Generally speaking, retailers are taking central control of their space planning - this doesn't necessarily mean that retailers are doing or even want to do all category management and space planning activities themselves but rather that they prefer to control the process from start to finish.
Before we discuss what this means for suppliers let's take a look at some of the background factors that are influencing this trend:
1. Store space is a retailer's most valuable asset
If you could help it, would you want your most valuable asset to be controlled by someone else? Probably not.
Store space is commonly known as one of the most valuable assets that retailers have, and for this very reason, retailers are choosing to apportion space based on data-driven strategies as soon as they have the resources and practical means to do so.
The general trend is that retail space is going to become more and more expensive over time. According to the below chart, rental prices will go up just under 1% per quarter by the end of 2016 (in the U.S.):
2. Retailers want to grow whole categories and not just single brands
When suppliers, who are wanting to push addtional sales of their brands, become over-involved in that process it doesn't always benefit the category as a whole.
Retailers want to match retail store space allocations to consumer demand with the aim of building an entire categories revenue as opposed to individual brands within a category.
3. One consistent in-store experience
Ever heard of what happens when there are too many chefs in the kitchen? Unnecessary influence from multiple suppliers can make for a confusing in-store experience.
In-store experiences have become one of the biggest priorities for retailers and as such, consistency is essential.
4. Inventory turnover / Days of supply
GMROI (gross margin return on investment) is one of the most used measures in the retail industry to determine a retailer’s ability to turn inventory into cash above the cost of the inventory itself.
It is calculated by dividing the gross margin of an SKU by its average inventory cost over the same period. Inventory turnover directly contributes to GMROI and thus merchandise with higher inventory turnover should get more shelf space. Fast selling merchandise = more shelf space, or, at least it should be that way.
What does this mean for suppliers?
Instead of describing it, here's an infographic on what this means for suppliers:
Specialising in both Pharmacy and FMCG, our powerful data-driven software helps leading retailers and suppliers craft rich in-store experiences and grow category revenue. We do this by harnessing the power of our data platform to create localised assortments, product layouts and much more.