How Planogram Compliance can Optimize Retail Store?

Retailers are petrified with the recent decline in foot traffic at brick-and-mortar stores. The closure of thousands of retail stores from established brands such as Payless, Radioshack, and Kmart, witnessed in this decade, adds to their fear. In this state of panic, CPG firms have abandoned the basics of retail merchandising over intense efforts to digitize their businesses. Undeniably, an online presence is essential but forgetting retail basics causes further damage. More than ever, effective implementation of fundamental principles such as Planogram Compliance is necessary for retail success amongst millennials and Gen Z.

“67% of brand decisions are made in-store, which highlights the significant effect that the store, aisle, and shelf have on a shopper’s decision.” -Maria Georgiou, Shelf and Assortment Director, Nielsen Europe

A Bonafide Statement – Facts never lie! Another interesting fact, >60% purchase decisions are made at the point of sale. It shows that visibility, presentation, and a calculated rotational plan of products is vital for motivating sales. All of these placement decisions are made through a planogram. An effective planogram creates a substantial impact on customers, driving them towards purchasing the product. This impact emphasizes the productivity from planogram compliance and loss from non-compliance.

This article aims to understand the planogram; its compliance, the importance of POG automation for retail success, and the eventual benefits.

What is a Planogram?

The basic definition states Planogram as a visual representation of product placement within a store to maximize sales and minimize wasted space. It is created by a store manager or a member of the advertising/marketing/sales team. Earlier, planograms circulated as schematic diagrams, but lately, they are managed digitally on electronic devices, thanks to SaaS-based applications.

Before a planogram creation, thorough shopper research must be done. CPG companies are responsible for categorizing their products and analyzing the current market trends. An insight into how shoppers shop in that category is vital in creating an effective planogram. Marketing or Market Research teams should be keen at every minute detail. A small mishap can incur substantial losses.

To enunciate, let us take the example of “Project Impact,” a 2009 project from Walmart. The project’s primary goal was to increase space in superstores and improve the overall shopping experience. To achieve this goal, Walmart removed 10% of SKUs, approximately 15,000 SKUs, from select superstores at prime locations. Products such as Jam and Jellies, which they found to be the reason behind cluttered stores, were part of this removal.

As forecasted by Walmart’s research team, the changed did affect shopper experience positively. The management was happy with the change, and the project deemed a success. However, they failed to pay attention to the slow decline in sales. A decision that soon turned into a disaster. Over the next two years, sales declined drastically at these superstores. By the time Walmart management realized their blunder, losses had racked up to $2 billion. A huge loss when compared to their competitors, which brought “Project Impact” to its end.

Upon investigation, they found that Walmart’s research team neglected the exclusive nature of these products. Yes, it was just Jam and Jelly, but many shoppers came to these stores for buying them. By removing these products, frustration levels of shoppers increased as they had to go to other stores only to buy jelly. So, instead of traveling for one product, they started grocery shopping at Walmart’s competitors. This shopper behavior resulted in low sales of other SKUs and an overall loss for the store.

Moral of the story: Do proper research before changing planograms or creating new ones. While optimizing store/shelf space and concentrating on shopper experience are essential, taking decisions without an in-depth analysis of product performance should be evaded.

Understanding Planogram Compliance

Cambridge Dictionary defines ‘Compliance’ as: “the act of obeying an order, rule, or request.” The term Planogram compliance refers to the in-store retail execution of the pre-defined store/product planogram layouts. The main aim of planogram compliance is to ensure that every retail store is optimized to sell the offered products. Retailers and shoppers can easily find products when stores are compliant.

With that said, let us look at the 3 Key Benefits of Planogram Compliance:

Avoid out of stock:

Exhausted inventory, commonly known as Out of stock (OOS), is caused by inconsistent shelf replenishment. Research from Grocery Manufacturers of America attributes 70-90% out of stock to poor shelf replenishment practices. An empty shelf does not necessarily mean a lack of inventory at the store. To negate this situation, retail operations should include automated software that detects non-compliance of planograms. This change lets retailers guide their store and field reps to the relevant shelves.

Increase in Revenue:

50% of the planogram’s design belongs to successful brands/SKUs and remaining space for new or low margin products. Most often than not, compliant stores make it easier for auditors to assess the performance of a brand/SKUs. After analyzing the product placement and shelf optimization’s impact on shopper’s behavior, merchandise owners can deduct strategies to capitalize on sales opportunities.

Maximize Space:

Irrespective of affluent retail space and corresponding rental expenses, maximizing the use of space leads to lean, cost-effective business. Planograms help merchandizers stay organized and understand the purpose of store space. Besides, planograms support effective inventory management.

The Underlying Problem

Imagine a new product launch; the retailer has to protect the share of the shelf, build basket size, rationalize SKU’s and simplify the shopping experience. It calls for a planogram reset which demands time and effort. For each product, CPG companies invest many resources in developing product placement strategies for prominent display and shelf-space optimization.

Nonetheless, they often fail to analyze the execution of these strategies at the store level. Without a doubt, planogram compliance is challenging on a daily basis, but there can be no excuses. According to the Category Management Association, 28% of items do not meet planogram placement requirements. This failure leads to shoppers choosing other stores or competitors.

The Retail Solution For Continued Success

Into the future, if a retail firm has to minimize losses and gain profits, they have to embed planogram compliance and retail execution software into their business immediately.

Let us emphasize this need with P&G’s experience at Walmart. A few years ago, before P&G implemented automated software into its system, Walmart expected 4500 customized individual store planograms. A horrendous task which needs 57 man weeks that makes no sense. They had to change their strategy. So they leveraged technology and reduced the time to approximately six weeks. Though software helped them tremendously in speeding up the process, they needed internal data such as store architecture and product movement. This incident occurred 5-6 years ago.

Moral of the story:

Evolved retail execution software automates the entire retail process and makes it seamless. They help in faster audits to ensure compliance through photo & video capture, track data, provide valuable suggestions through user-friendly dashboards, and customizable KPIs. They can also track field reps, their productivity, and the utilization of their work-time. Firms can analyze planogram patterns, results, compliance, and make changes in minutes.

A failure to adapt to this new retail ecosystem dwindles retail productivity. Quick decision making is essential to satiate the instant gratification mentality of this consumption generation. However, can a firm take quick decisions with inconsistent data?

As data still reigns as the King, automate the POG compliance today and access data faster than ever to make quick but efficient decisions. This change is the only way to stay relevant and prevalent in the upcoming decade & beyond.