ASSORTMENT PLANNING
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Best Ways to Fix Poor Planogram Compliance
The retail/CPG industry has a compliance problem. That isn’t news.
So why does so much of the talk focus on measuring compliance
in the stores? At some point, the focus has to shift to solving the
compliance conundrum over the long haul. To maximize profitability,
sustainable compliance is what the industry should be striving for
throughout a planogram’s lifecycle.
There are significant advantages to taking a sustainable compliance approach. A benchmark study from the National Association of Retail Marketing Services (NARMS) found that retailers who achieve compliance can realize a 7.8% increase in annual sales - that translates to $3.8 million for a 200-store chain - and an 8.1% lift in profit. While that data may be 10 years old, retailers today are finding they can still achieve similar gains by addressing compliance over the long term.
According to the ISI Sharegroup, the total cost of non-compliance is approximately 1% of gross product sales in the industry, which translates to a lost sales opportunity of between $10 billion and $15 billion in the food, drug and mass merchandising channels. Yet standing in the way are some very difficult-to-control factors that can impact a category’s compliance over time. Shoppers, stockers or competing manufacturer reps can all shift items around in an correctly-set planogram, quickly driving the shelf out of compliance. As time goes on, this continuous movement puts the shelf further out of compliance to the planogram - often by as much as 10% per week.
The hard truth is there is no magic compliance pill. Significant challenges exist throughout the merchandising process, from headquarters to the store, from the store the shelf, and even from shelf to shelf within a category in the store. There are four frustrating factors that are common denominators when stores can’t seem to get - and keep - their stores compliant:
- Inaccurate and/or incomplete dimensional data
- Poor store mapping
- Out of stocks - including misstocks and face-overs
- Budget constraints.
The good news is that retailers have the resources available to solve the sustainable compliance challenges they face by taking a more systemic approach to recapturing some of those lost sales. Here are the best ways to fix poor planogram compliance:
Improve Dimensional Data
In the planning stage, one of the biggest barriers for category managers at headquarters in creating effective planograms is inaccurate or incomplete dimensional data. Planograms being built using wrong data dimensions quickly go awry, resulting in space being left on the shelf unused or items simply not fitting in the dedicated shelf space. And once the planogram lands at the store, the staff may take matters into their own hands quite simply because the planogram doesn’t work for their store. That further complicates the compliance conundrum.
There are several reasons dimensions may be wrong - missing items, poor measurement processes, old measurements, or a lack of internal systems. In addition, we find retail chains that try to generate this data internally are often overwhelmed by the number of new products that hit the shelves each year. According to Symphony IRI, more than 150,000 new items were introduced by CPG manufacturers in 2010 - with 96% of those being line extensions. So effective merchandising starts with accurate data as the foundation for planogram development.
Empower Merchandising Teams
Another complicating factor for effective merchandising is versioning that takes into account the large number of store and shelf layouts in the field and incorporates timely feedback from the stores. As versions of the original planogram are created, timely feedback on the unique conditions at each store is critical to ensure the planograms can be implemented correctly.
Between the explosion of new SKU data and versioning challenges, planogram development even for retailers with the deepest internal resources can quickly become a nightmare. That’s why retailers need to get out of the product data and versioning business, and get back to letting merchandising teams focus on the big picture. Expert analysts from third parties can be tapped to build accurate, effective planograms using comprehensive, up-to-date dimensional data, with versions that can be adjusted quickly based on local store feedback. This approach can save retailers up to 60% of the time they previously spent developing planograms. Merchandising managers could implement category resets more frequently and better match assortments to consumer preferences - recapturing some of those long lost sales.
Employ Shelf-Edge Solutions
Effective planning only accomplishes so much. Even if the most effective planogram is developed, it still runs the risk of being derailed in the transition from headquarters to the store. Why? It comes down to the human factor.
Forrester estimates that labor costs use up between 10 and 13.5% of a store’s revenue, even with the ongoing contraction in staffing we’ve seen throughout the industry. Yet new product introductions in a 1,000-store chain can require store associates to execute 700 million intricate tasks each year to stay in compliance. Simply put, new product introductions, promotions and store resets can quickly engulf a store’s labor budget, making it more and more difficult to bring a store into compliance - let alone keep it in compliance over the long haul.
That’s why the emergence of shelf-edge merchandising solutions - such as visually intuitive shelf strips, reset strips, shelf tags and back tags - are so important in helping store personnel to set shelves quickly and accurately, while also preventing out of stocks. This visual-based approach to stocking can reduce lost sales due to out of stocks by as much as 65%, and decrease shelf reset and new store opening time by as much as 60%.
Retailers today know that they have to go beyond the planograms to achieve sustainable compliance in order to win more returning shoppers and achieve a larger share of the market basket. By taking a sustainable compliance approach, retailers can successfully tackle some of their toughest issues - labor costs, improving communications between corporate and the store, and reducing stock mishaps at the shelf. They now realize that sustainable compliance is possible through more accurate dimensional data and well-designed planogram development and image merchandising solutions. More importantly, they also realize it is essential to establishing and extending their competitive advantage.
This article was provided by Greg Gates, Vice President of Image Merchandising Solutions for Gladson, the leading provider of syndicated consumer package goods (CPG) services for manufacturers, retailers, wholesalers and brokers. For more information: www.gladson.com.
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