Not A One-size-fits-all Solution: A Modern Approach To Store Clustering
Why retailers need to find a smart framework when clustering stores for better inventory planning and VM
By Sanna Van Hellemondt | Visual Merchandising and Retail Consultant and founder of RetailVM
When it comes to retailers with many - sometimes even hundreds or thousands - of brick and mortar stores, planning and merchandising them is not an easy undertaking. It requires a consistent, moving framework of collaboration between different roles and departments. Each of these departments have their own budgets, tools, workflow and performance indicators. Yet the end goal is all the same: to provide a constant flow of products to store, merchandise them properly, and sell as many of them as possible. So why can making this framework efficient prove to be so challenging? And how can it be improved?
In my experience working with retail decision makers, a lot of pain points between visual merchandising, buying and planning departments come down to the way their stores are clustered. The concept of store clustering is nothing new - it’s been with in fashion with retailers for a while now. The idea is simple in nature, but complex in depth of data and the execution required to make it work properly.
A modern approach to store clustering is all about grouping stores based on a common set of characteristics and using these groups to apply decision making logic that is as relevant as possible. But there's an additional layer of complexity when it comes to inventory management. Each product and collection needs to be tracked based on sales data - and this data requires some in-depth analysis. The whole idea is to fit this data into a series of building blocks, a framework if you will, that can be applied to stores of all sizes.
Let me explain. Again, consider a retailer with many stores. Each of these stores have different attributes and demographics. These attributes include financials such as turnover, profit and overhead to physical and geographical ones like location and size. It’s possible to group certain stores based on these characteristics in order to maximise profitability - whether that be through more efficient work practices, or enhancing KPI’s such as sell-through.
"A lot of pain points between visual merchandising, buying, and planning departments come down to the way their stores are clustered"
Now let’s consider the role of the visual merchandising department and its collaboration with the category management department. It’s the role of buying and planning to ensure the right products are picked for sale - in the right amounts. The visual merchandising department’s role is to provide and prepare category management with all the information about the available space in stores. Then they work out the best ways of visualising and presenting the assortment.
However, the problem I consistently find within many retail organisations is that the visual merchandising department spends too much time trying to come up with solutions to problems that shouldn’t have existed in the first place. I still see it to this day, simply because there is a lack of a harmonised processes between departments. They seem to lack a consistent framework, with budgets and inter-departmental politics hampering this. These problems range from buyers ordering too much or too little stock to each store, to product assortments that aren’t suitable for the available fixture space. This wastes time, causing friction and frustration.
The role of visual merchandisers, as communicators of the brand’s point of sale, is to package these products in the most appealing, effective way possible. Their roles gain an even greater complexity as they are not just responsible for moving the products to consumers, but representing the brand in the best possible light. So when that time spent is removed from their primary goal, their roles move from creative visionaries to problem solvers. Your brand loses the talent of those at the frontline of developing its style.
"The problem I consistently find within many retail organisations is that the visual merchandising department spends too much time trying to come up with solutions to problems that shouldn’t have existed in the first place"
Can clustering help visual merchandising departments?
One of the most important attributes that links visual merchandising departments between their buying and planning departments is the size of the stores. Maximising the profitability per square metre is something both departments are measured on: visual merchandising looks to mostly maximise in-store product density, whilst planning aims to minimise costs. So clustering stores based on size - also known as capacity-based clustering - is the natural choice.
Size defines a lot of things in stores. In particular, it defines the types of fixtures that products can be merchandised on, and the amount of them. This specific space is known as linear metres. That is, the actual available space on in-store fixtures that products can be placed in, or on. So it’s important to group stores into size categories not just based on their square metre of floorspace, but linear metres.
Size can be also be very misunderstood in stores. A lot of retailers forget to consider linear metres when it comes to seasonal changes in product ranges. For example if a buying team is used to ordering, let’s say 40 jackets from a Spring/Summer collection, when it comes to thicker overcoats from Autumn/Winter only 20 may fit properly on the same fixture.
"A lot of retailers forget to consider linear metres when it comes to seasonal changes in product ranges"
Linear metres is, again, the best way to measure how many products can actually fit on the fixture. It’s also important to consider that the available linear space is also defined by the way the collection is presented - whether it’s on mannequins, or densely stacked and folded.
This brings me to one of the golden rules of visual merchandising: never overfill fixtures. It can be very tempting for a store manager to put more products on fixtures, whether the intention is to simply try and sell more or to clear a full stockroom. From a customer perspective it looks messy, and it is harder to browse. Effective store clustering can prevent this from being a problem.
It’s not just getting the right amount of products to fill the right spaces in stores either - it’s also about the time it takes to execute a visual merchandising brief. Think about store teams when receiving a planogram from head office. This planogram could be the same one that’s sent to stores no matter their size or availability in fixtures. Filling these fixtures becomes troublesome as some stores may not have a specific kind of gondola or a large enough backwall. It’s therefore important to send guidelines that are relevant to the store cluster based on these attributes.
A better framework for inventory management
To understand why clustering stores based on size has such an important effect on stock management, let’s go from the front of store to the back.
Stock needs to be sent in the right amounts. When you send too much it won’t all fit and you risk underselling. You also have to increase the amount of products you mark down in sales. Too little and you run the risk of lost sales by not having the products available to purchase. Good inventory management is crucial to retail performance and clustering is deeply intertwined with it.
A retailer I used to work with didn’t group their stores on size - or cluster them based on linear metres of merchandising space. They bought their collection based on budget and didn’t consider the available space at all. They allocated the same product collections and quantity to each store.The effect was that some stores were extremely full where others looked too empty. The stores that were full of products that simply didn’t get sold led to them needing to mark down the products when it came to the end of the line in various sales. Whereas the other more empty stores simply didn’t have the required stock on hand to turn over the required sales numbers.
"Good inventory management is crucial to retail performance and clustering is deeply intertwined with it."
To find a more efficient way of sending products, I set to work on analysing the store data -looking at financials such as turnover and sell-through. My conclusions were simple: I created a formula on how to cluster the stores based on linear metres. This would be used by the planning department to specify how many products should be sent to each store, also based on their turnover and size. Then, per cluster, we redivided the space per product group based on turnover.
Many retailers already use a cluster framework to group their stores based on size - again, it’s not a new concept. However this concept can be improved and enhance the way products go from the buy to the sale.
Let’s imagine that a retailer has the following: 60 stores ranging from 100 linear metres all the way to four stores with 300 linear metres of space. They can be clustered into three groups, small, medium and large - or for posterity: A, B and C clusters. C clusters would be up to a hundred 150 linear metres, B would be up to 250 linear meters, and A all the way to the largest 300 linear metre store.
But what happens when there is a store is on the boundary between two clusters? Should you consider a store of just over 150 linear metres in the C or B group? It’s here where a more granular approach to clustering is desirable. The linear metres of fixture space need to be, well, delineated.
The next step is that the product collection should also be based on three different sizes in order to scale up or down depending on the available space and turnover. In case of extra metres you scale up to a larger collection of the most profitable group - and vice versa. By doing so, you create ‘building blocks’ that fit into each other like a puzzle. A puzzle that can fit the needs of a retailer completely based on data. Every store will receive the correct amount of merchandise to fit their situation.
This also has the added effect of improving collaboration. If both planning and buying teams can send the right amounts to each store, there are less problems for the visual merchandisers in the stores to handle. There’s also less time spent in ensuring the store teams have executed their guidelines correctly. One framework and vision can align these departments - with the sales data being the proof in the pudding.
"It’s here where a more granular approach to clustering is desirable. The linear metres of fixture space need to be, well, delineated."
Now take a step back and think about improving each store’s performance by a small margin. By ensuring the right amounts of products are sent to the right stores, you can in turn increase the amount of sell-through for each assortment. If you multiply this incremental increase by the amount of stores a retailer has, the cumulative effect is huge.
Combine this with a better framework for the visual merchandising team to perform to the best of their abilities and you end up with a smoother, better-performing retail ecosystem. No more time spent chasing problems. Less issues with store teams. It becomes more about thinking ahead, and finding bigger and better ways to communicate your brand's offer.
With the amount of tools at the disposal of retailers to more effectively analyse their store datasets - let alone improve collaboration and processes between departments - there’s simply no excuse for retailers not aligning themselves with these concepts today.
About the author
Sanna Van Hellemondt is a visual merchandising and retail consultant with over 20 years experience in helping brands align their planning and processes across multiple departments.
Sanna has worked with brands such as Bijenkorf, HEMA, Perry Sport, Better Bed, Ahold to create a concrete plan of action to improve their retail performance. From identifying modern market trends to developing and implementing new concepts, she’s given retailers the ideas and executional knowledge to improve their capacity planning and store layout. She also provides companies with inter-departmental training.
Sanna is a big advocate of visual merchandising as a fully embedded discipline throughout all layers of an organisation. You can find her on LinkedIn or simply get in touch via the form below to speak with her about how you can improve your brand’s retail processes.