Optimal Retail Space: How Big Should Your Assortment Be?

Finding the right assortment size is a key question for retail performance projects. Learn about a simple method to determine assortment size for retailers with several stores in comparable locations.

Whether you are a brand that runs multiple stores or a multi-brand retailer with several retail locations, the question remains the same. What’s the optimal retail space to allocate to different brands and categories? A mono-brand format may have to decide how much space to allocate to its men’s versus its women’s line, or to its clothing versus its footwear range. A multi-brand retailer, in turn, needs to understand which brand should occupy how much space to make most efficient use of the available retail space.

Data, Or What You Need To Know First

Appropriate data on turnover and gross margin for each brand or category and knowing how much retail or shelf space each assumes are essential preconditions for answering this question. And in most cases, this is where we run into trouble. Surprisingly few brands and retailers adequately measure retail space or shelf space by category or by brand.

optimize retail space

Falke flagship store in Berlin (Photo: Falke)

That’s because doing so is a little more difficult than it sounds. Category widths and depths change over the course of a season. Some brands perform better in the fall/winter season while others perform best during early summer. Falke, for instance, sells more tights during the fall/winter season and more sneaker socks during spring/summer. That’s why many retailers work with so-called ‘breathing spaces’ that adapt over the course of the year to make the most profitable use of their retail space.

For multi-brand retailers with shop-in-shop and concession models, having fixed locations and space allocations per brand is relatively simple. For mono-brand stores that present products in a lifestyle/conceptual way, however, it’s much more difficult.

Unfortunately, not that many retailers use RFID yet, which is an easy way to capture all data required to measure sales in relation to the retail/shelf space used. More and more retailers are considering efficient space reporting tools in order to get a handle on an optimum space allocation per categories/brand.

Let’s assume you do have those data available. What can they actually tell you and how do you need to read them?

How to Find Optimal Retail Space & Assortment Size

I recently analysed the optimal retail space for a retail chain with more than 100 locations across Europe to determine the best space allocation for each of their categories. The result was used to structure and design a new store format. First, we clustered the 100+ locations by location quality in order to compare apples with apples. Cluster criteria were the location type (convenience locations in the city centre vs. destination locations in suburbs), proximity of relevant competitors, number of visitors per hour, and share of relevant customers in total footfall.

Lets’ look at the following two examples; they show the range of optimal retail space for two different categories in suburban destination locations of cities with 500k to 1mn inhabitants. Each location has one or two of the most important competitors nearby and thus a high share of relevant footfall. To answer our question, we look into sales per sqm or gross profit per sqm in relation to allocated space.

optimize retail space

(Graphic: Heike Blank)

As you can see in the chart, category A performs best with space allocations between 80 and 100 sqm. The stores in that size range perform above average compared to all 15 stores in this cluster. Two additional stores perform slightly above average: store F with 60 sqm and store L with 102 sqm. But they are the only ones within that size range that perform just around average, and that isn’t good enough when the goal is to develop a new store generation that performs significantly better.

optimal retail space

(Graphic: Heike Blank)

Category B is much more limited and already shows a significant decrease in SPSQM at 28 sqm. There is a clear correlation between a shrinking sales performance and increasing space allocation for category B.

Unfortunately, the numbers are not always quite this clear-cut. Sometimes you have categories that perform as well at 20 sqm as at 40 or 50 sqm in one cluster. Or a category that performs best in a certain size range in one cluster, but in a different cluster the same size range performs badly. That’s when the numbers can’t do the job well enough and you have to add human retail intelligence.

Other Factors to Consider

In this analysis, we assumed that category A and B are placed in the same spot across all stores. But that is rarely the case. Even if you have a clear blueprint for your store layout and design, there will always be differences in shape, layout and construction details. A supporting column may detract consumer attention and make an area less productive. A store in a listed building with restrictions about fascia and window design, hence restricted far distance attraction might perform differently from another store with a bold statement fascia or attractive window displays. Two stores in the same cluster may be truly comparable in terms of size, shape, layout and footfall, but operate with a differing manning and service factor and perform differently as a result. Retail is and remains detail! Listening to your area and sales managers who know best what’s going on in their stores will help to understand and interpret retail KPIs, and to make not only evidence-based but at the same time well-informed decisions.

And of course, decisions about allocating retail space towards categories or brands are not based on sales performance alone. Delivering an exciting consumer experience and making a brand statement plays a significant role too.

But figuring out the optimal size per category or brand not only helps with expanding or refitting your stores more profitably. It also helps your product development or buying team to focus their efforts, to reduce or expand a line or buying budget for the corresponding categories. And the same method works to identify the best performing blue print size for future stores in order to increase the performance of your entire store portfolio.

 


About the Author:

Heike Blank has worked for big organizations such as VF Europe and s.Oliver but also for niche brands such as Ecko Unltd. and Zoo York in top executive positions. Her extensive experience with opening and managing own retail, partner stores, concessions and shop-in-shops in 23 countries in Europe, the Middle East and Asia make her an expert in expansion. Connect with her on LinkedIn and read more of her work here.

 

One thought on “Optimal Retail Space: How Big Should Your Assortment Be?

  1. Dear Mr von Keyserlingk,

    For me as an architect and designer your article opens a nice perspective of what defines good design except visual arguments.

    Best Regards

    Felix Schwake

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