Shelf-space elasticity is 17%

The definition of shelf-space-elasticity is the ratio of additional sales to additional space allocated in retail settings.

Based on a meta-analysis (Elsend, Journal of Retailing, May 2013) of 1,268 estimates of shelf space elasticities, the author found that:

1. The average observed shelf space elasticity is .17, which varies across product categories, with the lowest estimates for commodities, followed by staples, and the highest estimates for impulse buys.
2. Store size moderates the effect of product characteristics on shelf space elasticity: in large stores, the difference between elasticities for brand versus category is greater than in small stores.
3. Shelf space increases results in greater elasticity estimates than shelf space reduction, a finding that emphasizes the application of shelf space variation as a useful marketing tool.

The author does not explicitly state this, but one assumes that the findings apply ‘within reason’. That is; if you increase shelf space allocation by 10%, sales will increase (on average) by 17% - up to a point.

Also please note this does not mean that sales will increase from 10% to 17% - it means that sales will increase by a factor of 17% (and not by 17%).

Making big things happen with a litte bit of attitude

This article by Moonyeen Price was published in the August 2012 Issue of the National Newsagent (magazine.)

“Attitude is a little thing that makes a big difference” (Winston Churchill.)

My dad was a general in the South African Army and faced many situations where he had to make split-second, life-and-death decisions. Usually there was no choice; they had to do what they had to do to stay alive.  He never allowed himself to think that something was too big, wouldn’t work, or that he could not do it.

To stay alive you have to take those decisions; and the same applies in our newsagencies today.

Martin and Mary from Quakers Hill Newsagency decided to put themselves out there and learn how they can create a better customer experience. Martin was somewhat upset at first when Mary nominated their newsagency for News Limited’s NewsPartners Retail Remedy program because they were so busy, having taken an additional territory not so long ago.

Soon he got into the swing of things and found himself still in the shop at 2am helping with the tiling. Having decided to stretch the budget by doing most of the work themselves, they somehow managed to find the time. What looked impossible at first became possible by simply chipping away at the tasks one after the other.

So, what did they do?

• They communicated their proposition clearly to their customers by painting the outside half of the shop front post-office red and the other part newspaper blue.

• Changed the cash desk to make it easier to serve their customers and also to promote more lollies and impulse items. 

• The new newspaper stand was relocated to the left of the store in order to expose the newspaper customers to more touch points and products.

• The landing space opened up and customers are not pressured in making quick decisions because of the crowded space they have to buy in. 

• The chips were moved closer to the cash desk to consolidate confectionery.

• The red post office theme was extended on the left hand wall to the back of the shop (visually connecting the outside with the inside) and a red rear wall to draw the customer’s eye into the shop.

• Martin extended the magazine shelves in order to consolidate all titles in one location and reduce the space required. This made it easier for customers to shop and to expose them to more titles.

• A space opened against the one wall to merchandise all Excel books open faced- easier shopping than the traditional spinners it was merchandise on.

• The stationery category was relayed according to GNS planograms.

• Mary involved her suppliers for assistance and relayed the pen category and also created an attractive paper display at the back of the store. 

• A gift area opened up next to the post office area and boosted toy sales that way by capturing customers waiting to pick up a parcel.

Results

Although it has been only a month after completion, they had received extremely positive feedback from customers and early indicators are very positive.

Newsagent Mag

(Month on Month)                

• Cards +4%

• Magazines +7%

• Stationery +1%

• Confectionery - 6%

• Books+21%

• Toys +20%

Most importantly, Martin and Mary re-discovered energy and passion for the job. Thus begins the virtuous circle. They are already planning more changes and they have some grand ideas.

Revitalising Factor +200%

Mary said she could not even remember the old shop, and looking back at the old pictures, said: “I can’t believe the shop looked like that. News Limited really made a difference to the business.’

Your Reward

Apologies once again for the numerous re-posts. I have been on the receiving end of those before and now I know why: Feedburner going nuts.

Your reward is 20 minutes with Neil Gaiman. I promise it is worth it.

50:50

Retailing is always said to be 50:50 art & science.

Last week I wrote about metrics – and the importance of it. But metrics usually only tell what happened in the past and facilitates decision making based on the ceteris paribus assumption.

This week is about the other half - the diametric opposite of ‘metrics’.

The ART of retail is the ability to tell stories – on different levels.

ONE: The first and the most important is your proposition – which your ‘meta-story.’ Your proposition is your product, your offer, your brand all wrapped up into ‘something you stand for’. This is a silent statement your business makes to the market. This is what the customers perceive when they see/think/interact with your business.

If this story is not clear, customers don’t care. If this story is not interesting/relevant/different – they won’t re-tell your story.

TWO: Visual Merchandising is about story telling. Every display tells a story. And a story is not a theme – so adding a few bales of straw and a cowboy hat does not make it a story. That is just interior decorating. (A series of 12 posts on the topic can be found HERE – or search on the site for visual merchandising for a host of others.)

Your display should communicate to the customer a message that is relevant to what the customer may need/want. Even a 2m high stack of baked beans without decorations tells a story.

THREE: Your customers’ experience (the whole journey) through your store must be a story worth sharing. This includes the presentation, but also the service, the selling and the ambience.

Especially important is your sales process. It should be Sell$mart – that is your staff should be equipped to use the principles of metaphorical selling that is based on the latest neuroscience research to help the customers relate positively the sales interaction. (A short series of posts on the topic can be found HERE.)

The retailer that sells to a customer by fulfilling an emotional need is the one that wins the game. (Functional needs must be met as well of course, but that is a given.)

In your ‘sales story’, authenticity and trust must ALWAYS be the theme; but you can wrap the story in your own plot with your own character to create engaging stories that customers want to share in.

Advertising and promotions are obvious story-telling events and opportunities.

ALL of retail is about how define and then tell your story.

If customers relate to it, you have a business. And the opposite.

Have fun – be Retail$mart^TM

Dennis

Dr Dennis Price helps retailers and their retail supply chain to (re-)capture their entrepreneurial mojo with the right skills, strategies and systems to improve business performance.

(HT: This post was inspired by a twitter conversation instigated by @DoTheWoo and @DebraTemplar.)

Back to Basics Visual Merchandising

Everything you need to know about visual merchandising is in this one picture.

 

Photo credit: Marcus Gibson. The photo was taken up in the mountains, near an extinct volcano and an artisan village Batur, Indonesia. I saw it on hois Facebook page, and he was kind enough to allow me to use it.

• It tells a STORY: we are in the fresh fruit business.
• Each product (category) is distinguishable – no visual noise.
• The product is ‘framed’ by blue material cover – without unnecessary signage or lifestyle imagery that would just create visual clutter.
• Every display has a focal point.
• The displays are neat and tidy.
• The products are displayed as it would be used/ consumed.
• The products are hygienic – as well as the environment – especially considering the location.
• They use lines (pyramidal shapes) to lead your visual inspection and give your eye an easy entry point.
• They use colour to contrast adjacencies – and colour-coordination of the pots in the front row.
• They use rhythm (pineapple basket +4 others in a row, as well colours repeating)
• There is balance (6-5-6). And simply ‘join the dots’ by drawing an imaginary line from the blue pot in the middle row left to the other blue pots.
• Best use of available light.
• Accessible and convenient to shop. Most items on the top shelf (less accessible) are back-up stock, which add to the presentation, but still allows efficient service – and nothing on the floor.

Of course I am taking artistic license to say ‘everything’ you need to know. But I am sure you ‘get the picture’ (pun intended) and I would even go so far as to say that NOT having the price points there, gives the owner of the stall an opportunity to engage with customers because there wouldn’t be much else to discuss.

Good merchandising is not hard. Despite what some experts may say, it ONLY has to make sense for the customer – and move your stock. You can use your instincts and common sense to achieve this- just like this peasant in a remote Balinese village simply get these basics right.

There is a critical role that a designer plays in translating a business model into a retail experience. But keeping your merchandise organised and clean (= shoppable) isn’t that role.

Most retailers simply get lazy and allow ‘merchandise creep’ to overpower the original design by allowing a plethora of spinners, and dump-bins to be progressively bastardise any attempt at effective visual communication.

PS: To get some confidence and an insight into smart, pragmatic approach to visual merchandising, GO HERE.

They said...

This post is not about the shameless self-promotion. It is about being proud to have made a difference.

Listed below are some of the comments from agents that attended the Retail Remedy makeover:

 “I thought it was outstanding. Ed and Jo have done an excellent job and are inspired to do more.  As Ed and Dennis said, News Ltd was the catalyst to freshen up a ‘tired’ Newsagency and should be congratulated. This whole concept can help ‘fix’ a lot of similar Newsagencies at not a great expense”.

 “As we are doing a makeover of one of our walls at the moment I found it inspiring and have picked up some great ideas from Eddie and Jo. I felt that it was like walking into a complete new shop. Once again thankyou to NWN and Dennis and his wife for a great worthwhile promotion”.

 “After seeing the shop on the first presentation I didn’t think it needed that much doing to it, but when we saw the completed makeover I can’t believe the difference it made”.

 “I thought the completion was good, but they should have focused more of the magazine stand at the front of the shop, I know that they plan to do that next, but I would have done it first as it is the first thing customers see.  The rest of the makeover was great”.

 “The whole idea of getting the newsagencies together with these workshops is a brilliant initiative of News Ltd, because when we get together we network & communicate and that’s where newsagents get their strengths from.  When Dennis said to just move things around in the shop as you notice it more when you do, is great advice and we should all do more of it.  I like the changes that Ainslie made and it has made a vast improvement on the look of the shop, I will be experimenting in my shop with my stock placement in the coming weeks.”

 “I thought it was a terrific improvement and you could really notice the changes, we will be taking a lot of the ideas shown to us and using them when we move into our new shop location next month”.

 “The changes are good, the before & after is very different, we are doing the survey and I am working with my senior staff to see where we can make improvements in our own shop.”

 “The whole shop looks brighter and there are noticeable improvements, the makeover overall looks great, it shows what a little money spent in the right areas can do”.

The perfect retail employee

The ideal staff member: works hard, for free
 

Here is some research that brings some really bad news. But I will also give you some good news. (The research has been conducted by him! research and consulting.)

• Three categories (lotteries, magazines and newspapers) are in 76% of shopping baskets.
• Average visit frequency is 1.6 (with the lottery shopper at 1.9 times, the real figure is worse) and this is well below the other convenience channels
• Average items purchased = 1.75 with almost 60% buying one item only.
• 81% of shoppers were not aware of any promotional messages

Is this employee not your favourite employee too? Meet the silent salesman that works (maybe) at every newsagent for free: Mr Merchandise.

In some newsagencies, Mr Merchandise sits around all day. Are you putting him to work in your business?

Here is one simple strategy that you can use to put Mr Merchandise to work: Cross Merchandise.

That is; put associated and related products together. There are 3 types of cross merchandising that you may apply.

1. Inter-category: Associated product with some of your core products.

Example: Ribbons with gift bags

2. Intra-category: Related products paired within a category, usually slower sellers or new sellers with your hot items.

Example: The belts with the dresses

3. Trade partners: Introducing an item that is NOT usually carried with one of your core sellers.

Example: Accessories from the local Jeweller with your Bag.

Of course you know all that, right? But with thousands of possible combinations, do you exploit them all - consistently? Probably not.

The list is too long for me to generate one here, so here is better idea: Make a template for your staff to generate ideas of products that can be paired together as cross merchandising opportunities.

 
In this image you can see how I used a matrix to pair products. It would be impossible to list the thousands of SKUs, but identify the key categories as follows:

 

List the core products that sell well week in and week out. Then identify the range of products that:

• you want to promote
• have high margins but don't sell well
• are new
• don't sell well and are 'last chance'
• special offers (buy-in or tie-in stock including consignment)

Mix them up and list them along the X and the Y axes on your template. Evaluate every cell.

TIP: Do several of them and allocate one to every staff member and ask them for their ideas and views. You may just be surprised.) 

Assortment, Range, Width, Variety: Definitively

The literature throws up a wide range of definitions for some everyday terms we use in retail. 

So I did some digging to find the definitive answer. This is as good as it gets... and well worth learning and copying.

Make more money (by understanding price elasticity)

The best price to charge is the one where you make the most money (profit). There is a simple formula for this. To calculate the price elasticity, you simply have to have two data points.

How much product was sold at P1 and how much product is sold at Price 2?

Price elasticity (PE) is basically the relationship between the change in quantity and change in price. If you imagine that as a straight line between two points, it is the slope of the line.

 (PE) PE = [(Q2-Q1) / ((Q1+Q2) / 2 )] / [(P2-P1) / ((P1+P2) / 2]

Where Q1 = initial quantity; Q2 = final quantity; P1 = initial price; P2 = final price

• If the PE > 1 (i.e. positive) the product is said to be relatively elastic. An increase in price would result in a decrease in revenue, and a decrease in price would result in an increase in revenue.
• If the PE < 1 (i.e. negative) the product is relatively inelastic. An increase in price would result in an increase in revenue, and a decrease in price would result in a decrease in revenue. (Think products like petrol.) 

To illustrate, assume that:

(a) The product costs $50.

(b) You have calculated the elasticity of a product to be -2.4005.  (This would be a product that is very inelastic – meaning that this product can tolerate price increases without sacrificing quantity.)

The simple formula for the optimum price is this:

Profit maximizing RSP

price elasticity x cost

price elasticity +1

-2.4005 x $50

-2.4005 +1

$85.70 

This means that the price at which you would sell your product to make the most profit is $85.70.

(There is one technical assumption that is unlikely to make a difference, but for the sake of completenes: This calcualtion assumes that the conditions that applied (competitors, discounts, etc) when you collected your price sensitivity data continues to apply after you have set your price.)

Introduction to Retail

Retail 101

Do you actually know what the definition of ‘retailing is? Do you know the origins of the word ‘customer’? You might think I am now getting all academic on you , but trust me there is nothing more practical than what I am going share with you.

The word ‘retail’ comes from the old-French ‘retailler’ which means ‘to cut’. As such it is related to words such as ‘tailor’. In every day English, we refer to the act of ‘bulk breaking’ as a defining activity of retailing and this is absolutely true – as per definition. (We buy in bulk and ‘cut’ into smaller pieces which are sold individually to customers.)

Which brings us to the word customer, which also has equally interesting origins.

The word’s origins date back to around 1400AD. The Old French word for costume (meaning the ‘habit’ as worn by nuns and priests in 1200 AD) also became associated with someone who regularly pays a toll or a tax (hence the word ‘customs official’) in 1325AD; when, for some inexplicable reason later switched to mean ‘buyer’.

If you add the two definitions together, you get what I consider to be the very essence of retailing – in fact a very useful and revealing framework.

A few key concepts would jump out of definitional framework – and I thought it may even be a very useful sanity check for you to see how your business model stacks up against the theoretical framework. So, if I had to define retailing in plain English,

Buy in bulk, to

Break bulk

In such a way that it is useful (wanted)

By paying people

Who would habitually (repeatedly) buy it

From that simple definition you will be able to see what the core functions of any retail operation should be:

• Buying/ Sourcing


• Merchandising


• Sales & Display


• Customer Service/Loyalty

Is your business focussed on those core activities?

Is your key metric how ‘habitually’ your customers buy from you?

Do you measure how well you buy, and not only how well you sell? (Something that is standard in chains that smaller operations should consider.)

Or at the very least, now you know something that you didn’t know before.

To this day, I have NEVER met anyone who actually knew the origins of these words. Are you the exception?

 [And if you are keen to do a quick (and cost-effective introduction to Retailing as an e-course) - you will find one here for only $3 - and that is not a typo.]

PS:

Since we are talking about Retail 101 here; how about this as an interesting exercise. I teach (casually) on the Masters of Retail program at the University of Wollongong. I have set up a semi-private blog [Masters of Retail] where I have asked the students (all international) to write at least one blog post on Retail trends that will shape the future. That should result in 20 or so posts which could be interesting reading.

If you are that way inclined and interested in this sort of topic, you could register as a member, and find the blog here. When viewing the blog you will see your own profile and you will have the option to ‘follow’ the blog – or to subscribe via RSS.

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Visual Merchandising: General Tips (post 12 of 12)

Managing store presentation and merchandise display is an ongoing task that occupies floor staff constantly. (Occasionally even causing them to ignore the customer!) The following list is an important list of basic rules that apply to most retail formats:

• Use of signs inside and out.


• High GP items at eye level.


• Have an attractive, uncrowded entrance.


• Design to your traffic flow.


• Utilise end caps/ gondola ends.


• Have a display with add-on items.


• Display impulse items.


• Display ahead of the buying cycle. (Some fashion stores take this too far and are selling next season in the middle of this season.)


• Appeal to as many senses as possible.


• Colourise.


• Give the impression you have a lot of product in stock.

Visual Merchandising: Using Lighting (post 11 of 12)

• Lighting not only creates atmosphere, it also assists the retailer with minimising theft in the store. 


• Illuminate merchandise from the angle a customer will see it - usually front-on.


• Use baffles to direct lighting at merchandise - and not the customers.


• Focussed (spot) lights should never be aimed at the floor.  (In stores such as supermarkets, general fluorescent lights will shine on floors as well.)


• Be careful not to create glare - such as on jewellery showcases and deli-counters.


• Conceal source lamps (use alcoves etc.) to make general lighting invisible.


• Be aware of how type of (fluorescent) light influences the colour of merchandise.