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How to Reduce Environmental Impact with an Optimized Merchandising Strategy

By Mark Gibson, mark.gibson@galleria-rts.com

In the rush to match rising customer expectations on environmental issues, retailers’ environmental impact has been under increased scrutiny both from pressure groups and new legislation designed to reduce environmental damage from pollution, noise and development.

Many retailers have been quick to announce a host of green initiatives in a bid to enhance their corporate social responsibility programs. Most of these initiatives have been of a type that customers can readily understand, such as utilizing trucks that are more fuel efficient through improved aerodynamics and journey planning, transferring road freight to the railway and encouraging customers to adopt reusable bags.

While these initiatives make for good headlines, the actual environmental benefit from many of these programs has been fairly limited. This in turn is leading to further pressure from groups and threats of legislation being imposed. However, there is another environmental angle that has been largely overlooked -- store space and assortments. Delivering the right product to the right stores in the appropriate quantities delivers significant and positive environmental benefits as well as significantly enhanced sales and customer satisfaction.

The ‘average’ store
Traditionally retailers have tried to pack as many different products into their stores without giving consideration to what customers actually buy or the store space available to merchandise those products. Under pressure to deliver ever increasing sales and accommodate new products, many have simply adopted a ‘one size fits all’ approach to store space and assortment planning. This means that all stores carry the same assortment regardless of the space available or the local demand for those products.

Stores vary for a variety of reasons including physical size, floor layout, fixture type and size, consumer demand patterns, local variation and more. No two stores will be truly identical or even average. A retailer trying to adopt a one size fits all policy for its stores will run into a number of problems and issues including wrong products, wastage, poor customer satisfaction and lost sales to competitors. This not only affects a retailer’s bottom line, but and can also lead to increased wastage in landfills and unnecessary travel to deliver products.

How to optimize assortment and space
Because there is no such thing as an average store, synchronization and optimization of assortment and space planning is an essential move towards reducing the environmental impact of retail stores. It allows retailers to create localized customer-centric merchandising plans that ensure the right products will be present at the right time and in the right capacity in every store.

To achieve the benefits of optimization, retailers need to perform space and assortment planning processes at a store-specific level to create operational customer-centric merchandise plans. To do this, retailers can implement an automated solution in which individual store data on fixtures and fittings, type, space etc. is fed into a demand intelligence layer -- the common repository for all data required to calculate the assortments and space allocations. By knowing each individual store’s details, store-specific merchandising plans can then be generated allowing the retailer to move away from a ‘one size fits all’ approach.

With assortment and space planning information combined, retailers have a clear understanding of how every product in every assortment is consuming space and how they should be merchandised in each store. The solution understands how many units a particular item sells per week, how many facings it requires and the exact amount of space it will consume in each store. This enables the retailer to allocate space to the best performing products and eliminate those that merely take up space.

The realization of environmental and customer benefits
Optimized merchandise plans result in significant environmental, sales and customer satisfaction benefits including:

  • Greater availability: Recently there has been a lot of discussion about food miles -- how far food and other goods travel to get to stores. However, rarely mentioned are customer miles -- the distance a customer travels from their home or business to a store to purchase goods. Customers visiting a store expecting to find a specific product will not have to travel to other stores if it is on display every time. One stop shopping reduces customer miles, enhances customer loyalty and increases the lifetime value of the customer.
  • Reduced wastage: Store-specific planning greatly increases the match between what local customers want and what is on the shelf, increasing stock turns and therefore reducing waste. Less waste means less perishable goods ending up in landfill and fewer truck miles returning unwanted hard goods to distribution centers across the country.
  • Making every shelf inch count: Retailers are beginning to talk about the carbon footprint not only of stores and products but also of display space. Optimizing assortment and space naturally makes the utilization of finite space in each store more efficient. Retailers in challenging economic times will appreciate the benefits that can be achieved in optimizing existing stores rather than relying on continual store expansions to grow the business. This means fewer controversial and expensive planning applications and a reduction in pollution attributed to building new stores.
  • More efficient deliveries: With efficient assortment and space planning, trucks only carry what is needed. The recent fuel price hike has once again highlighted our dependence on oil for transportation. With a typical truck only managing 8-10 miles per gallon, it does not make economic or environmental sense to ship products to stores whose customers don’t want them. It’s not only a waste of our natural resources but also a waste of money that will only hurt the business’ bottom line and keep prices high for customers.
  •  Increases sales and customer satisfaction: Retailers who have implemented automated solutions have seen a significant increase in sales - sometimes more than 20 percent in categories. Coupled with a reduction is wastage of more than 8 percent, it’s clear to see how quickly the investment in a solution can pay for itself.

The Future
In a previous era where transportation was inexpensive and people were less worried about the effect that day to day activities have on our world, customers would buy what they were offered or travel elsewhere. No one questioned the environmental impact and the industry could get away with poorly optimized plans. This is no longer the case. For retailers who are looking to increase sales in a sustainable way and reduce their environmental impact, automated customer-centric merchandise plans are the answer.

Mark Gibson is the global marketing manager for Galleria (galleria-rts.com) and has more than eight years of industry experience. He can be reached at mark.gibson@galleria-rts.com.

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