Retail: Seven Levers of Localization
As retailers vie for market share in an increasingly complex environment, “local” is on everyone’s mind. Adapting the brand to fit the local neighborhood seems a plausible means to build loyalty. However, many are discovering “going local” is anything but a straightforward journey.
Gone are the Days…
For 95% of retail history, the sole proprietor dominated the landscape. It wasn’t until the rising incomes and improved transportation networks of the 1850s that retail chains begin to emerge. It was at this time that the need arose for the owner-operator to truly understand and cater to his/her local customers. Well over a century later, a confluence of factors produced the big box and mass merchant era – with new formats rapidly expanding and soon becoming the norm. The 2008 market crash marked the end of this era by stamping out stores with expanded assortments. As stores struggled through a slow, uneven economic recovery and largely saturated market, the rise of web-based shopping began to eat into sales.
So, whereas building more stores that are cookie cutter versions of one another was the way to grow in the last generation, we are currently faced with the difficult task of generating more productivity out of what we already have, in an era of increasing online sales. Enter localization.
What is Localization?
“Going local” is about adapting the store to the neighborhood it directly serves. Assortment gets plenty of coverage in these discussions, but that’s just one lever in the merchant machine. It’s time to think more broadly. Let’s take a look at a few other important factors:
- Architecture – changes to the façade and simple architectural cues often suffice, with no need for wholesale redesign. Embracing the spirit of local places, especially in resurgent city and town centers, will help avoid “blandscaping” and contribute to a greater sense of community, while also driving engagement.
- Store Layout – changing the emphasis placed on each department and even the flow within the stores. Being able to pick layouts not from a single prototype, but instead from a portfolio of sized departments can greatly help a company’s localization efforts.
- Merchandise Presentation – You can change the impression of a planogram simply by changing the lateral and vertical flow of merchandise, especially where brands and price points are important. Resizing the blocks within is like changing the font on a billboard – it communicates a change of emphasis.
- Off-Shelf – which displays and where. Vaco Supply Chain Solutions recently encountered a situation where each of three clusters had markedly different brand preferences, but the category manager insisted on a single buy for each store. Can you guess what the sell-through was like in two of the three clusters? You might lose a little margin by splitting the buy, but you will pick up the benefit in velocity.
- Service Proposition – not just the quantity and quality, but finding staff and management with strong community ties and deep understanding of the neighborhood culture and lifestyle.
- Community Involvement – this almost goes without saying, but it helps when the staff is truly part of the network they serve.
- Assortment – Last but not least, “local” is not necessarily equivalent to locally sourced products. While these are important, an item need not be made locally to be localized. Rather, it is more about adjusting the range up, down or sideways to increase relevance to local customers. Even categories as established as condensed soup vary in flavors offered from store to store. Some neighborhoods have a preference for low sodium, requiring more low sodium soup options. Products are not required to be made down the street. This is where category clustering can be quite effective.
While you do not have to comprehensively redesign every store, you must do something meaningful and targeted. Some neighborhoods have a strong identity. Thus, the population may be more likely to reward businesses that adapt to their preferences. Achieving total localization is likely to take time and experimentation. Leveraging data and the people in the field can help you do so. Localization is a cultural shift. Organizations appreciate the efficiency-minded lure of homogeneity. There are ways to get started quickly, easily and with little risk. However, overcoming the cultural inertia may be the most challenging.
While entering new markets requires systems, processes, and organizational implications, the real enabler is less tangible. Localization is instead a cultural theme in the organization that focuses on informed empowerment. It is designed to enable folks at cascading levels of the organization to have the ability to become the new neighborhood store while still reaping benefits of scale.
For more information, please contact us at 804-282-2033.