What Constitutes Compliance?

Is this shelf set correct?

IN MY ROLE as Director of the In-Store Implementation Network, the challenge of merchandising compliance is frequently addressed, from a variety of perspectives – both theoretical and solution-oriented.

Several recent conversations have centered on the question of measuring the accuracy of a shelf set; that is, its degree of compliance with the schematic or planogram. This is actually a non-trivial matter when seeking a practical solution. Since a planogram is a complex tool covering many details (items, facings, positioning, quantities, etc.) determining what data to measure, how often and to what end(s) requires a thoughtful process.

Our valued colleague Mike Spindler, CEO of ShelfSnap has championed this discussion in several items posted on the ISI Network LinkedIn Group page. He is one of the better thinkers we have on this topic, and his company offers a promising tool for digitally comparing an image of an actual shelf set with its associated planogram.

How Close is Close Enough?

If the comparison is “perfect” – that is, all item are present in their proper locations and quantities – we can safely declare that a shelf set is compliant with the plan. This is, however, a rare occurrence which probably exists only for a few minutes after the re-set work is correctly completed. The moment shoppers get to removing items into their baskets, perfect compliance begins to deteriorate. Darn those pesky shoppers!

As I like to say, the “half-life” of a typical shelf set is less time than it takes the re-set crew to leave the building. A slight exaggeration, maybe, but you get the point.

So when do retailers declare a merchandise set to be “out of compliance”? When 9% of items are out of stock (the industry average in grocery)? When 15% of items are present but mis-located? When the number of facings is off on more than 25% of items? Alternatively, what criteria define “in compliance”? All items present and accounted for? 90% of items in the correct place? 99% in-stock? How close is close enough?

Evidently, the ways a planogram can go wrong are numerous but not always numerical. More significantly, they are not easily recognized by human inspection. That is, compliance issues can be hard to spot without a scorecard in hand – and even then it takes concentration and focus and time. 

Compliance Shorthand

What if we could define a short-hand method instead – perhaps three to six yes/no metrics that could be taken as a proxy for overall compliance? ISI Network member Larry Dorr, a respected expert on retail merchandising and founder of Jaguar Retail Consulting, described an approach that is worthy of discussion.

He proposes measuring the condition of approximately five or six “destination” items for each category or major subcategory. These are often the highest-velocity items in their respective sections. “Measure the items adjacent to those items,” he says. “If those five and their adjacencies are in correct shape, then the set is probably in good shape overall. If two of the five items are off, you may assume a compliance problem.”

This approach offers economy, speed and ease of implementation. A limitation, he concedes, it that this doesn’t provide a measure of item distribution. While the five-item rule may deliver a directionally correct conclusion about planogram compliance, it may not help very much with gauging the performance of non-destination items.

Also worth noting is how the criteria for compliance may vary across different product categories and classes of trade. Our example above is drawn from a grocery/mass perspective. In specialty apparel and department stores, where color, size and style factor in, the definition and metrics for compliance will differ. Consumer electronics retailers will face their own compliance issues. 

Storecard Metrics Needed

So let’s grant that merchandising compliance is a slippery quantity using presently available methods. That doesn’t absolve practitioners from the requirement that they track and measure merchandising performance. In fact innovation in Shopper Marketing, segmentation and automated planograms only intensify the need.

We need creative thinking and some consensus on what constitutes compliance success; on what to measure, how and how often. The goal is to define some compliance best practices and incorporate the metrics into in-store scorecards – what I like to call storecards – that support and enable those practices.

Which leads me to offer this challenge: Use the comment form on this post or on the ISI LinkedIn Group to help us define: What constitutes merchandising compliance? How do you/should we measure it? What are the thresholds? How good is good? What’s the cost of good?

This could be the first step along the road to In-Store Implementation Best Practices. I look forward to reading your thoughts.

© Copyright 2010 James Tenser

Tenser to Lead NARMS Webinar: “Whose Store Is It, Anyway?”

THE DIRECTOR of the In-Store Implementation Network, James Tenser will pose this provocative question in a 60-minute Webinar hosted by NARMS, the National Association for Retail Merchandising Services.

The Webinar will take place at 1:00 PM Central on Thursday Oct. 28. Review the program here.

Currently some larger Merchandising Services Organizations and Sales/Marketing Agencies are offering proprietary Store Execution Management software to retailers as a value-add. The implications are complex, and they have potential to affect core business practices, including the establishment of what might be called “merchandising captains.”

Should retailers accept “free” SEM software provided by their MSOs and SMAs? Who gains? Who loses? Who should own the data? What other implications of this practice need to be examined for the best interest of our industry? Tenser will explore these issues and answer questions in a lively online program.

(Special Offer: NARMS normally charges guests $99.95 to attend its webinars, but has generously extended a discount price of $29.95 for ISI Network Members. To register, phone the NARMS office at 888-526-2767 and tell them you’re one of us.)

© Copyright 2010 James Tenser

Tenser to Lead “In-Store Marketing ROI” Workshops In Jakarta and Singapore

THANKS TO MY new friends at Strategic Vision Group, Singapore, I’m proud to report a commitment by by my firm VSN Strategies to present two professional workshops in August on the topic of “In-Store Marketing ROI”.

Intended for experienced retailing and brand marketing practitioners, the workshops will include subject matter covering practical performance and success metrics for: Shopper Marketing; In-Store Promotion; Merchandising Performance; Frequent Shopper Programs; Shopper Media; and In-Store Implementation. Attendance is open to professionals from throughout the region and the sessions will be conducted in English.

This workshop delivers practical tools for isolating the effects of in-store marketing programs and measuring their impact on brand, category and store performance.The curriculum will include case study presentations, in-class collaborative exercises and group discussion, in a highly interactive format.

Presented for the first time anywhere, the workshops will guide participants through the development of Storecards™ for merchandising performance – an application of the “balanced scorecard” technique to in-store implementation and compliance activities.

Seats are limited due to the interactive format, so interested candidates are encouraged to contact the organizers soon to obtain the workshop brochure and reserve a place. I look forward to meeting you there!

© Copyright 2010 James Tenser

The “Retail Problem” in Public Education

I RARELY VENTURE outside my core expertise in this blog for (justifiable!) fear of embarrassing myself and those close to me. But I’ve been watching an important societal trend from the sidelines with increasing concern. The topic is public education policy, and the lens through which I view it is the local school system here in Tucson, AZ.

Like I said – that’s a topic that would normally be out of my league. Better left to the experts. Or so I believed, until in a recent flash of insight I realized that our public schools have a retail problem.

Now there’s a subject area I know something about. Maybe in the next few paragraphs I can make a useful contribution to the national dialog on a very troubling issue. I doubt I could make things worse.

Education’s retail problem, in a nutshell, is what we in the stack-it-high-watch-it-fly business of selling stuff call over-storing. Over-storing occurs when retailers build too many buildings to offer goods to a finite number of shoppers. When the ratio of selling space to available dollars gets too high, all the stores suffer for a while, and eventually some go out of business until balance is restored.

This is easy to understand in terms of macroeconomics 101: Too many goods chasing too few dollars results in a lowering of demand.

Today we have a parallel situation in the world of public education due in part to national and local education policy, part due to the current economy, and part due to enduring human nature. The problem is especially acute this year here in Tucson, where there are too many classrooms chasing too few students, resulting in a lowering of demand. In fact, I’d nominate this city’s Tucson Unified School District (TUSD) as the nation’s poster child for over-schooling.

TUSD is presently battered by a perfect storm of negative trends, beginning with historically low funding per student (49th of the 50 states) and exacerbated by recent cuts due to the generally poor local economy. Teacher salaries are an embarrassment. There’s little money for textbooks or paper. Non-core subjects like music, art and P.E. have been largely eliminated. The Federal “No Child Gets Ahead” mandate has required further costly focus on teach-to-the-test classroom tactics.

Adding to this storm is Arizona’s status as the national hotbed of so-called “charter schools,” those privately operated institutions that operate by re-purposing per child state funds. These are often heaped with praise in Washington based on a persistent (but largely baseless) belief that charter schools introduce healthy competition to the educational system that will ultimately raise public school standards and benefit our children.

If there is one thing that TUSD has in profusion today, it is classrooms. The district operates more than 100 elementary, middle and high schools, plus several alternative schools, serving about 55,800 students, for an average of 558 students per building. That average is declining, as more students depart the district each year to attend local charter schools.

The result is some devastating math. Fewer students per school means declining revenues. but the same number of buildings to operate with fixed costs translates into a decline in net spending per student and a loss of classroom and non-classroom jobs.

This is a contributing factor in the elimination of non-core teachers and courses. Naturally, core classes must be preserved to meet state and federal standards. When teaching jobs are cut further, class size must increase, even if classrooms stand empty.

Another wrinkle has to do with exactly which families are shifting their students out of the public schools and into charter schools or other alternatives. Teachers I know observe that the parents who make this decision tend to be more involved with their children’s education and more likely to set high standards for their children. While the evidence is anecdotal, if true this amounts to a flight of the better and brighter away from the public schools. The unintended but devastating consequence of their departure is a lowering of average standardized test scores, evidence which is used to rate and reward schools and teachers.

This impact is demoralizing for teachers and alarming for parents, who respond by transferring more of their children into charter schools each term. But the district’s costs for owning and operating the buildings remain the same; more teacher jobs are lost each year; and the net spending per student continues to creep downward.

One obvious solution for an embattled district like TUSD, that would partially relieve the pressure on operating costs, would be to close some of its superfluous schools and consolidate the children into those that remain. In fact, closure of several smaller elementary schools has been proposed each of the past several years. Vocal local parent groups, who moved into those neighborhoods to be near these schools, successfully quashed these decisions.

Very recently we have heard news from the district of several proposed (and at least one actual) school mergers – whereby two half-empty elementary schools are combined into one with the superfluous building  shuttered. In the one announced instance so far, the parents of both schools voted in favor of the change. This is a bit like closing down one of several chain stores when the demographics shift – some business may be lost, but on the whole, the remaining units are more profitable.

So maybe TUSD got that part of the lesson. Lower costs begin with fewer buildings. Unfortunately, with state funding dropping even faster, this instance of economic realism will not be sufficient to forestall even more draconian cuts. How sad for our young people and the dedicated teachers who until recently believed they could make a difference in their lives.

© Copyright 2010 James Tenser