Attractiveness factors in retail category space location-allocation problem

We study the problem of category space location-allocation in the retail industry. We introduce a new attractiveness factor to reflect the product-based visibility level in designing the optimal allocation policy. This factor will be determined for each aisle by the lineup of product categories allo...

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Bibliographic Details
Published in:International journal of production research 2023-08, Vol.61 (16), p.5566-5584
Main Authors: Babaee, Sara, Araghi, Mojtaba, Castillo, Ignacio, Rostami, Borzou
Format: Article
Language:English
Subjects:
Congestion
Convexity
Heuristic methods
Mixed integer
mixed integer programming
Nonlinear programming
Optimization
Profitability
retail analytics
Shopping
shopping path consideration
Space allocation
space planning
Store design
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Summary:We study the problem of category space location-allocation in the retail industry. We introduce a new attractiveness factor to reflect the product-based visibility level in designing the optimal allocation policy. This factor will be determined for each aisle by the lineup of product categories allocated to that aisle and all other aisles sharing a shopping path with it. We explore how considering the classical location-based attractiveness and the proposed product-based attractiveness can improve a retailer's overall space profitability. We develop a modelling framework that integrates both location-based and product-based attractiveness factors in a mixed-integer nonlinear program. Due to the non-linearity and non-convexity of the proposed model, large-scale instances are computationally challenging to solve using the state-of-the-art commercial solvers. We thus introduce a two-stage heuristic solution method that generates a near-optimal solution in a reasonable amount of time. Using the two-stage model, we explore the optimal store design for an illustrative case study. The results couple the optimal category space allocation to customers' shopping paths and create a profitability-maximising balance between the placement of high-demand and high-impulse product categories. We show that focussing on product-based attractiveness exposes the store to congestion risks, which can be prevented by adding constraints limiting congestion in different aisles of the store.
ISSN:0020-7543
1366-588X
DOI:10.1080/00207543.2022.2104179