Where Does Space Management Belong?

This is one of the most common questions I am asked by my clients.  I have seen Space Management report into Supply Chain, Visual Merchandising, Retail Operations, Merchandising Operations and Finance.  When I am talking about Space Management I mean the entire discipline: “micro” space (planograms), “macro” space (store planning), space analytics and the systems and technology team that supports it.

I think of the discipline and the asset of Space Management the same way I think about Inventory Management.

In a mature Inventory Management team, I would expect to find an analytic team that creates ongoing reporting and standard inventory metrics for business teams and executives as well as custom analyses that uncover new inventory issues.  Inventory executives evaluate the cost=benefit equation and determine which SKU’s will be “never outs”, what the DOS should be for the top 100 SKU’s, the inventory investment for promotional and seasonal items all while supporting the merchant’s vision and financial goals.   I would expect to find business team experts who stay heads down making improvements to their business’ in-stock and days of supply.  I would expect to find a team that is working on promotional inventory issues.  I would expect to find a team for special stores and special projects that fall outside of normal process boundaries (NSO’s, pop-up stores, flagship stores, test stores.)  Finally, I would expect that at the highest levels of the executive leadership, there are long term decisions being made about where to invest inventory dollars and short-term decisions made about the level of inventory capital that can be made available to drive sales.  Across all of this, there would be analyses to report on the productivity of the inventory dollars, where inventory is stranded and initiatives to make inventory more productive.

Space Management is really the same.  It begins with creating space metrics and reports that are used by business teams and executives to make decisions about leveraging the store space asset.  To create those metrics, retailers need a system that tracks space utilization at the business level that aligns to both the merchandising teams and the financial hierarchy.  Rarely are those the same.

Of course, that’s not where most retailers begin.  They start with planograms because it improves retail execution and it is the system that most software companies can provide.

In an integrated organization, the planogrammer is embedded within a cross-functional business team like the merchandise planner, inventory planner and marketing planner.  Assortment planning and space planning are too often seen as separate tasks on a linear path.  In fact, they should be done in parallel and iteratively. For more on this, see AMR/Gartner’s Kevin Sterneckert’s many papers on the subject. Planogrammers should be the business team’s expert on how to improve space productivity within the constraints of the fixtures and the assortment of the category.

Planogrammers also should be embedded into promotional planning teams creating promotional planograms and on special exception store teams to work on high value unique planograms for one-of-a-kind stores.  I have never seen an ongoing business team successfully manage planogramming for exception stores.  Those stores are set up for failure when they need to be supported by planogrammers who are already overburdened with multiple planogram versions for standard stores and assortments.

The Macro Space team should report to the highest level store strategists for the company and direct the space allocation decisions for NSO’s, remodels, store tests and ongoing merchandising refreshes.  For some retailers, the President of Stores or Chief Merchant is the right person.  Space investments are not as fluid as Inventory investments.  Due to fixture changes and store labor, they require intensive capital to initiate and execute.  Once space changes are made, they are expensive to reverse or change.  For that reason, it is important that space productivity be visible to all executives and that they are held accountable for making improvements.

Who holds a retail executive team accountable for asset improvements? The COO, the CFO and ultimately, the CEO.   They are the ones who can look at the dollars invested in space, the return on those dollars, set targets, challenge the status quo and consistently review those metrics in quarterly and annual reviews.

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