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The ability to enhance the productivity of physical retail stores can mean the difference between stagnant profits and multimillion-dollar growth. Yet, many retailers struggle to optimise their physical space for maximum competitiveness and profitability, instead, focussing on ‘cost out’ initiatives and other traditional corporate playbooks.
By applying data-driven macro space optimisation strategies, you can unlock hidden revenue potential, enhance customer experiences, and significantly improve gross margins to deliver dollars to your bottom line.
Why does space optimisation deliver benefits so effectively? Applying data science and analytics to deeply understand space elasticity, cost and productivity drivers for each store reveals the optimal use of every inch of selling space. Applying these insights to category space planning ensures every store is meeting local customer needs, rather thana generic or one-size-fits-all approach, and each dollar of sales can be earned with lower end-to-end costs. When deployed across an entire network, the upside in productivity is remarkable.
Read on to explore the transformative impact of optimised category space allocation and how you can turn your stores into higher-performing assets delivering tens of millions of dollars more than they do today.
Retailers who take a data-driven approach to strategically allocate floor space and optimise category placement can experience sales lifts of 3-7% and gross profit improvement of 5-8%. For a retailer with annual revenue of $500 million, an 8% increase in sales translates into a potential $35 million boost while gross margin improvement could deliver $12-25 million based on your average margin. Only a few percentage points gained presents a very compelling case to optimise your space better than you do today.
The benefits continue to flow through to net margin gains. Improving space productivity leads to better inventory turnover, reduced markdowns and waste, and enhanced operational proficiency - ultimately improving the efficiency of every sales dollar earned, increasing net profitability of each store, and lifting overall network profitability by an impressive amount.
A leading APAC grocer trialled Scalene’s Space Advisor platform to quantify potential gains from macro space optimisation. Results from the test stores showed average sales uplift of c.5% and gross margin uplift of c.4%. Based on these outcomes, category-level space optimisation can create $120M p.a. in margin gain for the retailer.
In addition to driving sales and margin uplift, the retailer also saw reduced shelf rework activity and improved shelf holding capacity, further adding to efficiency benefits.
A leading office supplies and technology retailer was seeking to optimise planogram-level space allocation in existing and new stores while providing the widest, relevant range tailored to local customer needs. An overlay of operational and strategic constraints was also required. Implementation of optimised space allocations saw sales and margin uplift of +7% driven by growth in total transactions as well as basket size. The program’s success didn’t just benefit the bottom line – it enabled investment in other initiatives including improving store fitouts.
A growing APAC pharmacy chain with over 400 stores was seeking to implement space change to capture greater share of the growing beauty and wellbeing market. They turned to Space Advisor to inform space allocation decisions regarding categories to downsize and which to upsize to best meet the market opportunity for each individual store in their network. Within six months, the retailer saw average uplift of c.6% in sales and 8% in margin gain, both far exceeding the initial business case.
1. They understood the potential of their space planning team as a strategic function
2. They deployed the right insights platform to advise space managers on the optimal category space allocations for each floorplan, they didn’t rely on software that simply enables the creation of floorplans and planograms
3. They conducted pilots before rolling out to the network
4. They built workflows and established space reset programs to enable ongoing optimisation planning and cost-effective implementation of space change
By prioritising data-driven decision-making and aligning store space allocations and layouts with shopper preferences, retailers can transform their physical stores into more efficient, revenue-generating assets.
Want to know more?
We help retailers transform how their Range and Space team delivers maximum value. To learn more please get in touch at info@scalenesolutions.com.