The challenge

The client – a leading Australian department store chain – came to us with two key questions: What is the optimal allocation of department and category space by store (on current or future store space)? And, to guide space handback negotiations, what total size for each store should be targeted for optimal profitability?

The solution

Our first step was to group stores into clusters that reflected distinct customer groups, markets and store types, each with differing category demand patterns.
We built a category space optimisation model, which identified significant opportunities to move space from lower to higher productivity areas across and within departments.
We assessed the relationship between space costs and margin improvement opportunity for each store, which identified potential for double-digit percentage space handbacks.
Lastly, we modelled optimal use of space for a five-year future scenario to account for margin forecasts and rental projections.

The results

We identified profit opportunity totaling more than AU$50m through space-related cost reductions and gross profit optimisation from category resets.