Most national retailers have a long way to go as far as localized preferences are concerned. There’s a real trade-off between the costs of executing such a strategy and the payback from incremental sales. After all, it takes a commitment to great systems as well as to additional people to make sure such a strategy is effective. You can’t effectively localize your content without the mindset among your merchants, allocation teams and store management. You also need to be careful not to micromanage your assortments too much, or you risk getting the “big ideas” wrong.

Macy’s has been self-critical about its home store sales being held back by misreading of regional preferences. But Macy’s is just as guilty in soft goods of providing a very homogenized shopping experience, considering the number of regional buying offices they have maintained since the May takeover. The big centralized chains–Wal-Mart, Target, Kohl’s, Penney–seem to be better at driving regional preferences through centralized strategies. Even these stores have plenty of room for improvement.

For the last 15 years much of the work in the retail industry has been about creating efficiency in the supply and distribution part of the supply chain. When a retailer has hundreds or thousands of stores, the greatest efficiency comes from buying and distributing the same merchandise to all stores.

However, consumers are finding it easier to purchase what they want regardless of what is in stock at local retailers. As a result, retailers are now also interested in the demand part of the supply chain. Providing the right products to the right consumers at the right time–at the right price–is important.

Creating a strong localization policy creates inefficiency and the most efficient operation means little localization. The next big question is, how do you manage the paradox?

I’ve been in a position to analyze these opportunities for some mid-sized and major retailers and there is definitely a lot of what, at least initially, appears to be low-hanging fruit. There are many ways to segment the data (by region, by income, by ethnicity, by family make-up, by age distribution, urban vs. rural, etc.) and it can quickly become very complex, even “on paper”! Unfortunately, huge compromises often have to be made when it is time to execute, because of logistical issues and fears that there are not the proper vehicles in place to communicate all the variations at the store level.

However, when we have been successful in rolling out a test, the results have proven that opportunities abound.

Thank you Bain Consulting for reemphasizing consumer focus, understanding and marketing practices.

Interestingly, the best of the best retailers and service companies have been in tune to micro marketing for some time. Did we all forget some of the superior efforts of Publix, Marsh, Macy’s, Marriott, Nordstrom, and other notable Alridge Award winners? And all are very profitable, even though each is competing in the same markets as low priced oriented businesses.

Yes, for differentiation, positioning, consumer focus, and sticking to consumer marketing practices that are long term business and brand equity, and loyalty builders, price is not a winning play…or a guarantee. Hmmmmmm

MAD MARKETING has better strategies to establish long term growth and profit…addressing the consumer and shopper.

The national and even the regional chains are, indeed, getting the message.

A&P finds itself now as a sole regional chain, operating exclusively within its core Northeast home base. If you shop any of the Delaware and Maryland shore stores, these new Super Fresh market formats makeovers, are exceptional. Beach goers are finding that whatever great supermarket offering they left at home can be bought there at any of Super Fresh’s beach locations, where they can find even more varieties of fresh as well as fine wines and beer selections.

It pays to listen to the local customer base. The cookie cutter approach will yield disastrous results. Tweaking store selection to accommodate local needs and tastes is a win-win proposition for both retailer and customer.

Sounds like we are making much over practices that have been in place for some period of time. You go into your local Wal-Mart in Virginia and you will find University of Virginia, Virginia Tech, William and Mary logo products. These items do not exist in a store in Texas where you will find University of Texas, Rice, Texas Tech, etc. OK, let’s think…why is this being done? It’s to create sales opportunities among the local populace without having the expense of inventorying every college logo in the USA. This has been going on for years. Localization is a great idea as it maximizes return on investment unless one rabid college fan decides to deface the products of a rival (this does happen). However, I don’t believe this is practical when it comes to food (produce) items purchased locally to be sold locally. Wal-Mart and others could set up space in the parking lot for a “farmers market” where local products could be displayed and sold without incurring the liability of selling the in the… Read more »

I think some of us may be overestimating the capabilities of our fellow retailers. Yes, they want to provide the best assortment of products to attract the most customers, offer good pricing, and be good corporate citizens, but many of them are not prepared to do so. Their infrastructures need to be altered to be able get the kind of information they need to perform such tasks–better distribution systems, analysis of their FSP data and help from manufacturers to conduct research to better understand their customers wants and needs.

Most are beginning to take such steps, as leaders like Wal-Mart and Macy’s have shown, but as was evident at the Shopper’s Insights conference a few weeks ago, many are looking for partners to help them sort it all out.

Localization is often pretty simple. A national retailer has an assortment plan for each major category in sales volume group increments. The highest volume stores in a given category are given a much wider assortment than the lowest volume stores. Alternatively, certain categories have some flex space built in to display local preference items. And certain categories are automatically localized, because major suppliers tend to be regional.

A chain supermarket isn’t likely to have all the same dairy or bread brands in every store because these items come from local producers, for example. The highest volume Macy’s shoe department will have a much larger assortment than the low volume stores. Every supermarket chain reserves space for local ethnic preferences (kosher, Hispanic, etc.) Certainly supermarket chains and department store chains have been localized as long as they’ve had more than 1 location (forever).

Local market optimization is nothing new. The value proposition on paper is straightforward. Targeted assortments create differentiation, require less price promotion, and sell through better. Hence, a gross margin improvement. Advanced value propositions model the impact on supply chain costs of implementing this approach, and act to diminish the potential gains. Even more advanced models acknowledge the merchandising resource costs in human effort and time to implement, as well as changes and upgrades in information systems. I am skeptical of the claims of doubling the profit. Having modeled these factors, and applied them across a wide number of retail categories, I’ve found nowhere near that figure. However, local market optimization is without doubt, worthy of attention and effort. Ironically, the larger the scale of the retailer, and the more mature as a concept they are, the more important this is going to be, and the harder it will be to implement within the organization. National chains get where they are via synergies and economies. Essentially, within limits, the merchandising, promotion and supply chain processes work… Read more »

Localization is the phrase de rigueur and is an overplayed situation. The core competencies of national retailers are their abilities t,o deliver like store congruity while maximizing the supply chain, price and promotion. There will be some differences (i.e. winter clothes in the North and “light winter” clothes in the South) during certain times of the year, but most of America’s tastes are fairly homogeneous and this has given national chains their strength. Furthermore, the consumer’s expectations are that when they walk into a Wal-Mart that it look and offer the same types of products at the pricing which Wal-Mart is known for. Having retailers focus their efforts on distinguishing the minor differences between regions is not a good use of resources and diverts attention from the real problems of most retailers-customer service. Instead, retailers should be seeking ways to motivate and better focus their staff on enhancing customer service to maximize their customer’s shopping experience.

In my opinion, the best example of a national retailer serving the local market is the Army & Air Force Exchange Service (AAFES), popularly known as Px and Bx stores. Their stock assortment is tailored to the demographics of a given base. For example, on a training base where there is a turnover of customers every 6 months and most customers are single young adults there is a good deal of electronics, music, cameras, etc. available, while in the Washington, DC area, where there are senior ranking officers, more Wedgwood china, Waterford crystal, Lladro figurines, David Winter’s Cottages, etc. is available. Most retailers can learn a great deal from the Army & Air Force Exchange Service in this area.

I find that the larger box type retailers are slow to identify local customer needs while the smaller store large chains can be effective in catering to local needs. What these larger type stores require is a manager or director who is given the task of ‘local store marketing’ or LSM as I call it. LSM is done by the manager doing an in depth analysis of the makeup of the community and researching its culture, language, income levels etc. A prime example is while I was working in the field for Blockbuster, I was situated in a store in an area with a huge Asian community. I went as far as speaking to community leaders to ask them what types of products they wanted me to stock. My vendor arranged for a few hundred Chinese movies to be sent to me and we put them on the New Release wall front and center. The new titles were a success and I believe the community was really appreciative of the gesture as sales and rentals… Read more »

Localization or store of the community is of course an excellent strategy if supported by actionable and achievable tactics. The problem for most national chains is their systems infrastructure. Wal-Mart has one of the longest running (1991) and most robust product database (Retail Link), the others pale in comparison. The key is how to leverage this information into actionable and executable plans. Wal-Mart relies upon its supply base to mine the Retail Link data and recommend assortments (at the store, local, regional and national levels). Even with these tools, however, Wal-Mart has not been nearly as successful at driving localized assortments as they would like. Time and logistics are one of the biggest barriers to achieving a true store of the community for a national chain. Most assortments are planned months in advance, modulars for each store set are planned with each modular requiring a replenishment plan that is reviewed and monitored to ensure in-stocks are achieved and sales are maximized. That is an incredibly complex proposition for a national chain to manage and to… Read more »

It makes fundamental sense to cater to local customers. That’s what retailing has been about until about 25 years ago when computers enabled retailers to centralize information, and with it, centralized decision making. Retailers can leverage the same technology to make localized merchandising work. Here are some guidelines. 1. Field people. Give them access to your computers. Tell them what the top selling items are at the store in which they work. Reward field people for gaining some insight into local shopping behavior and needs. 2. Best customers. Know who are your best customers, how often and when they shop. Understand what they want and where else they shop. Learn about their online behavior. 3. Shop the competition. Notice innovations that seem to be working, especially locally. 4. Innovate. Foster an environment where local stores are encouraged to innovate with merchandising, promotion, and service tactics. 5. Test. Rigorously test innovations against control groups to understand impact on merchandise mix, sales uplift, cost of sales, customer and employee loyalty. 6. Get involved with the local community:… Read more »

The thrust of the effort is correct (adjusting the offering to meet consumer/shopper wants) but the implementation is still spotty. In part, the issue is that the metrics and data analysis used is measuring the wrong things.

The complexity of the shopping experience is such that we as an industry need to focus on the shopping decision making process as the delineator of segmentations and not demographics or other means currently used to identify shoppers who have bought and those who have not (but cannot capture what they thought about when they made the decision and what would it take to influence them in a causal fashion. The best we have is correlational data, i.e., there was a TPR and sales went up…but did the TPR cause it?).

Localization is an excellent strategy for a retailer to adopt. While consumers want to shop at a retail brand that they know and trust, they also want to be able to find product that is specifically right for them, and for the market in which they reside. During the consolidation years, too many retailers tried to create cookie-cutter stores, with national planograms, and their sales took a hit accordingly. It won’t surprise anyone to know that Whole Foods does an excellent job in creating a localized feel. They execute in little ways like hanging a shelf talker under products informing customers that the product is locally produced. But they also execute in big ways, as well. In a new store that opened in the Sauganash neighborhood in Chicago, Whole foods named the interior grill restaurant the Sauganash Grill, to tie in which the neighborhood. That is localization at its finest. By the way, the grill sells brats and beer. You won’t find that at a Whole Foods in Southern California. Whole Foods studies the neighborhood… Read more »

Retailers that make every effort to understand and execute product distribution, assortment, and promotions on a local and regional level, will prosper and benefit in many ways:

o The retailer will attract and keep new customers that it might not have enjoyed in the past.

o The store will be thought of more as a member of the community rather than merely another national chain with stores.

o The chain will differentiate itself from other national chains that set every store the with the same national distribution throughout the country.

Examples of markets where the local flavor is paramount to achieve success include St. Louis, Boston, Detroit, and Seattle.

Right now, the initiative is pure rhetoric. Furthermore, consumers have a great deal of homogeneity in their tastes and preferences across the country. Except for a few obvious area (Ethnic Foods, for instance) I am skeptical that there is that much revenue upside to offset the significant increase in costs needed to cater to local demands. I’ve seen my share of store-specific tests on a category basis to justify that skepticism.

Any local assortment planning must be driven by leading edge information systems, and everything I see with the major national grocers is a horror show! Even if they could get the data, most buyers will tell you that is virtually impossible to ensure store-specific execution. Bottom line: the retailers need a major re-engineering of their internal information systems and management processes if store-specific assortments are going be a reality, and it’s questionable whether that effort would pay off.

I think there are 2 areas that need to be significantly developed before localization is going to become a widespread reality: 1. How much localization? The retailers I’ve spoken to who have gone pretty far down the path of localization say they think there’s an 80/20 rule at work here–80% of the gain of localization can come from focusing on localizing only 20% of the assortment. It’s figuring out WHICH 20%–that’s the trick. And it has to be done at a department level, not a store level. 2. At what cost to supply chain? Somewhere, at some point in the supply chain, localization is going to mean breaking case. As soon as you open a case, you are introducing enormous cost into the supply chain. The apparel vertical has embraced this concept by optimizing pre-packs, so that they can send different size distributions to different stores. But even for apparel, this is a relatively new capability. Anyone deciding to undertake localization needs to understand their supply chain cost structure, because there is going to be… Read more »

I am a strong proponent of localization. Of course this comes at significant expense (market research, merchandising philosophies, product assortment, supply chain logistics, personnel). The trend toward what we term “Category Segmentation” and “Consumer Navigation” may well begin to overcome the homogenization at retail (especially in health and wellness categories where our company spends 90% of its time). Changing culture and overcoming internal hurdles will be one of the biggest challenges for retailers to address. Perhaps a test without tying up internal resources and reinventing the entire infrastructure is the best first step. Personally, I’d like to see more action on this topic from retailers and less rhetoric.