BrainTrust Query: What Localization Means

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Jun 07, 2010
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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
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?

Please practice The RetailWire Golden Rule when submitting your comments.

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21 Comments on "BrainTrust Query: What Localization Means"


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David Biernbaum
Guest
10 years 10 months ago

Now that national retail chains are dominating the landscape in every local market, it is almost essential that each one make its best effort to include local and locally preferred products in the mix.

Local consumers crave local flavor and taste. National chains have taken this away from them.

However, retailers need to localize in a sincere and accurate way. Avoid making subtle mistakes such as providing only Chicago Cubs licensed brands of peanuts in Illinois cities that are much closer to St. Louis. Don’t laugh, I have seen this happen and it’s a very “big deal.”

Dan Raftery
Guest
10 years 10 months ago

Bill’s points about changing culture and de-leveraging national merchandising organizations is certainly one of the main hurdles. Another is the institutional reliance on slotting fees and marketing funds that support manufacturers’ national distribution strategies.

Shelf space is finite, but the creative resources within marketing divisions certainly don’t let that mute their efforts. True variety localization means more than carrying special items that appeal to the locals–it also means not carrying nationally distributed SKUs that do not appeal. That’s the tough part.

Charlie Moro
Guest
Charlie Moro
10 years 10 months ago

Great article about the real issues. Can companies commit to using their national leverage in other ways than cutting costs by consolidation and manufacturing assortment and logistic cost reduction? The key to long-term growth is the need to see what sells in different markets and different formats. Companies like Food Lion have done a great job with looking at various formats and demographics within a smaller geographic area than national chains that still struggle with giving localized banners autonomy but have not made staffing available to manage beyond core assortments.

Paula Rosenblum
Guest
10 years 10 months ago

Call me a technology geek, but the best and fastest way to achieve localization is through technology that supports it.

This doesn’t address organizational issues, or the fact that a “bad” assortment is bad even if you get to pick and choose from the parts and pieces.

Retailers have consistently told us in our benchmark surveys that localizing assortments is a key to their success. It’s a better use of the inventory asset and a better way to win the hearts and minds of consumers.

Roger Saunders
Guest
10 years 10 months ago

This is only “Somewhat Difficult” or “Very Difficult” because centralized merchandising too often factors out localized thinking.

I spent a number of years in the QSR business. There are many reasons that McDonald’s (and others) have had great success over the years–one of them is franchising, and capturing the thinking of entrepreneurs/intrapreneurs.

National retail chains can gain from this experience. Providing and teaching their local management teams how to use and interpret the data about merchandising, marketing, supply chain, etc, surrounding their stores will open up the power of their entire organization.

A talented Dutch artist by the name of Alwin Van der Linde has opined, “We are gifted with a unique feature in the imagination. It offers us the power of thought to create matter and ideas.”

If national retail execs encourage and permit their entire organizations to use their imaginations, they will see individual store boosts that will provide smiles to their faces, and stronger top and bottom lines.

Ben Sprecher
Guest
Ben Sprecher
10 years 10 months ago
The article does a great job of pointing out key elements required to make a localization initiative successful *within* a retailer, but aligning the retail organization is only part of the challenge. Engaging the locally-loved brands in the process is an equally important (and equally daunting) task. The big thing that many localization initiatives ignore is that getting the right products into the right stores is only part of the challenge. You then have to let those brands market to the right shoppers in alignment with their distribution across the chain. And this is where the complexity explodes: many small brands running many small campaigns, each with its own geographic boundaries, creates a multiplicative effect on the number of active campaigns a chain must support. And since these local favorites tend to be niche products, they will each have different target audiences within the store. So, when you throw in the behavioral targeting aspect, the process can become unmanageable. What chains need is a technology platform that allows brands to pull their own weight in… Read more »
Dan Desmarais
Guest
Dan Desmarais
10 years 10 months ago

The technology is readily available to automate the localized assortment and recommendations necessary to complete most of the planogram. The hardest part of localizing a planogram is implementing the retailers’ sometimes archaic rules that force hard brand blocks, segment boundaries, or vertical alignment. When the planogram is able to sway a bit from the standards, you can actually get the the merchandise allocated to the shelf.

Good retailers have hard rules for Days of Supply and Casepack. These same retailers then have “guidelines” for merchandising that allow the Space Planners some flexibility in their space allocation. The result is a localized planogram that meets the consumers’ needs.

Ed Rosenbaum
Guest
10 years 10 months ago
With the technology that exists today and point of purchase information, it should not be that difficult or require a brain surgeon to determine what is going to sell in individual markets. Yes, the Miami Dolphins sportswear will sell better in some areas and New England Patriots in others. And both will sell well in some similar areas. Living in South Florida as I do, I have often marveled at why buyers used to put heavy winter clothing and sweaters in stores during warm summer months. I understand merchandising before the season. But those type items never sell well in summer months in warm weather climates. People living there year around have no interest in buying them until or if they are planning to go to a cold weather climate many months in the future. Fortunately, we are not seeing as much of this now. maybe the buyers are getting the message clearer when they look at the sales numbers. There are universally sold items that will do well in most areas depending on the… Read more »
Jeff Hall
Guest
10 years 10 months ago

David’s perspective, shared at the top of these comments, is spot on.

Given the broad levels of standardization in retail, consumers desire, and will reward those retailers who provide some degree of localization in merchandise offerings. Whole Foods is a great example of this, and they’ve just opened a new concept store in Mill Valley where over 1,000 products are locally sourced from Northern California, with hundreds coming from the Mill Valley itself.

Localization will likely become a key strategic point of differentiation within a sea of retail sameness. Localization is an opportunity for a brand to show a more intentional, authentic side of itself, and its commitment to understanding and serving the needs of its immediate customer base.

Ted Hurlbut
Guest
Ted Hurlbut
10 years 10 months ago

I just don’t see the business models of these national chains able to support localization at a very granular level. Technology can help, but in the end, I suspect that increased labor and operating costs chew up most, if not all, the incremental revenue to be gained.

National chains have succeeded by out-economizing their competition. They are the leaders because they have been able to become the price leaders on a given basket of goods. That’s what they do well. Localization runs counter to that, if the goal is to truly be local. Regionalization might be a more realistic and workable balance between a business model built on bottom-line economies of scale and the desire to localize assortments.

Li McClelland
Guest
Li McClelland
10 years 10 months ago

The great retail names of the past rose and grew and prospered in their unique cities and regions. They exuded local-feel assortment, fashion, and personality because they understood their market and were *of* their market. Business travelers and tourists alike relished the unique sense and flavor of the merchandise which was different in San Francisco than it was in Boston than it was in Chicago.

National chains, several of which came to be because they gobbled up the competing regional brand names, are now finding out that centralized bulk buying and ubiquitous advertising really isn’t the way to consumers’ hearts. But it is too late. “Localization” efforts aside, shoppers are simply not fooled into thinking Macy’s (for example) is a different store in Atlanta than it is in Minneapolis. And retailers acting as if they have suddenly discovered some new thing about tailoring their assortments to local conditions is almost laughable.

Dennis Serbu
Guest
Dennis Serbu
10 years 10 months ago

I am encouraged by what I consider a swing of the pendulum. Centralization in the grocery industry has been a disaster. It is about the customer, and as mentioned previously, we will never know about the opportunities lost because of the forced national brand programs and the elimination of regional brands. Wal-Mart is wising up, as is Target, who recently began allocating space for regional preferences.

The major grocery chains have been going in the opposite direction and opting for “sameness” and control of major categories by the category partner. One would hope that grocery senior management will pick up on this trend and rethink the strategy. The upside is the more building of categories, the more profit and local jobs on the supply side.

Technology helps but unless you really understand local markets, a buyer sitting in Pleasanton, Bentonville, or Minneapolis cannot possibly understand local consumer preferences; nor are they inclined to add further complexity to their line responsibility.

George Whalin
Guest
George Whalin
10 years 10 months ago

This is one of those initiatives that is adopted by retailers from time to time whenever they think they need a new competitive edge. With Macy’s seeing some success with their localization initiative it’s only logical that other retailers would see the benefits of such an initiative.

Savvy retailers including grocers, hardware and home centers, and others have long realized that shoppers are not the same with the same interests in every area of the country. Large national chains will see real tangible results from localization. This also includes Walmart.

Anne Bieler
Guest
Anne Bieler
10 years 10 months ago

Localization can be a strong differentiator for retailers. There are unique flavors and cultures searching for good products/sources across the country. Technology can enable solutions that work, supply chains can be tuned to deliver, but it is a new mindset for management–from current inventory management, to purchasing, to metrics–and most importantly, collaboration between internal and external partners. Those who don’t adapt will be on the wrong side of the growth curve.

Shoppers don’t want more of the same stuff in every store! Give them a reason to choose your location.

Jonathan Marek
Guest
10 years 10 months ago

Great article and commentary on a fascinating topic. The answer on localization is going to vary by segment, by market position within that segment, and by the quality of the field organization.

Take grocery, for example. Whole Foods has to find a way to do things like the Marin concept store. Their entire customer base and market position will require mastering locality. Not true of price-oriented supermarkets or Walmart. So then, the question becomes: can I pull it off? With Walmart, there is a base of outstanding store management and a history of localizing assortments, so they may be able to pull this off. For grocery chains that don’t have that manager quality and history, keeping merchandising simple and low cost will prevent a cost train wreck.

Ralph Jacobson
Guest
10 years 10 months ago

This is all about “Glocalization,” the balance market demands for localization of offerings with the need for global operating efficiency driven by global standard processes and systems. Whether this is a regional, national or multinational player, specific business process model innovation needs to evolve to identify those functions of the business that can be leveraged “globally,” and those that the shopper truly appreciates at a local level. That is also, key: what the shopper appreciates. Too much localization may make the retailer feel good, but has zero impact on the shopper. Several good examples have been mentioned, but there is always room for improvement.

Carlos Arambula
Guest
10 years 10 months ago

I believe the main hurdle is measurement of profitability. Any retailer that can figure out how to make localization profitable for them will do so.

There are many ways to logistically address the operational aspect of regional customization. All large retailers have the ability to be flexible in product delivery. The difficulty will be determining the brands and products that have a stronger local appeal than the national brands they will replace in the aisles. It’s not impossible. Currently, top national retailers have Hispanic consumer products in all their stores with a high density of Hispanic consumers in their RTAs.

As a marketing entity, my firm utilizes localizations tools to optimize the distribution of our client’s products based on the demographic of the retailers individual stores RTA.

Robert Dyer
Guest
Robert Dyer
10 years 10 months ago

Localization is more than just planograms and assortment. It also incorporates human resources (face of the customer or hiring to your market area), operations (display plans that add local products to the mix), and marketing (local market flyers, loyalty marketing initiatives, etc.). Store management needs to spend time on the floor learning about their customers and interacting with them to create a feeling of belonging for the customers, no matter the demographics. Merchandising guidelines that focus on each element of localization can guide the local store management in creating the overall environment to succeed in their markets.

Doug Stephens
Guest
Doug Stephens
10 years 10 months ago

What the roll-up of the 2010 census will show is that America is like 3 countries under one roof. The Northeast, the South and the West are the primary areas of population growth and, in the process, taking on their own distinct cultural nuances.

The days of buying centrally for a massive and homogeneous Boomer generation are giving way to a new era of fragmented niche consumer sets differentiated by, among other things, geography.

If anything, the trend is likely to swing significantly further toward granular localization and–to echo the point others have made–this will be a challenge for large national chains and a strain on the business model of the mass merchant.

Shilpa Rao
Guest
10 years 10 months ago
The concept of localization is not new to retailers and almost all of them understand the benefits of it. So there is little doubt that localization could help sales. The issue lies in execution. As , Paula Rosenblum correctly pointed out, technology is the fastest way to achieve localization. But retailers with legacy systems struggle as their systems cannot not scale up to the additional workload/intricacies of localization. For instance, for one retailer that I worked with, major changes had to be made for about 20 different systems to cater localization. Store specific localization, involves much more complexities, and hence most retailers have adopted clustering/store grouping to apply localization. Localization of assortments has several downstream impacts. It does not stop at increased number of assortments and exponential increases in number of planograms created and related legalization/authorizations to stores, label printing, etc, but it also affects promos and advertisements. Typically adzones are based on the circulation of daily/magazines, where as clusters for localization not necessarily fall in the same adzone. Hence, now the ads have to… Read more »
John Crossman
Guest
John Crossman
10 years 10 months ago

The toughest part is it being seen by the local community as sincere. The key to success is truly plugging into the local community. I see many retailers fail at this. They often choose generic programs rather than something that is truly meaningful to the local community.

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