Catering to local tastes can bring with it a big payoff for national retailers.
That's the finding of a study by Bain & Co., which found that retailers can double same-store profits if they differentiate product, pricing, placement (point of distribution) and promotion based on what consumers in a given area want.
This approach - dubbed localization - is being tested by a number of large national chains including Wal-Mart and Macy's with many others following a similar path, according to Erika Serow, a partner with Bain & Co.
"Localization will be one of the most critical innovations over the next five to 10 years," Ms. Serow told the St. Louis Post-Dispatch. "The heart of localization is understanding customer preference."
Retailers, said Ms. Serow, are finding that the savings achieved through standardization from one store to another have come with a cost - lost sales. Now, many are adjusting everything from products to store layout based on an increasingly diverse universe of consumers.
Macy's, the Post-Dispatch article points out, struggled in former May Department Store locations where consumers had expectations that were quite different than what the chain presented in its advertising and on its sales floor.
John Porporis, senior vice president of stores for Macy's Midwest, said the company has sought to change up merchandise selection based on a better understanding of shoppers on a location-by-location basis.
"It becomes about lifestyle in each store," he said. "There is no question there is better merchandise in the (St. Louis) Galleria than may be in some other stores."
Wal-Mart's "store of the community" program is focused on being able to reach a wider consumer base by going upscale in some areas while continuing to cater to its core customer base across the chain.
Cindy Galati, a district market manager in the St. Louis area for Wal-Mart, told the Post-Dispatch, "We've become our own little melting pot in St. Louis. Anything we can do to cater to the individual customer will pay us huge dividends in sales and profitability."
Ms. Galati described the localization effort by pointing to a 20-foot Hispanic goods section that caters to Latinos shopping the company's Supercenter in Wentzville, MO. She also mentioned how a store in Chesterfield scheduled to open next year will have an expanded seafood center to appeal to the Asian population who are expected to shop that location.
The company's Supercenter in Lake Saint Louis has a more upscale customer base. It also has a 7,000 square-foot consumer electronics department (compared to 3,000 in other locations) including an iPod display. It also offers a host of other upscale items not found in most Wal-Marts.
"We offer just about everything here because we know we have that kind of customer here," Ms. Galati said.
Discussion Questions: Across the board, how advanced would you say large national retailers are in modifying product, price, placement and promotion based on the wants and needs of local consumers? What information do retailers need to be able to make sure localization efforts are effective? What large retailers have impressed you with their ability to go local?