A Brief Glimpse into the Retail World

Compiled by Sakshi Mittal and Sanjana Pai (Batch of 2020)

Guided by Prof. Ritu Srivastava

Wishing you the very best for your upcoming internships!

Things often have a way of sorting themselves out.
Stay calm and positive.
That's when you can give your best!

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Why is Understanding Retail Necessary?

Just as marketing has its own technical language, so too does retail. This booklet is intended
to equip one with the basics of retailing so that when one enters any retail outlet they will be
able to look at it from the retailing perspective and hopefully find themselves at an advantage
towards grasping and applying further knowledge.

This booklet attempts to define the key terms of merchandising such as planogram, share of
shelf, visual merchandising and some general metrics along with examples whenever
possible.

Merchandising

Merchandising philosophy encompasses every product decision from what product lines to
carry, to the shelf space allocated, to inventory turnovers, to pricing. A retail merchandising
can be product-based (using SKU proliferation data to find the most profitable products)
and/or consumer-based (tailoring assortments and merchandising plans to cater to the most
profitable customers).

Retail Space Planning

Planogramming is a skill used in merchandising and retail space planning that shows how and
where specific products should be placed on retail shelves or displays in order to increase
customer purchases. A number of quantitative metrics too lie at the heart of merchandising
and retail space planning decisions like Sales Per Square Foot (SQSF), Gross Margin Returns
On Foot (GMROF) and Same Store Sales Growth (SSSG).

Planogram

It is a visual (graphical) representation of the space for placement of every product in a retail
store. It also illustrates the number of facings – vertical and horizontal – allocated for each
SKU. In a modern trade store (supermarket, hypermarket, cash and carry), this function is
generally carried out by the marketing team of the store – which determines which product
categories and respective brands is to be sold in the store.

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The above image is an example of a planogram for the car fragrances category at a cash-and-
carry store in Mumbai. Notice the yellow highlight, the Ambipur Car Refill Vanilla product
(code: 322946): the number of horizontal facings (HF)=2, the number of vertical facings (VF)=2
and the number of depth facings (DF)=6
∴ 𝑆ℎ𝑒𝑙𝑓 𝐹𝑖𝑙𝑙 = 𝐻𝐹 × 𝑉𝐹 × 𝐷𝐹 = 2 × 2 × 6 = 24

For the highlighted product:

HF = 9, VF = 3, DF ~ 5

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Planograms serve the following purposes to the following stakeholders:
• Customer:
o When designed correctly, a planogram attracts and motivates customers to
buy additional items than they initially intended to
o Also, helps to determine alternative options for a given product more
conveniently
• Retail store
o For tighter inventory control and reduction of out-of-stocks
o Allows easier product replenishment for staff
• Manufacturers:
o To drive sales and market share by increasing the space allocated to their
products in-store => Share of Shelf (SOS)
o To optimize the appearance of their merchandise in the store – so that it is not
always on the bottom shelf or in the back corner of the store
• For both manufacturers and the retail store, a planogram serves as a reference point
when conducting retail performance analysis to identify potential causes of lower
sales

Share-of-Shelf (SOS)

Retail space in a store is not elastic and normally comes with a price in terms of listing fees.
So, it is important to know how much space is allocated by the store and how much space is
optimal for the products/brands of the manufacturers. Share of shelf is one such metric that
compares the facings of a given brand to the total facings position available (in this only the
horizontal facings are to be considered). It is calculated as:
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑎𝑐𝑖𝑛𝑔𝑠 𝑓𝑜𝑟 𝑏𝑟𝑎𝑛𝑑
𝑆𝑂𝑆 = × 100
𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑎𝑐𝑖𝑛𝑔𝑠

In the above image, calculating the SOS for Fiama brand. No. of facings for brand (only HF to
be considered) = 6, no. of total facings positions = 64, => SOS = 6 / 64 = 9.4 %

Soap Manufacturer Facings SOS This is an example from a retail store in Delhi.
HUL (Lux, Pears, 53.8%
Roughly speaking, SOS is a reflection of the
Lifebuoy, Dove, Liril) 148
19.3% market share of the brand. Although practically,
RB (Dettol) 53
Wipro (Santoor) 24 8.7% the retail store and merchandisers play a
Godrej (No.1, Cinthol) 50 18.2% significant role in the implementation of SOS.

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One of the foremost advantages of this is that it allows the manufacturer to investigate
whether their brand and the competitor’s brand are getting their fair share of shelf in
comparison to the contribution they make to the category sales. This allows to pinpoint
products and brands that are under-spaced or over-spaced and therefore may be drivers or
drainers of category growth.

By looking at fair share trends over

time, brands can uncover important
category trends and gain insights
into sales velocity.

If under-spaced, could the item be

slower-selling? Or is it simply a
bulkier item that naturally occupies
the bottom shelf? If over-spaced, is
the item a challenger brand or a
new segment?

Pack – Price Architecture (PPA)

PPA is important to ensure that each SKU in a brand portfolio is aiding in maximizing volume
and value for the parent brand (with least cannibalization). Since each SKU would differ
slightly in its offering (size, price, flavor etc.), the impact on the business by changing or
introducing new SKUs or brands in the portfolio needs to be understood. A PPA analysis seeks
answers to the following questions:
• What would happen if we change the size (grams) of one of our SKUs?
• Does a 10-cookie pack cannibalize my own 5 cookie pack or take from competition?
• Does reducing price by ₹1 help increase volumes enough to bring more revenue?

Parent Company Brand Quantity MRP PPG

HUL Lifebuoy 125 28 0.22
P&G Camay 125 40 0.32
Raymond Park Avenue 125 45 0.36
HUL Liril 125 51 0.41
RB Dettol 125 53 0.42
KSDL Mysore Sandal Soap 125 60 0.48
HUL Pears 125 67 0.54

Reading the above sample table for a given store and considering HUL, we can see that three
of its brands – Lifebuoy, Liril and Pears –are priced at different Price Per Grammage (PPG),
targeted at different consumer segments even though they all offer 125g SKU.

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A Few General Metrics
1. SPSF – Sales Per Square Foot

𝑇𝑜𝑡𝑎𝑙 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝑆𝑃𝑆𝐹 = 𝑇𝑜𝑡𝑎𝑙 𝑓𝑙𝑜𝑜𝑟 𝑎𝑟𝑒𝑎

• This metric measures the average revenue of the store for every foot of sales
space
• Important metric to compare different formats of brick-and-mortar retail stores.
Also serves as a relevant external benchmark.

2. GMROF – Gross Margin Return On Feet

𝑇𝑜𝑡𝑎𝑙 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝐺𝑀𝑅𝑂𝐹 = 𝑇𝑜𝑡𝑎𝑙 𝑓𝑙𝑜𝑜𝑟 𝑎𝑟𝑒𝑎 * GM%

• It measures the inventory productivity by expressing the relationship between

the retailer’s gross margin and the area allocated to the inventory
• Used to compare linear sales across product categories, shelf design, department
wise layout, and product display optimizations
• Tools such as GMROF is essential for retailers since this can help them identify
the profit generating areas within the stores

3. SSSG – Same Store Sales Growth

• This metric tracks sales growth, expressed as a percentage, at existing locations
that have been open at least one year.
• Same-store sales growth is published by most retailers and restaurants on a
monthly or quarterly basis.
• Same-store sales are typically a more accurate measure of a retailer's success than
revenue is. That is because same-store sales growth is typically due to improved
operations at existing stores. Revenue growth is sometimes just a product of
opening new stores.

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Establishing and Maintaining a Retail Image

Atmosphere of a physical retail store is brought about by its physical characteristics and
sights, sounds, smells contribute to a customer's perception. Four factors contribute to it:
• Exterior – storefront, , entrance, walkways, display windows, etc
• General Interior – flooring, colours, scents (Subway bread smell), temperature, etc
• Store Layout
• Interior Displays (aka visual merchandising)

Store Layout

A store has space allocated to selling (display of merchandise, interaction between

salespeople and customers), merchandise (stocking non-displayed items), personnel (break
rooms) and customers (dressing rooms, benches, etc).

Store offerings may be arranged broadly in two ways:

• Product centric – This could be basis ease in storage (chilled and non-chilled areas in
supermarket), market segment product groupings
• Customer centric – This is based on customer insights, preferences and their path to
purchase
Basis on this the traffic flow pattern of the store is set hence deciding the layout. There are
four basic building blocks in this:

LAYOUT USAGE PROS CONS

Efficient
GRID
atmosphere,
Least likely to
Nearly every Floor space
create a retail
convenience devoted to
experience,
store, pharmacy, product displays,
customers may
and grocery store familiar for
not understand
utilizes this shoppers, ease in
your product
familiar layout putting up
groupings
promos

Limited visibility
HERRINGBONE For long and along the side-
narrow retail roads can increase
spaces - Tuck For stores with a shoplifting
shops, small lot of products opportunities,
hardware stores, but very less Cramped feeling
and many small space leading to
community customers
libraries bumping into
each other

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 LOOP The loop creates a
Maximum
deliberate closed Customers might
product
loop that leads feel that it is a
exposure,
customers from waste of time, not
easiest to place
the front of the suited for shops
high visibility
store, past all the that encourage
promotions and
merchandise, and high traffic
can be
then to checkout. turnover
experiential
Eg: Ikea
FREE-FLOW
Great for small Less space to
With free-flow,
spaces, creates display products,
wandering is
experiences, confusing for
encouraged –
suited for higher customers, easy
visible in concept
end shops with to forget best
stores
less merchandise practices

Visual Merchandising

POP (Point-of-Purchase) Displays

POP displays provides shoppers with information, adds to store atmosphere and serves a
substantial promotional role. Window, floor and counter displays that allow a retailer to
remind customers and stimulate impulse purchases. Sometimes, the displays are supplied by
the manufacturers. Various terminologies to make a note of:

• FSUs (Floor Stack Units)/Gondola (Free Standing Display Units): Floor stack displays
are commonly used to draw attention to hot-ticket items, thereby making them easier
to find and consequently easier to purchase. The value of FSUs is in its eye-catching
presentation, which increases customer engagement with the product.
• Counter Display Unit (CDU)/ Counter Top: A CDU is a retail display unit normally
placed on a shop counter to encourage consumer impulse purchases.
• Pallet: Display pallets enable a store owner or manager to quickly create an attractive
easy to reach product presentation in a high-traffic location. They are available with a
smaller footprint to give retailers maximum flexibility for placement on the sales floor.
These are mainly created by the retailers for their high-margin goods.
• Cross Merchandising Solutions – Hang strips/hangers: A retail product display, so
named because it is a length of material (either plastic or metal) with clips or hooks at
regular intervals, upon which merchandise is hung.
• End Caps: End caps are very successful in grid layouts. Grocery stores and big box
retailers use end caps to promote brands and celebrate seasons in their stores.

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 They’re eye catching, and the space is easily “leased” to manufacturers that want to
promote their brand.
• Shelf Talkers – Wobblers: They are card stock products that come with plastic strips
that allows the store to attach them to just about any surface. Once attached, they
wobble, catching the eye of customers.
• Bins/Shippers: They are a pile of items and have open assortment of roughly handled
items. They reduce display costs and project a low-priced image.
• Shelf Ready Packaging (SRP): SRP refers to the packaging of a product so that it is
delivered to a retailer in packaging which is optimized for efficient stocking and sale.

Pallet
Floor Stack Units Counter Display Unit

Hangers End Caps Wobblers

` SRPs
Bins

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Secondary Displays

Secondary displays need to draw the attention of customers and inspire them to consider that
extra purchase. They are generally ideal for new products, products with media investment
and promotions. Displaying product in a second location should allow more consumers to see
the category.

Some helpful supermarket tactics:

• Bullseye/ "thigh to eye" zone: Occupied by profitable products and brands, with
specialty brands on the top and store brands at the bottom.
• Cereal Theory: Placing boxes on lower shelves which are at eye level for children
• Private label brands do better when placed to the left of the manufacturer brands as
customers read from left to right.
• 90% of customers turn right when entering a store!
• Dairy, fruits and vegetables are usually located at the store perimeter so that
customers are exposed to non-essential items.
• All stores place small impulse purchase items near the checkout area to entice
customers waiting in the queue .

Tip: The next time you visit a modern trade store be it Big Bazaar or Le Marche, see how many
of these you can recognise!

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