Find the Right Product Mix

January 12, 2016  by in Business Strategy, Industry   

Knowing the value of a category can determine how much showroom space should be allocated to it.

By Martin Roberts

Last year, the team at Martin Roberts Design re-planned and re-merchandised more than one million square feet of retail space in 30 or so stores around the country. As a retail designer, I’ve helped hundreds of store owners rethink their showrooms.

When merchants ask me to revitalize their space, they frequently say it’s because it’s not living up to its sales potential. They’re convinced if they can learn the secrets to laying out the showroom more effectively, profits will soar.

I don’t dispute that the showroom layout is vitally important. But before you can configure your space, maximizing sales requires looking at the categories being sold and figuring out what percentage of sales come from each category. Why? Because the amount of merchandise displayed must correspond to the percentage of business done in each category.

In other words, if 55 percent of product sold is upholstery in a 100,000-square-foot store, a retailer should dedicate 55,000 square feet to the category.

The Merchandising Matrix

We use a simple tool called a Merchandising Matrix to help store owners determine how much square footage they devote to each product category. It’s not as complicated as one might think.

First, determine the room set size you use for a category, then multiply it by the number of room sets you display. So for example, if you currently use a 10-foot-by-15-foot room set size for stationary upholstery, and you have 28 room sets, that department takes up 4,600 square feet of floor space, excluding access aisles.

Once the square footage for each department is calculated, it’s time to analyze your sales figures. By determining the percentage of sales that come from stationary upholstery, you’ll be able to compare the amount of space to allot to that department versus the percentage that should be allotted. You may discover you have too much or not enough stationary upholstery in your product mix, and you’ll need to make adjustments. You’ll also determine that in some cases you were fairly accurate in estimating the amount of merchandise for a given category.

One of my home furnishings retail clients adopted the Merchandising Matrix, only to be surprised by the results. He realized that some of his guesstimates for how much product he should purchase were off the mark. In one instance, he thought he needed five or six sets in a department, only to discover that he really needed three. He already had two in the warehouse. In the first month after the store redesign, sales increased by 94 percent, a fair amount of which can be attributed to the new merchandising process.

The Merchandising Matrix chart allows us to give pride of place to products that are doing the lion’s share of the business. I am not exaggerating when I say that this method will radically improve your bottom line, enabling you to achieve higher dollars-per-square-foot.

Purchasing Pitfalls

Throughout my career, I’ve seen too many merchants, like cowboys in the Old West, shoot from the hip when making product purchases. Being strategic and disciplined in displaying the right amount of product per department goes hand in hand with purchasing.

Most retailers start with the best of intentions, shopping list in hand, when Market rolls around. Unfortunately, there are many ways to lose sight of the original plan and start buying emotionally. It’s easy to get caught up in the excitement of Market and make spur-of-the-moment purchases. Or you decide to take advantage of a special, or feel you owe a sales rep a generous order out of friendship.

Following the Merchandising Matrix approach results in well-thought-out purchases because you know exactly how many items will fit in each category of the showroom.

How you use the most valuable asset you have as a retailer—your square footage—can be crucial to your success. You air-condition it, heat it, light it, maintain it, and spend money on real estate, taxes and everything else. Why not adopt a strategy that helps you make the best and most profitable use of your investment?