Retail space is one of the most valuable assets for every traditional brick-and-mortar retailer but despite the ever-increasing running costs and continual footfall challenges, there are still many who fail to recognise the full potential value of an optimised Space Management function.
Written by Retail Consultant and Tessiant Associate Dave Cade, with a background in Space & Layout Planning, the purpose of this article is to highlight how the management of space has changed for retailers over the past few years.
Dave shares a number of important building blocks that can make a significant difference between a ‘satisfactory’ space function, that just operates the basics, right up to a ‘gold standard’ function that is both obsessive and progressive in optimising sales, profit and efficiencies.
What can often differentiate retailers is:
- Fully understanding the opportunities and risks of an effective (and ineffective) Space Management function for their specific business.
- The time and investment budgeted in the Space Management process.
- The level of existing resource and capability to drive change.
The prioritsation / ambition of the leadership team in addressing shortfalls and/or realising opportunities.
However, what every traditional retailer has in common, without exception, is that they all make space decisions in some shape or form. This includes:
- Determining the total retail space they have.
- Segmenting space between their different categories.
- Deciding which SKUs to sell (i.e. choice) and creating rulesets to construct planograms.
- Designing what they think is the most appropriate layout for their customer.
Each of these choices directly influence the customer experience and ultimately, business performance. No retailer gets it perfect, not necessarily becuase of poor execution, but because fully satisfying every customer in every location is nigh on impossible. However, what is possible, is the continuous review and optimisation of space to drive and support the best possible outcomes:
- Existing Customers: how do we retain them and grow basket size?
- New Customers: what will attract them and ensure a great first experience to ensure they return?
- Lapsed Customers: why did they leave and how do we win them back to re-evaluate?
Customers are critical to the success of any business, but ultimately, it’s the actions taken to satisfy their needs that make the difference. Optimised Space Management isn’t just operational, it can be transformational.
The Evolution of Space Management in Recent Years
With rapid technological advancements, including AI and faster processing, retailers now have access to a broad range of end-to-end space management solutions. These span macro and micro space optimisation, planogram construction, store layout planning, enriched data insights and augmented category management.
In recent years, the adoption of enhanced technology has transformed space planning, enabling faster, more accurate, and tailored decision-making. Gone are the days of reliance on huge Excel spreadsheets, sluggish macros and datasheets that may as well have been a year old by the time of implementation.
Retailers embracing automation now benefit from:
- Improved sales and margins
- Lower inventory costs
- Reduced operating costs
- Enhanced customer satisfaction
There is no universal blueprint for structuring a Space Management function. Some businesses manage it in-house with third-party software, while others outsource everything. However, solutions must be fit for purpose, aligned with strategic goals, and understood as enablers rather than sole determinants of whether a function is simply ‘satisfactory’ or truly ‘gold standard’.
7 Steps to Creating the Foundations of a Successful Space Management Function
Effective Space Management is deep rooted, like the foundations of a building. Good, strong foundations enable you to create a long-lasting structure and, if required, allow you to expand later. Failure to build a solid or appropriate Space Management foundation will, most likely result in the supression of sales / profit, operational cost ineffeciencies and a poor customer experience.
To realise the full benefits of an effective function requires strong internal rigour with clear governance, robust processes and strong controls, no matter how the function is positioned within the organisation.
What follows is a selection of, and by no means exhaustive, tried and tested building blocks, which should be in place to support that robust foundation for a Space Management function.
“During my 25 years of leading successful Space Planning teams, I have experienced each of these building blocks in various guises, so fully understand the huge amount of value they hold and the significant difference they could make to the success or failure of the function” – Dave Cade.
1. Build a Space Management Strategy that aligns with other functions
Space Management has cross-functional dependencies, including supply chain, commercial, marketing, retail operations, loss prevention and property. A strategic approach for Space Management should:
- Define key objectives and desired outcomes.
- Identify challenges and areas for improvement.
- Align cross-functional strategies.
- Set clear actions to achieve long-term success.
2. Have strong governance in place with clear lines of accountability and responsibility
Across different retail businesses, the Space Planning function may report into different areas, including Strategy, Commercial, Marketing or Retail Operations. It would be divisive to say what is right or wrong. The key is to establish:
- Cross-functional collaboration and education – who does what, when and why?
- Clear accountability and responsibility across teams – who makes the decisions?
- Governance structures that support decision-making and execution – where do decisions get agreed?
3. Be obsessive with the quality of base data
The old cliche of ‘poor data in, poor data out’ remains the biggest risk in micro and macro space analysis. Poor data quality leads to poor decisions. Considerations include:
- The types of data collected (e.g. space, sales, profit, customer insights, market data).
- Appropriate data capture levels and time frame.
- Mandatory data cleansing and validation processes (i.e. checks and balances).
- Adjusting historical data for forward-looking decisions (e.g. budgeting, strategic planning).
4. Having compliance checks in place are essential
Data accuracy and process adherence are critical. Inaccurate data or deviations from processes lead to sub-optimal decisions. Compliance checks should be embedded at different process stages to promote best practices and ensure data integrity.
5. Ensure robust methodologies are in place to measure the impact of change
Measuring the impact of space and / or layout changes requires a carefully thought through approach and should not be underestimated. All too frequently this topic is wrongly assumed as straight forward yet due to the many moving parts that influence results, the measures can often be ‘tainted’, potentially leading to incorrect conclusions. Key considerations include:
- Appropriate pre and post period data comparisons.
- Ensuring a suitable selection of control stores.
- Collaboration and transparency with Finance who are often given the responsibility for measuring.
6. Set up space KPIs for effective bench-marking
Effective bench-marking requires meaningful KPIs, such as:
- Space productivity (rate of sale per unit of space).
- Space share versus sales / profit share.
- Additionally, it is as crucial to interpret the data and present relevant insights to drive informed decision-making, as opposed to just presenting a set of numbers.
7. Understand that People & Process are critical to success
Education and good training are fundamental in maintaining an effective space planning function and should be extended cross functionally to every indvidual who has an impact on the success (or failure) of the space planning process.
“Successful Space Management will give a buisness a competitive edge versus its competitors but relies on strong foundations – clear strategy, robust governance, quality data, compliance, impact measurement, KPIs, and well-trained people. Cross-functional collaboration is key, with clear accountabilites embedded into roles to maximise impact. Space Management doesn’t exist in isolation – it drives success across Supply Chain, Commercial and Marketing. A well-defined strategy aligns goals and delivers long-term value” – Dave Cade
Organisations, for different reasons, will have their own views as to what successful Space Management looks like, often through experience and results.
Some of the topics detailed within this article are sometimes percieved as complex which can often supress understanding and /or restrict constructive challenge. However, the other extreme is where everyone in the room suddenly becomes an expert!
An important step in creating and maintaining a successful Space Management function is to identify, pre-empt and manage these risks through clear engaging communication and great story telling, to ensure the value of optimised retail space is fully understood, initially bt the key decision makers.
The task is then to agree the appropriate strategies (some of which are touched on in this article) and aim for that ‘gold standard’ function!
We’d love to hear your views and experiences on this topic. If you would like to discuss your space management thoughts or challenges, please get in Touch with Tessiant Managing Partner Stuart Smith, or Associate Partner Ross Macfarlane, in the first instance.
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