Should Planogram Compliance Matter?

Mila Budeva
Mila Budeva
Sep 21, 2017

A recent study shows that only 11% of retailers see planogram or store layout compliance as a priority KPI when measuring store performance [1]. Instead, retail operations leaders prioritise KPIs such as

 

zaptic-form-tick.png average sales per transaction

zaptic-form-tick.png operating margins

zaptic-form-tick.png average inventory shrinkage

zaptic-form-tick.png sales per employee hour

 

While it is understandable why financial KPIs are a top priority for store operations executives, letting planogram compliance slip down the list can be detrimental for those very KPIs.

Let’s look at how its impact extends beyond the appearance of shelves and why it should be a greater priority.

Firstly, what is planogram compliance?

A planogram visually indicates the placement of retail products in a store, showing the layout of merchandise departments as well as the aisles and shelves where items can be found.

Retailers have achieved compliance with the planogram when all the right products are in the right place, quantity and at the right price.

So why should retailers strive to be compliant?

Let’s imagine the Spreads aisle in-store and see how planogram compliance (or the lack thereof) affects customer experience, sales and operational visibility.

 

Better Customer Experience = More Sales

Appearances matter when it comes to shelves as one-third of shoppers decide what to buy when they see products and deals at the store shelf [2].

Presenting customers with a great choice of products, displayed in a tidy and enticing manner can engage them throughout their shopping experience as much as excellent customer service.

Imagine a whole shelf of all varieties of chocolate spread – perfectly lined up and clearly labelled, and next to them scrumptious packs of marshmallows attached to racking clips. Wouldn’t it be difficult to pass by with indifference on your way to the fruit and veg aisle even if it's not on the original shopping list?

In fact, in a report by "Chain Store Age", 63% of surveyed shoppers said that a store’s atmosphere can increase their interest in spending time at the store or buying more [3].

 

Poor On Shelf Availability = Lost Sales

It’s simple - having the right SKU in the right quantity, at the right location and in the right orientation can boost sales.

Out of stocks, on the other hand, cost retailers approximately $634 billion annually [4]. Nearly 75% of out of stocks are a direct result of poor operations, including inefficient planogram processes, costing a typical retailer 4% of its net sales [5].

So what happens if a customer discovers an empty shelf instead of her favourite brand of peanut butter? Depending on the product category, 7% to 25% of consumers faced with a stock-out will continue shopping but won’t buy a substitute for their desired item at the store while 21% to 43% will go to another store to buy the item [6].

 

Planogram Compliance = Inventory Efficiency

A mismatch between in-store inventory and consumer buying patterns costs retailers collectively nearly $800 billion globally [7] – lost sales are caused by out of stocks as well as by customers misplacing items after deciding not to purchase.

Store layout compliance helps to counter such inventory distortions and reduces the need for unplanned re-stocking activities, enabling store associates to dedicate more time to other value adding activities.

 

Want to take all the steps to perfect store operations?

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Resources:

[1] https://square-root.com/store-performance-report/

[2] https://enterprise.microsoft.com/en-us/articles/industries/retail-and-consumer-goods/the-top-five-inefficiencies-of-traditional-retail-execution/

[3] http://yourbusiness.azcentral.com/merchandising-affect-buying-25584.html

[4] https://jda.com/-/media/jda/knowledge-center/white-papers/five_steps_for_improved_on-shelf_availability_v2.ashx

[5] https://www.cognizant.com/InsightsWhitepapers/Planogram-Compliance-Making-It-Work.pdf

[6] https://hbr.org/2004/05/stock-outs-cause-walkouts

https://www.cognizant.com/InsightsWhitepapers/Planogram-Compliance-Making-It-Work.pdf

[7] http://downloads.deusm.com/digitalcanvasretail/Intelligent_Shelf_Compliance_Solution_Minimized_Investory_Distortion.pdf