BrainTrust Query: What Localization Means
Commentary by Bill Emerson, President, Emerson Advisors
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
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?