A Dynamic Model for Strategically Allocating Retail Space

Abstract

The allocation of shelf space is a major determinent of a retailer's sales and operating costs. All the existing models of this problem focus on static optimization. But to the retailer, anticipating and adapting to new tastes and changing product life cycles is the central strategic problem. This paper shows how the static model can be extented to incorporate such market dynamics. The new model is more plausible than earlier static models in encouraging the retailer to allocate more space to new products and divest earlier from declining ones.