A New Approach to Merchandising Planning

Changes in merchandising setups are necessary to build sales in today's supermarkets. Endcaps are usually changed weekly, as are displays of special promotions and aisle displays containing new products. Merchandising changes not only let shoppers know whats new or being promoted, but also make the store a more interesting place to shop.The problem, however, with retailers constantly changing displays or fine-tuning merchandise sets is the amount of labor involved in the traditional method, such as developing individual planograms manually and then implementing them throughout a large number of stores. For example, the adjustment of 50 shelf or merchandising sets in 50 stores requires 2,500 new individual planograms, unless a large number of those stores utilize almost exactly the same shelf space for the same exact product assortment, which is not likely.Doing things the traditional manual way, which now includes computer-assisted shelf planning, would require a roomful of planogrammers. Generating a plan has to be done well enough in advance to give the warehouse time to make sure that the product and any display or point-of-purchase (POP) materials are shipped to the stores. Change, while essential to sales, is also a logistical and staffing nightmare.U.K. retailer Marks & Spencer has been testing a new software-driven approach to revamp its store merchandise planning operations. Working with Marketmax, a Wakefield, Mass.-based provider of retail planning, analytics and optimization software, Marks & Spencer has automated the planning process, thereby generating optimal shelf set plans on a weekly basis. In fact, the retailer launched a roll-out of Marketmax Automation & Optimization (A&O) retail space planning software in 52 stores last December.The Marketmax software was co-developed with Marks & Spencer's food supply chain team to address the problems of store-specific assortment and space plans. The software uses "genetic" algorithms to rapidly evaluate thousands of space planning solutions and automatically produce optimized store-specific visual presentations and space plans. Marks & Spencer uses the software to produce 125 individual plans per week in each of its 52 stores & Spencer found it generally prohibitive to produce and implement numerous plan changes per week, which consequently limited its maximization of space merchandising."If you are a company that wants to maintain presentation standards in prepared foods, as Marks & Spencer focused on during the first phase of this test, then how attractively a product is displayed makes a big difference on how it sells," says Marketmax's chief technology officer, Ken Brame. The other challenge is that [planogramming] is fairly labor intensive so most chains come up with a bunch of prototype planograms, send them out to whatever stores were close to those formats, let them take the plans and try to interpret them."Using sales projections, the software has the ability to calculate the optimum number of facings for a product to calculate the number of units needed. "Then it takes the optimization of the shelves and figures out how it can do that in a way that meets the company's minimum display standards," says Brame.The software allows Marks & Spencer to customize shelf assortments for any of its 52 stores in the test. So, a mustard category plan for store number one would be different than the set for the same category in store number two, based on shelf space and configuration and local tastes in mustard products. That same category could have 52 different plans among the 52 stores. This ability was especially important to Marks & Spencer because the operator focuses on historical sales data to pinpoint local merchandise sales."We use the individual store database on cabinet fixtures and proportion the categories space allocation using forecast estimates", says Chris Head, program director, Marks & Spencer. Individual product space is calculated by comparing each store's category assortment and product forecast. Plans are then electronically delivered to stores prior to next week's trading.In addition to delivering more accurate plans that optimize space allocation and assortment, the software should impact labor costs when it is eventually implemented in the chain's 310 stores. According to Head, the operator currently uses 18 people to produce plans for 52 stores in the test using the traditional "drag and drop" method. In contrast, between 80 and 100 planogrammers would be needed to implement the program in all of the company's stores. However, by using the A&O software, Head estimates that Marks & Spencer can achieve a full chain roll-out using only about 20 planogrammers."They [Marks & Spencer] have the ability to re-planogram all the categories each week," says Brame. "In general, roughly half of their fixtures get some changes on a weekly basis. It's a massive number when you calculate the number of fixtures times the number of items over what will eventually be their total chain - it's just impossible to do manually."Not only has the software simplified store shelf changes, it has also impacted the rest of the supply chain. The speed of planning has decreased the amount of time needed to get product into stores. In fact, Head says that sales and availability are up about 0.5% as a result of placing product more consistently in its required position. He adds that the real gain in sales will come once Marks & Spencer have implemented their new replenishment algorithm.Indeed, Marks & Spencers' warehouses are being reorganized with extra picking lanes to accommodate the consistent, daily product flow, says Head. "This is being made possible by using the space information stored in Marketmax together with other information such as store line level estimates to calculate the quantities required for say, 9 a.m., 12 noon and 5 p.m. deliveries," he notes."They are taking the information that comes out of this planogram system and feeding it to their replenishment system," says Brame. "The replenishment system then knows how much to send to each store because they then have a sales forecast with the minimum stock quantities and maximum capacities. So, it automates a lot of the things that were very difficult to keep current in a replenishment system. I believe that they are working with their suppliers to pass that information back to them." Marks & Spencer can, in essence, control their inventory all the way down their supply chain.The retailer is currently doubling the size of the A&O software test. Over the next four months, the software will be implemented in 112 stores. If successful, Marks & Spencer hopes to achieve a chainwide roll-out.

A New Approach to Merchandising Planning

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