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Optumera - Macro Space Optimization

 

The retailer’s dilemma solved.

“Space planning and optimization are very critical for a retailer, with the increasing challenges in real estate. The retailers could now maximize revenue with the same limited retail floor space by efficient macro space planning and optimization, which is just what TCS is offering in the form of its innovation Optumera - Macro Space Optimization,” says Shilpa Rao.

Abstract
As margins from sourcing are shrinking while customers are becoming more demanding than ever, retailers are constantly striving to engage the customers in store, delivering a best-in-class shopping experience with increasing variety to the customers to maximize their financial objectives. However, retailers are restricted to the limited retail floor space in the pursuit of achieving a smooth transition from product- to shopper-centric merchandising. Expanding business in the same retail floor space requires enormous planning and successful implementation of plans. Optumera Macro Space helps the retailers overcome these challenges by assisting them in planning for the space allocation at the store by allocating the right space to each category within their stores.

Trends driving the macro space focus
With the e-commerce sales touching 1 trillion in 2012 and the convergence of other new channels, retailers worldwide need to rethink their strategies to maximize their ROIs (for example, real estate). They are exploring options to resurrect the physical store sales as they remain the largest customer experience window and contribute more than 80% to their overall sales. The problem gets further complicated with the proliferation of SKUs, shorter product lifecycles and continually changing customer preferences and competitive aggression among retailers. These evolving trends in retail and the potential opportunities meant that a localized and effective space planning solution at the individual store level from TCS was in the offing.

Traditional space planning approaches
Retailers have experimented with their space allocation over years and are adopting several newer and smaller formats to create a more relevant shopping experience. While the focus is shifting toward space optimization, the core process and capabilities are yet not defined to have an organization-wide space optimization outlook. Traditionally, retailers have relied on one of the below approaches for their space optimization drives:

  • Gut feel: Attempting to allocate on the basis of experience and not on granular performance history
  • Multiple manual iterations: Data crunching through ad-hoc iterations
  • One size fits all: Performing space allocations for category at an organization level leading to over-spaced or under-spaced categories at an individual store level
  • Missing shopper centricity: Most retailers discount the other critical pieces affecting sales and the overall shopping experience while deploying space optimization strategies

Overview: Optumera Macro Space Optimization Solution
The Optumera Macro Space Optimization solution blends in the optimal amount of science in the form of a mathematical model, leveraging cutting-edge yet affordable technology resulting in a simpler space allocation process. The solution hosts the core algorithms, which detail the non-linear relationship between sales and space allocation while maintaining shopper centricity, to be able to predict as well as provide the basis to make a space change recommendation. The solution powered by Big Data allows analytics on huge volumes of data, providing highly scalable and accurate analytics.

Optumera enables a store-category analysis at organizational financial goals level as well as individual markets and customer clusters. It facilitates what-if scenarios, over and above the optimal solution to in-corporate the merchandiser's knowledge of the industry and the retailer's operating practices. It provides a wizard-guided work-flow based on algorithms, which are nimble, easy-to-tailor and can be easily integrated with the existing application landscape for a hassle-free space solution. The use of open source technology further helps reduce the total cost of ownership apart from minimal labor, infrastructure and other integration needs.

Not over spaced, not under spaced; just right
Traditionally, retailers do not perform category space allocation at the individual store level, resulting in certain categories to remain over spaced and some under spaced. This is because of both technical challenges as well as business imperatives. With Optumera, retailers can get the right space to be able to achieve the following:

  • Maximize financial goals from limited real estate
  • Make it engaging for the customer
  • Release space from existing stores to either add more categories and to possibly lease it out with appropriate business models

Delivering measurable results
Optumera - Macro Space Optimization has been implemented in 30 stores of a leading arts and crafts specialty retailer in the US. The implementation went live in January 2012. The client was able to achieve a 4.5% increase in sales and 4% increase in margins in the 30 stores when compared to the similar control stores of the retail chain. Optumera - Macro Space Optimization has also been adopted by a large pharmacy retailer from Chile.

*As published on tataquality.com.