Through a special arrangement, presented here for discussion is an excerpt from a current article from the Emerson Advisors blog.
Macy's, citing initial success, is expanding the "My Macy's" initiative. Wal-Mart recently split itself into three separate regions with a merchant organization for each. H&M admits that it has purposefully focused its store openings on cold weather zones but is interested in moving into warmer climates. All of these moves are focused on one shared goal -- moving away from a strictly homogeneous national merchandise offering and providing a variety of assortments tailored to local tastes and preferences. Some of the more successful retailers (Whole Foods and Bed, Bath & Beyond) have been committed to this principal for years and have enjoyed unusual, if not extraordinary, success.
So what exactly is localization and how do you get there?
Simply stated, localizaton is the recognition that:
- Customers in different markets and locales have different tastes and preferences.
- There is a significant upside sales opportunity if buying and allocation processes address those differences.
Those differences include climate, demographic and psychographic characteristics, local culture, and prevalent identity (Big City Sophisticate, Old West, America's Heartland, Florida Beach Town, LA Hip, Miami Heat, etc.).
A key point is that only a percentage of the assortment needs to be "localized." White, black, and blue T-shirts, OXO can openers, and Diet Coke sell everywhere. The extent of localization (what percentage of the overall mix) that needs to be modified depends on the category(ies) carried. Typically, the more personal the category, the more important localization becomes. Apparel, particularly fashion apparel is arguably the most sensitive, although any category can benefit from some level of localization.
So, what are the key elements of a successful localization effort? In order of importance, they include:
- Organizational recognition of the size and complexity this effort represents. For decades, retailers have been consolidating decision-making (and standardizing assortments) to better leverage their corporate overhead. Changing that approach goes right to the heart of most retailers' operating philosophy.
- Senior management commitment to the change. Unless senior management has the long-term commitment and endurance to see this through, it's better to avoid it altogether.
- Deleveraging of the merchandising organization. Localizing the assortment requires more merchants, period. This also applies to planner/allocators and space managers. It also means modifying merchant reward systems, both financial and psychic.
- Geographical dispersion of information-gathering and decision-making. While
increasingly sophisticated IT systems can do amazing things, the reality
is that they can only give central merchants a reading on how well their
previous choices worked, not what choices they should have made relative
to different markets. Systems also tend to focus attention on national SKU
performance and can mask local success stories.
It's said that all politics are local. In the current Darwinian struggle for market share, those that are best able to speak directly to local markets will be well-positioned to be among those left standing when the retail industry reaches equilibrium.
Discussion Questions: What are the main hurdles for retailers in creating a successful localization program? Do you see the localization trend gaining momentum in the years ahead?