-service in foodstuffs which has been paralleled in other sectors. The shift adds importance to the role of RSA as a sales producer. No longer is there much personal contact between the retailer and his customer. In the absence of personal salesmanship the burden of sales creation falls on the shoulders of floor layout specialists and merchandising staff. Fewer Outlets In 1971 there were 105,283 grocery outlets; in 1979 there were 62,333; by 1981 the number had fallen to 56,590 — all told, a drop of about 46 per cent over the decade. Not only had the number of independents fallen (by 41 per cent between 1971 and 1979) but so had the numbers of multiples (by 50 per cent) and co-operatives (by 41 per cent). This trend towards fewer points of sale obtaining a larger proportion of turnover is reflected in many sectors. Recent hypermarket and superstore developments, where the merchandise mix is very extensive, have contributed significantly to this reduction. Few retailers rely on outlet proliferation to produce business. Now the emphasis is on more productive, but fewer, sites. Pressure on Retail Margins The 1971 Census of Distribution's data show grocery retailers' gross margins at between 18.7 per cent and 20.7 per cent[2]. Where comparisons are drawn between selfservice and non-self-service outlets, self-service invariably obtains a lower gross margin. Obviously, this is a reflection both of the cheaper resale prices of self-service stores and of multiple buying power. In terms of net margins, food retailers now make between 2.5 and four per cent. Store planners and merchandisers have come to realise that with such low margins, the extra sales generated by good RSA are of paramount importance, particularly in lines offering larger margins. Shifts in Buying Behaviour Concomitant with the drift towards self-service has been the drift away from planned shopping. In the days of counter service, the shopper had to decide in advance what to ask for in the shop. Now, the merchandise on the shelves and in displays is used
Retail Space Allocation
5
to jog the shopper's memory — a form of surrogate shopping list. Shoppers make at least two product decisions — to buy from a category of product (e.g. fruit juice) and to buy a certain brand (e.g. Just Juice). Sometimes shoppers are brand-indifferent and will simply select the most convenient category member to come to hand, in which case only the one decision, that of category, may be made. It is apparent that today's shopper makes many decisions in store. This should not be unfavourably interpreted as laziness or inability to plan; on the contrary it may be viewed favourably. There is an ever-increasing choice of products; almost daily new products are introduced. Some 757 new fast-moving consumer goods were introduced in 1982. The shopping-list user or brand-loyal shopper does not avail himself of these new opportunities. Today's shopper is more of an explorer, more self-expressive, individualistic and impulsive; in short, he is more inner-directed[4]. A shopping list and brand loyalty are anathema to him. Engel and Blackwell the consumer behaviour experts, estimate that 38.7 per cent of department store purchases and nearly two-thirds of supermarket purchases are unplanned. They define an impulse purchase as "a buying action undertaken without a problem previously having been consciously recognised or a buying intention formed prior to entering the store"[5]. Other American research into purchases of nonfood items in supermarkets showed that 70 per cent were unplanned; 72 per cent of health and beauty aid purchases were unplanned, as were 57 per cent of purchases from the hygiene/remedies/vitamins category and 72 per cent of baby care product purchases[6]. One general estimate of the incidence of impulse purchasing, made in 1982, is that "more than 60 per cent of the time, consumers make the purchase decision in the store"[7]. Both category and brand-impulse sales are of interest to the RSA specialist. He aims to stimulate unplanned purchases from as many categories as possible, especially of these brands which provide the store with the highest margins. Research has indicated that foodstore shoppers make only 30 (UK)[8], 15 (US)[9] and 17 (NZ)[10] purchases per trip. Clearly, incremental unplanned purchases can make a significant contribution towards those criteria which are used to judge store success, for example, turnover per square foot, profitability and market share. Some categories appear to be more prone to impulse sales than others — two-thirds of wine purchases from supermarkets and one-third of books bought from bookstores have been shown to be unplanned[11]. This introductory review has identified five dimensions of change in retailing, all of which point to the significance of astute retail space allocation in the achievement of profitable trading. Objectives of Retail Space Allocation The purpose of planning RSA is to improve the financial performance of the store, be that measured by turnover per square foot (metre), sales per linear foot of shelf space, stock turn levels, market share, profit on sales or average spend per shopper. In achieving this, retailers try to: (1) Attract the optimal number of shoppers into the store. (2) Convert this traffic into a high average spend by:
6
IJPD & MM 14,4
(a) Maximising selling space; (b) Encouraging shoppers to spend a long time in store. Progressive Grocer, the American food retailer's trade magazine, reported in 1963 that every minute over half an hour that a shopper spent in store resulted in an additional 50 cents being added to the bill[12]. One wonders with inflation what that sum is now; (c) Directing traffic past as much merchandise as possible; (d) Locating "demand" categories and items (those which are purchased frequently or which are major attractions) to influence traffic movement, and (e) Particularly exposing shoppers to the most profitable items and categories. (3) Balance the need for profitable trading with a concern for the needs and wants of the shopper. Some RSA practices such as the use of long, continuous aisles, whilst smoothing traffic flows, can frustrate and alienate shoppers who need to locate the items quickly. Some stores have even rotated categories in an attempt to encourage shoppers to shop the entire floor. Today's climate of opinion is that whilst this may create exposure to more merchandise, it detracts from the shopping experience, which for many is already unsatisfactory. As well as achieving its own financial aims a successful store also satisfies the needs of customers who must feel the shopping experience is pleasurable, mildly stimulating and under their own control. Aspects of RSA There are five aspects of RSA which management can consider in pursuit of incremental sales and profit. They are: (1) Fixture location; (2) Product category location; (3) Item location within categories; (4) Off-shelf display, and (5) Point-of-sale promotional support. We shall consider each of these in turn. Fixture Location Before considering the location of fixtures such as gondolas, display racks and freezer cabinets, the floor planner must decide what proportion of floor space is to be made available for selling. Essential non-selling areas are office, despatch, bagging, toilet and storage space. Checkout, aisle and fixture area are generally considered part of the selling area. The greatest scope for enlargement of the sales area comes from reduction of the storage area, which can be achieved in a variety of ways, for example, by central warehouses carrying surplus inventory and offering on-demand deliveries or by suppliers pricing and racking merchandise immediately on arrival at the store. Most improvements in stock control and ordering procedures do help increase selling space. Fixtures which may be provided either by the retailer or his suppliers, include gondolas, racks, bins, baskets, freezers, cool cabinets, rotisseries and display cases. These
Retail Space Allocation
7
have to be located to minimise congestion, smooth the flow of traffic, allow access to merchandise and emphasise the most profitable items and categories. Left to its own devices, traffic will "wall-shop" or shop the perimeter of the store. Unless motivated to stop at interior aisles, customers will not be exposed to a large proportion of merchandise. The now conventional fixture location pattern for food retailers, the grid-iron, exposes shoppers to the greatest volume of merchandise, smoothes traffic flow and is regarded as convenient by most shoppers. One question concerns whether continuous gondolas (long lines of unbroken gondolas) or cross-over aisles are preferable. Whilst continuous gondolas permit retailers to obtain greater traffic control and more product exposure, some shoppers feel they are a time-wasting frustration. Cross-over aisles, where a shopper can move between one aisle and the next, save the customer time and energy but reduce the retailer's opportunity to control traffic and exposure. The end-display, which is located at the end of a run of gondolas, is often a productive area for impulse sales and cross-over escapes do increase the number of end-display opportunities. Variations on the grid layout do exist, but by-and-large have not proved as productive. A major criticism is that grid layouts tend towards uniformity. It is important for a shopper to enjoy the shopping experience, and, according to one observer: "The trend is definitely towards a friendly, inviting, happy shop environment, and away from cold, endless rows of sterile shelving"[6]. Experiments in the US, sponsored by the United States Department of Agriculture, compared the five different layouts for fruit and vegetable sales shown in Figure 1[13]. USDA took two measures of the effect of department layout on patronage. The first piece of information collected concerned the percentage of customers shopping in the department. Most successful in getting customers to shop the entire department (the second measure collected by USDA) was the straight gondola with split gondola opposite (type 1). A total of 76.9 per cent of customers shopped the entire department, as shown in Table II. Table II. Produce Department Patronage Layout
% of customers shopping in department
% of customers shopping entire department
1 2
87.9 90.2
3 4
81.2
5
78.3
76.9 25.2 21.1 7.5 5.6
—
Commentators on the USDA experiments concluded that "long narrow produce departments with continuous produce displays on both sides of a single aisle generally result in higher rates of exposure, complete shopping and purchases other than types of layout. In most instances, this type of layout results in a more efficient use of floor
8
IJPD & MM 14,4
Retail Space Allocation
9
space as well. The ratio of display space to aisle space is higher in straight-line departments and the cross-aisles and displays that generate very little customer traffic are eliminated"[14]. These findings were based on 7,000 customer traffic patterns collected from 35 stores. USDA then converted an experimental group offivestores to the single-aisle straightline and discovered that produce sales shifted from 7.9 to 9.3 per cent of total store sales. What is not clear from the published results is whether average total spend per shopper also rose. Nonetheless, the same fixture location rules are widely applied in other departments and throughout entire stores.
10
IJPD & MM 14,4
Retailers who have to cope with the constraints of older premises, especially those not specifically designed for self-service, are well advised to conduct shopper tracking studies to see exactly how traffic moves around the store. One such study, after which a new fixture layout was designed, resulted in an 11 per cent increase in sales[11]. Observers took notes of the route shoppers took around the store, where they stopped at a display, entered an aisle or bought a product. These were used to locate dead areas where traffic did not venture and other poorly patronised aisles. The new layout resulted in significantly more "total store shopping", and this added exposure was probably the cause of the increase in sales. Leed and German[14] recommend conducting a sample survey of between three and five per cent of customers over a two to three-week period. The sample should be selected so that it matches shopping patterns. If 20 per cent of shoppers use the store between 10 am and 12 midday, 20 per cent of the sample should be selected at this time. The route a shopper takes should be noted on a store layout sheet showing departments, categories, fixtures and other important physical features. In collecting data about traffic movements it is important to study peak times when congestion is at its worst. What appears to be an adequate space between gondola and checkout at normal times may be densely packed with frustrated customers three hours later. The positioning of entrance and exit doors is of critical importance to both customer convenience and traffic flow. A single door serving as both entry and exit can reduce congestion and enhance off-street access to the merchandise, but because they need to be large they are not always suitable in a changeable climate. Where a separate entry and exit is preferred, the space between them may become unproductive (see Figure 2). Alternative solutions are to integrate the dead area into the normal traffic flow around the store or to bring the doors closer together. Figure 2. Layout with Unproductive Space
The width of aisles is another factor bearing on the sales productivity of fixtures. If they are too wide apart, customers tend to shop on one side of the aisle only. Ideally, aisles should be wide enough to avoid congestion at peak times but not so wide
Retail Space Allocation
11
as to waste space. The minimum width for supermarkets is two trundler widths plus an allowance for overtaking, say 1.75 metres. The USDA produce display study quoted earlier found that sales per customer were reduced when aisles were congested[13]. The report recommended widths of between 7½ ft and 11½ ft depending on the volume of traffic. In self-service clothing stores, with merchandise on revolving display units, less room is needed for customers' movement and aisles tend to be narrower. Clearly, high traffic areas require wider aisles. High traffic areas are normally associated with "demand" lines such as bread, cereals and milk, items on temporary promotion, seasonal items such as Christmas decorations and assembly areas such as the checkout or lift lobby. Since demand varies between seasons, it also makes sense for aisle widths to vary. Gloves are often located alongside wider aisles as winter approaches, and casual light clothing during spring. Occasionally these variations in width will mean the intrusion of pillars into an aisle. Undecorated, a pillar may act as a psychological barrier to shoppers, discouraging them from passing down an aisle. Many retailers build displays around and on them to overcome this problem. Department stores using a scatter or free-flow approach to fixture location are generally less productive in the returns achieved per square foot of floor space. One American department store group, Gottschalk's, which has consistently out-performed major competitors assigns part of the success to a "figure eight" or "chain link" traffic pattern which creates greater flexibility and heightened merchandise visibility[15]. Lower productivity is common in outlets using counter service. Whereas counters are functional in that they serve as both cash-and-wrap and display areas, they tend to detract from smooth traffic flow and prevent shoppers being exposed to the merchandise behind the counter. There is considerable art in the design of fixtures. Gondolas are designed with variable shelf depths so that merchandise on lower shelves projects further into the aisles and is more visible; shelving which angles up and down, offering merchandise to the eye is available as is shelving made from transparent or wire material. Many of the multiple retail groups have pursued a policy of not accepting suppliers' fixtures. An examination of current practice shows this to be almost without exception true of Sainsbury and Marks and Spencer, both of whom rigorously apply this policy, despite the fact that the fixtures supplied by battery, lighter, spice and confectionery manufacturers are highly effective at converting floor space into sales. Much ingenuity has gone into designing fixtures which fit over or on to cash registers. Cigarettes, lighters, confectionery, pens are all merchandised from specially designed fixtures. Certainly, retailers are more readily persuaded to use suppliers' fixtures if the pack shape is unusual — consider the shelf extenders used to position Dylon fabric dyes alongside detergents, the L'Eggs tights and stockings merchandiser and the Shakers cocktail fixture. However, manufacturers must present compelling arguments to win over retailers given use of packs which normally sit comfortably on shelves. Product Category Location The RSA expert plans product category location with strategic, tactical and operational considerations in mind. Strategically, his aim is to draw traffic from one high demand category to the next, passing lower demand categories en route. High-demand
18
IJPD & MM 14,4
categories, such as perishables, frequently bought items and seasonal lines, are best spread throughout the store. Impulse categories benefit when located alongside demand categories and in other high traffic areas where exposure is higher. Some experimentation is clearly necessary in order to identify the major demand categories at a particular retail site. It is generally accepted that variations in the allocation of space do influence sales of a category. Space therefore may determine demand. What the RSA expert must discover is how demand ought to determine space. Some retailers believe in placing a high-demand category right next to the entrance so that any inhibitions the customer might have about spending money are quickly dispelled. This notion of buyer inertia is quite widely accepted. Should the retailer decide that it makes good strategic sense in his trading area to develop a specific department or category as a major customer attraction, this should be located so as to route customers past other merchandise. In order to encourage customers to shop both sides of an aisle, many retailers pursue a policy of locating at least one demand category in each gondola. The idea is to create a "bounce" pattern through which the shopper is exposed to more items than had he shopped one side of the aisle only. The principle is demonstrated in Figure 3.
Application of this idea also helps to reduce the undesirable effects of cross-aisles. Shoppers are more tempted to stay in an aisle if they can see another demand category just ahead. Tactical issues also bear on the category location decision; for example, it may be necessary to dispose of a slow-moving category which is accumulating costs in storage and spoilage by locating it in a high traffic area or alongside a demand category. A
Retail Space Allocation
13
second tactical consideration concerns the location of related categories, such as Iamb and mint sauce, ice cream and wafers, crackers and cheese; ideally, they should be located together since sales of one assist sales of the other. The location of frozen foods is the cause of some debate. Customers generally prefer the last aisle so that there is little chance of deterioration. Operationally retailers may find it advantageous to locate vertical freezers along the back wall for ease of rear loading and service, whereas tactically, they may prefer to locate chest freezers in central aisles so as to open up the store, giving it a feeling of spaciousness, thereby exposing shoppers to more of the merchandise. A number of operational considerations must also be borne in mind when locating other categories. Product delivered already-priced in cage pallets ready to display will need to be located near entrances so that it can be wheeled in with minimum disruption. Cool cabinets which are rear-loaded and serviced are usually positioned along the walls; food which needs to be prepared (e.g. meat cut, cheese wrapped) may also be suited to a wall location. Perishable products are better located as close to controlled environment storage as possible. If some categories of merchandise are notably more prone to theft, location where supervision is available is good operational sense. A and P, the giant American company, has made a detailed study of the relationship of store layout, merchandise assortment and category location to profitability. As a result, it has devised the PLUS store concept. All stores in the chain have identical layouts as shown in Figure 4. Each carries 800 lines including perishables, dry goods and household items. Category location hinges on the idea that fast-moving low-profit goods can be used as magnets to draw customers to areas where high profit items are located. Fresh fruit and vegetables (demand items) are located in the centre of the first aisle with biscuits (impulse items) on the right and condiments (high-profit items) on the left. As the shopper turns at the end of aisles, PLUS stores have strategically shelved high-demand items at the entrance to the next aisle, the aim being to entice the shopper down every aisle. At the end of the first aisle, for instance, the shopper is exposed to flour and sugar. When turning away from the sugar he is exposed to canned fruit and vegetables (demand items) at the top of the next aisle. The floor plan enables PLUS to economise on labour. High tonnage items like detergents and canned goods are near the stock room as are items, such as frozen foods, dairy and deli, where spoilage is a probIem[16]. Item Location The third RSA decision concerns the allocation of that finite resource, space, between brands or items within categories. In allocating space to items retailers often consider a number of factors: (1) Position (a) The order in which items appear on the shelves; (b) Whether items in a category should be displayed horizontally or vertically, and (c) At what height above floor level an item should be located. (2) Facings (a) The number of facings (pack fronts on display) allocated to an item, and (b) How to accommodate new products.
Retail Space Allocation
15
The sequencing of items on shelves can in fact be determined by the predominant direction of traffic flow. The first item in a category should be the most profitable. The largest size of egg, for example, is usually the first to be encountered. The family packs of frozen vegetables are the first in the freezer. A second consideration is the power of an item. The principle of strategically locating demand items applies also to within-category placement decisions. One study of traffic movements within a produce department revealed that demand items, such as lettuce, bananas, cabbage, celery and tomatoes, were grouped closely together so that the shopper was not exposed to much of the merchandise in the department. Redistribution of merchandise and movement of fixtures lead to more "bounce" traffic, increased exposure and improved commodity grouping[17]. The most profitable or impulse items are best located adjacent to demand items where exposure is higher. Retailers have the choice of displaying all brands in a category vertically in a single section of gondola or horizontally along the length of the gondola. Shoppers prefer the former since it simplifies brand comparisons. Retailers also benefit by being able to position the better, more profitable items of each category in locations which require the least physical effort on the shoppers' part. Eye level positions are much sought after for this reason. What is eye level for an adult is not eye level for a child; consequently, sweets and toys are often located at what would be waist level for an adult. Many manufacturers employ merchandising staff to ensure that the best on-shelf positions are obtained. Evidently, there is a conflict of interest if the retailers' most productive space is being allocated to a less profitable brand. Bottom shelves can be unproductive because shoppers don't like to bend, so a number of methods have been developed to enhance their performance. It is generally felt wiser to locate taller items on lower shelves so that the shopper doesn't have to bend quite so far. By clipping vertical wire fences to the front of the lowest shelves dumped products can be displayed, attracting the shopper to an apparent bargain. A recent innovation which makes top shelves more productive is the gravity feed. The shelves are elevated slightly at the rear so that product slides to the front, making it more accessible and visible to the shopper. A number of rules have been devised for allocating facings to competing brands. With the acceptance of new product offerings by retailers being in the region of only one in four, and these being frequently on a temporary trial basis, there is intense manufacturer competition to obtain, retain and extend shelf space for their own brands. One rule which is frequently stressed by major fast-moving consumer goods manufacturers in the trade press is that shelf space should equal market share. A brand with 20 per cent market share in a category takes 20 per cent of shelf space. Not surprisingly this is proposed by sales-orientated manufacturers of major brands as a means of retaining market share. Its rigid application means potential new rivals are kept off the shelf and that minor brands do not encroach into allocated space. For a retailer, this rule makes little sense. It takes no account of the profit margins or the direct costs associated with each item. Some retailers allocate space according to gross margin (selling price less purchase price); however this rule may be of more use in allocating space between, rather than within, categories if competitors within categories are marked up by retailers by equal amounts. Other retailers apply the concept of direct product profit (DPP). DPP is the residue when the direct costs of
16
IJPD & MM 14,4
ordering, receiving, stocking, displaying, selling and transporting a product are subtracted from its gross margin. Most retail management accounting systems are too insensitive to be able to assign these costs directly to items. However, where this is achievable, more space is allocated to brands/items with greater DPP. The thorny problem of how to assign facings to new products is resolved in a number of ways. Some manufacturers, having conducted test markets, are able to recommend facing levels. The new item problem is simpler for a line extension. New flavours of potato crisps are invariably located with existing product in single carton quantities until increased sales demand otherwise. In the case of a completely new category, facings can only be provided by creating new space or by de-stocking one or more lines from another category. Other firms tackle the new-item problem by allocating it a special display until demand has stabilised at a predictable level of trial and re-purchase. The rigid allocation of space between categories should be avoided since a store selling hardware might profit by assigning more space to, say, kitchenware at the expense of door furniture. What is the best option is largely determined by the store's patronage and its relative strengths vis-avis competition. The SLIM (Store Labour and Inventory Management) system suggests that the optimal facing level should be that obtained by one of product plus the average movement over a re-stocking period. If five cases of canned peas are bought over a singleday re-stocking period, the facing level should be enough to accommodate six cases. Retailers using the SLIM system are advised to study stock movement for at least 13 weeks, but preferably for 26 weeks, prior to fixing allocations. Shelf-space control is vital for profitability; without it, slow movers tend to take over the space of out-of-stock faster sellers. Many retailers now use shelf-edge tickets detailing the item, the agreed number of facings and its retail price, and regularly check obtained space against a master list. The advent of laser-read article numbering and associating electronic inventory and ordering systems has considerably simplified the control issue. Computer applications for shelf-space allocations are becoming more widespread. COSMOS (Computer Optimisation and Simulation Modelling for Operating Supermarkets) outputs proposals based on input data about sales volume, DPP and the relative sensitivity of items to changes in space allocations. Its outputs include recommendations on facings levels, locations of items in a category, price changes and proposals for items to be dropped. Corstjens and Doyle[18] recently reported the development of a model for the optimal allocation of retail space. In addition to SLIM and COSMOS, which they criticise for emphasising price and static margin considerations whilst largely ignoring demand issues, they refer to two other models, PROGALI, in which space is allocated in proportion to total sales, and OBM, in which the allocation is based on gross profit. All "commercial" models are seen as "highly application-orientated approaches which have sought immediate practical use in retailing on the grounds of their simplicity and ease of operation". The authors also identify two other categories of RSA model — experimental and optimisation. A number of experimental studies, some of which are reported in this article, have been undertaken by trade associations, retailers and academics. However,
Retail Space Allocation 17
the authors note that "results have been piecemeal and contradictory" and have not generally included consideration of cross elasticity issues, such as complementarity and substitution. Corstjens and Doyle favour optimisation models which incorporate both the demand and cost sides of the profit equation. The demand impact comprises the elasticity of unit sales with respect to changes in shelf space which normally exist within a store. It also involves cross-effects, both from the change affecting the relative display exposure of an item vis-à-visall others and from relationships of substitutability or complementarity between items. The two cost components weighted in the model are the various product gross margins and the incremental operating and out-of-stock costs associated with increased sales of different product assortments generated by alternative space allocations. The Corstjens/Doyle model inputs these data against constraints of store capacity, product availability and the upper and lower space allocations which the retailer will permit for reasons such as his store image or the wishes of his customers. In comparing this model with commercial and experimental models, the authors claim that the results "lead to estimated profit contributions which are significantly higher". In addition to those publicly available, there are a number of proprietory space allocation models. Fisher-Price, the toy marketers, have produced a Computer Merchandising for Profit System (CMFP)[19]. This was made available to retailers in 1978 and was based on data collected from four test stores during the previous year. The aims of CMFP are to: (1) Maximise profits per linear foot of display; (2) Maximise stock turn, minimise "stock-outs", and (3) Maximise the visual impact of the display in store. The only information required from the retailer is the size of the allocated shelving. The CMFP programme then outputs the most profitable product mix, together with recommended facings and shelf positions for each item. Soft drink marketers, Seven-up, have also devised a proprietory space allocation system called ALIGN which has applications in both single-serve and take-home segments of the market. The objective of the system is to improve the retailers' soft drink sales per square foot of floor or linear foot of shelf. It is also applied to brands other than Seven-up, and, according to one report, has achieved improved soft drink sales by between 13.7 and 22 per cent[20]. Off-shelf Display Off-shelf display serves a number of functions. Displays may be used to: (1) Meet consumer demand. During promotions, or at the height of a season, normal space allocations may be insufficent to meet demand. (2) Create consumer demand. Displays in strategic locations, such as gondola-ends or centre aisle, draw the shopper's attention. Excess stock or bulk purchases can be shifted this way. High-margin items can be specially displayed in order to enhance store profitability. The observation has been made that "merchandise
18
IJPD & MM 14,4
presentation in window and interior display is responsible for one of every four retail sales"[21]. In a comparison of the relative sales productivity of different foodstore display locations, Progressive Grocer monitored sales of canned soups. The results, which are shown in Table III, indicate that the entrance to the first aisle is the best location whilst a back-of-store gondola-end is worst[22]. Off-shelf displays may be used as secondary locations for merchandise already on-shelf or as a solus location. As secondary locations, off-shelf displays are measurably productive. Comparisons of sales of a washing product were made over a two to three-week period in four German stores. Sales off-shelf were 296 tubes. When a secondary display was added sales leapt to 827 tubes. In the UK, Sterling Health's Andrews Liver Salts brand has been similarly tested with dramatic results[6]. (3) Enhance store image. A food retailer who wants to enhance his low price market position may use dump-bins in which products are haphazardly displayed. A high-fashion clothing retailer may encourage pedestrians into his store and perhaps make "passers buy" by sophisticated window displays. (4) Control traffic movement. Displays, apart from being attractions which draw the shopper around the store and into areas, can also be positioned as barriers which control traffic movement around the regular fixtures. Table III. Effectiveness of Display Locations Location of Display On back-of-store Gondola-end Mid-aisle in front of checkouts On front-of-store Gondola-end At entrance to first aisle
Product Movement over Normal + 110 +262 + 153 + 363
In every display, five elements are employed to create the desired effect on sales. (1) Merchandise; (2) The display area, be it window bed, aisle, platform or air space; (3) Props, such as mannequins, bins, baskets, racks and floor covering; (4) Lighting, which may be primary (basic level of store illumination), secondary (for merchandising effectiveness, floods and spotlights may be used) or atmospheric (filters, coloured lamps and variations in intensity can contribute towards a desirable atmosphere), and (5) Showcards. Some special displays do not use cards at all, but many retailers would argue that displays bearing price, or motivational messages, are effective. Window displays are often used to distinguish higher priced retailers from those at the lower end of the price spectrum, but a growing number of retailers, particularly those in self-service fields, are opting for no window displays at all. Instead, window
Retail Space Allocation
19
beds and backs are ripped out so the passer-by can see the shop's interior. There are a number of advantages to this: the store can more easily communicate its trading style whilst the passer-by can gain an impression of the types of merchandise carried as well as being exposed to rather more stock. Resistance to this style is greatest in the department store world, where enclosed window displays are often used to enhance image, expose would-be shoppers to new products or introduce a new season. There is much art involved in window displays. Some retail proprietors who attempt to dress their own windows make elementary errors — using too much or too little merchandise, inappropriate props and lighting, or simply not changing a display frequently enough, with the result that it loses its special significance. Further, application of the principles of good design — balance, proportion and harmony — is essential for satisfactory window dressing. Centre-aisle and gondola-end displays are widely applied in food retailing. They are regarded as good locations for high-margin and impulse items because traffic is dense and slow moving. Indeed, centre-aisle displays actually reduce traffic speed whereas, without displays, gondola-ends would simply be unproductive. The checkout, where shoppers are stationary, is widely used for special displays of impulse items. The cut-case is a very low-cost, easy-to-assemble form of display. Manufacturers sometimes assist retailers by printing cut-lines on outer cartons so that the board can be cut without damage to the contents. Furthermore, its flexibility makes it adaptable to even small spaces whilst a palletised load of cut-cases may suit a hypermarket. Publix, the American supermarket chain, reports instances of case stack displays of product lifting sales by 32 per cent over normal. The addition of price cards to the display resulted in a sales lift of 295 per cent over normal; however, full use of point-of-sale print materials, such as header cards and banners, can produce sales up to 445 per cent over normal[23]. Dump displays are simply bins full of product. Generally, the contents are tumbled so that the shopper senses a bargain. Bins may be of metal, board or plastic, and may be designed by retailer or manufacturer. Dumps are easy to assemble and require no maintenance. They can be used to create related-item displays when located alongside pertinent on-shelf merchandise. When an aerosol non-stick spray was located in a dump display alongside eggs, sales of the spray lifted by 493 per cent[23]. A related-item display, sometimes called a "shoppe" display brings together a number of items. A dummy does not simply sport a dress, but accessories like footwear, jewellery and millinery. A display of sports gear includes not just squash rackets, but balls, bags, footwear and clothing. The principle is that sales of one item assist sales of another. In one experiment, a related item display of lettuce (a promoted item), mayonnaise and corn oil resulted in increased sales of corn oil of 94 per cent over normal. In the non-food sector, items related to bathing displayed in and around an old cast-iron bathtub caused sales of bubble bath to lift by 133 per cent and bath beads by 300 per cent over normal[23]. Formal displays, in which perfect pyramids of pristine product are placed at strategic points, are less favoured. Whilst they may be dramatic and attractive, they are unlikely to be productive in creating sales. Furthermore, they can take an age to assemble and dismantle. It is known that shoppers do not like to disturb orderly displays. Indeed,
20
I J P D & M M 14,4
many retailers even place "starter-gaps" in their on-shelf displays to suggest that the item is a faster mover than it in fact is. Creativity can enhance the productivity of formal displays, for example, a display of barbecue charcoal in a brick-patterned corrugated board setting produced a sales lift of 190 per cent over normal[23]. Single-item displays are often used if an item is bulky or exclusive, for example, garden furniture or a fur coat. Multiple-item displays, featuring a number of unrelated categories, may be used to draw attention to specials or seasonal introductions. Also, it is not uncommon for a high-margin impulse line to be added to a display of a different category. Some retailers regard displays as sources of both revenue and cost. The direct costs of designing, assembling and maintaining displays should be recovered from the sales they create, as well as a contribution being made to fixed costs and profit. An average supermarket provides about 50 special display locations. With a weekly variation in displays, there are 2,600 or so display opportunities per annum. Displays which are topical, imaginative and in good condition appear to work better than most. In an experiment designed to measure the effect of deterioration of props and pointof-sale material on the effectiveness of a display it was found that where the display was properly maintained, sales in the second week of a promotion fell by a normal 30 per cent below the first week's level; however where the display was allowed to deteriorate sales fell by a significantly higher amount[23]. The sales effects quoted so far have been based in the main on the experimental manipulation of a single variable, such as display location or shelf facings. Retailers may want to manipulate several variables simultaneously, so it is appropriate that research has been undertaken into the combined effects of RSA variables on sales. One such study involved 12 experimental treatments involving variations in price, display level and newspaper advertising across four product lines[24]. Table IV lists the treatments. Table IV. Experimental Product Treatments Treatment
Price
Display level
Advertising
1 2 3 4 5 6 7 8 9 10 11 12
Regular Reduced Cost Regular Reduced Cost Regular Reduced Cost Regular Reduced Cost
Regular Shelf Regular Shelf Regular Shelf Expanded Shelf Expanded Shelf Expanded Shelf Special Display Special Display Special Display Regular Shelf Regular Shelf Regular Shelf
None None None None None None None None None Newspaper Newspaper Newspaper
Retail Space Allocation
21
Each treatment was run twice, on each occasion for one week, and sales data were collected. The researchers found that newspaper advertising did not cause a dramatic shift in price/sales relationships; neither was it able to increase sales, at any price, in a declining product category. The effect of increasing shelf space was negligible compared with that caused by the building of a special display. Special displays at cost price increased sales by between 90 and 270 per cent depending on the product. Point-of-sale Promotional Support Point-of-sale (also called point-of-purchase) materials are of an enormous variety. There are shelf-talkers (also called shelf barkers), window banners, posters, shelf tickets, message cards, price tickets, models, balloons, three-dimensional vacuum forms, video presentations, dummy packs, window stickers, window tappers, open-closed signs, push-pull door signs, brochures, A-board signs, back-projection systems and electronic programmable signs. Point-of-sale (POS) material serves three main functions. Firstly, manufacturers use it to restate their advertising message at the point of sale, where retailers permit. Secondly, retailers use it to draw attention to a particular item or category and, thirdly, it is used to motivate purchase by stressing a product benefit or price deal. The UK market for POS is estimated by Mintel at £180 million. Manufacturers spend 70 per cent of this but the proportion is decreasing as retailers demand more control over the materials used in their outlets[25]. Half of this expenditure is in food retailing, despite the fact that only a quarter of consumer expenditure is on food, drink and tobacco. Retailers, especially multiples, are now more likely to insist that manufacturers' POS is consistent with their own in-store activities. A Tesco spokesman said: "We allow manufacturers' shelf talkers and gondola-end ticketing if they fit in with our own promotional activities"[26]. Certainly, it could be argued that supermarkets have become cardboard end paper jungles as more POS material has been added to an already excessive quantity. POS can only function effectively if not drowned in a sea of competing promotional noise. The sales power of signs can be considerable as the following evidence shows. Sales of a floor polish with only two facings lifted by 56 per cent when a shelf talker, highlighting the novelty of the product, was attached to the shelf edge. Sales of spray starch jumped by 45 per cent when a product-use suggestion was attached. A shelfedge strip drawing shoppers' attention to a manufacturer's serving suggestions lifted sales of peanut butter 49 per cent. When a retailer clipped serving suggestions to the shelf edge, sales of mayonnaise lifted 27 per cent and pickles 23 per cent. It has been reported that price signs plus serving suggestions lift sales by about 253 per cent, product use signs by 88 per cent, "as advertised" signs mentioning price by 173 per cent, signs tieing in to manufacturer promotions by 175 per cent and "new item" signs by 43 per cent[23]. POS material can be counterproductive if soiled, ripped, sun-bleached or mildewed. Furthermore, retailers must keep POS current; what purpose is served by a poster promoting a Christmas 1982 special? Many developments in POS are not tested for sales-productivity prior to being offered by POS companies to manufacturers and
22
IJPD & MM 14,4
retailers. In an environment where professional marketing is becoming the norm, it seems odd that POS purchasing decisions should be made without supportive evidence. Summary This article has attempted to identify the principles of retail space allocation (RSA), assess their value in sales creation and pinpoint the reasons why RSA is of growing significance to the profitability of both retailers and their suppliers. The reasons for RSA's growing significance were identified as: • • • • •
The continuing domination of multiple retail groups; The continuing trend towards self-service; The diminishing number of retail outlets; The pressure on retail margins, and Shifts in buyer behaviour.
The objective of RSA is seen as the improvement of retail performance as measured by indicators such as turnover per square foot or average expenditure per shopper. In pursuit of these objectives retailers attempt to generate optimal patronage, convert this traffic into a high average spend, but must balance the requirement of profitable trading with the needs and wants of the shopper. The RSA specialist manipulates five variables to this end: fixture location, productcategory location, item location within categories, off-shelf display and point-of-sale promotional support.
Retail Space Allocation
23
References 1. A. C. Nielsen Company Ltd., Food Index and Confectionery Index data cards. 2. Census of Distribution and Other Services, Business Monitor SD 23. 3. IPC Marketing Manual of the UK, 1977. 4. Shay, P., "A Consumer Revolution is Coming", Marketing, September 1978, pp. 37-42. 5. Engel, J. F. and Blackwell, R. D., Consumer Behaviour, 4th edition, Dryden Press, 1982, p. 552. 6. Hertlein, A. and Culverwell, J., "Bazaar Touch for Retail", Marketing, 10 February 1982, pp. 45-8. 7. "Marketing Goes P-O-P", Sales and Marketing Management, Vol. 128, 15 March 1982, p. 46-8. 8. Scott, R., The Female Consumer, ABP, 1976. 9. Dickson, D„ "Packaging in the Marketing Mix", Quarterly Review of Marketing, Summer 1976, pp. 7-11. 10. Buttle, F., "Local Study of Value of Specialling as Marketing Tool", Grocers' Review (New Zealand), Vol. 56 No. 11, April 1980, p. 8 + . 11. Buttle, F., "Merchandising", European Journal of Marketing, (forthcoming 1984). 12. "Colonial Study", Progressive Grocer, October 1963. 13. US Department of Agriculture, "Display Location and Customer Service", Agricultural Research Service, Marketing Research Report No. 501, 1961. 14. Leed, T. W. and German, G. A., Food Merchandising: Principles and Practice, Lebhar-Friedman Books, Chain Store Publishing, 1971, pp. 290-1. 15. "Does Gottschalk tell Macy", Chain Store Age Executive, October 1981, pp. 54-8. 16. Marton, E. J., "Use of Fast Movers as 'Magnets' to Spur High Profit Item Sales", Supermarket Business, December 1979, p. 1 + . 17. Warth, J. S., "Strategically Dispersing Best-selling Produce Increases Sales of Even Slower Moving Lines", Supermarketing, Vol. 34, August 1979, p. 38. 18. Corstjens, M. and Doyle, P., "A Model for Optimizing Retail Space Allocations", Management Science, Vol. 27 No. 7, July 1981, pp. 822-33. 19. Munday, C. J., Computer Merchandising for Profit System (CMFP) A Brief Introduction, FisherPrice Ltd., Northampton (undated). 20. Luppino, J. Jr, "Realigning Package Profitability", Beverage World, June 1982, pp. 40-3. 21. Valenti, G. M., Interior Display: A Way to Increase Sales, Small Marketers Aids, No. 111, Small Business Administration, Washington DC, February 1965, p. 2. 22. Dyer, L. W., "In-Store Research at Publix", Progressive Grocer, November 1980, pp. 98-101. 23. "The Magic of Merchandising", Progressive Grocer, November 1980, pp. 98-101. 24. Wilkinson, J. B., Paksoy, C. H. and Mason, J. B., "A Demand Analysis of Newspaper Advertising and Changes in Space Allocation", Journal of Retailing, Vol. 57 No. 2, Summer 1981, pp. 30-48. 25. Oliver, B., "Giving Silent Sellers a Say", Marketing, 21 July 1983, p. 35 + . 26. "Getting Rid of Graphic Pollution", Point-of-Sale and Screen Printing, May 1983, p. 83.
