The Importance of Localization

By J. Kent Smith, Galleria RTS

The long established buzzword, “localization” is more important today than it has ever been. The approach of ever broadening assortments has clogged shelves, exaggerated mark-down costs and compromised returns; with slotting fees no longer sufficient to bridge the gap. Put simply, retailers are out of space, capital and resources; urgent action is required.

It’s about getting the localization right end to end, joining the dots from planning and execution to align product and promotional decisions with channel and store specific consumer demand signals.

The solution starts with understanding the role of localization by category; consider developing assortments such as:

• National Core: Items sold in all stores regardless of cluster or size.

• Cluster Core: Items sold in all stores in the cluster, in addition to the national core.

• Cluster Optional: The SKU base that is optional – sold where possible, but may be dropped based on set size or other factors.

• Local: The items that for one or a group of stores, are required. Some will be locally sourced while others are designed simply to give an ordinary store extra punch.

The cluster definition is key, not only in how to group the stores, but in understanding concisely how the product mix varies today across each, and the opportunities to further enhance these shifts through shopper, neighborhood, and competitive insights.

A cluster specific approach provides retailers with a tool to achieve a limited localized space plan, with good representation of the average consumer at an average location within that cluster. While this approach is better than some, it still lacks specific location, space or SKU variances that are required in order to build an offering that is fully cognizant of localized demand.

With an ever growing diversity in ethnicity and consumer lifestyle choices, it is important that retailers make the effort to understand the variations in demand through demographic, geographic and sociographic intelligence where possible.

Here is where the power of chain and cluster level substitution guidance comes in; it is not just about deciding whether to carry an item or line, but can also help to determine if the item should be chain wide or only in certain clusters; if protected as unique or optional in smaller stores.

The remaining question is how does corporate become of aware of the truly local items? Clearly neither dedicated field force, nor suppliers are options. Rather, regional managers and store leaders need to be empowered to notice and recommend these. Getting granular on individual items and locations can be time consuming but the results can prove to be gargantuan; it’s all a part of being an integral part of the neighborhood.

At the same time as retailers pursue the optimal channel strategies, war on the oversized case pack needs to be declared; such are major consumers of space and inventory and as such have the potential to drive mark-down risks. If cases can’t be made smaller, serious consideration has to be given to breaking the case as source.

We’re all familiar with the mantra “right product, right time, right place and right price” but all too often a vital piece of this message is missing; getting products to store in the “right quantity” can also be a cause for concern and should certainly be a consideration in the localized approach. Building an awesome assortment without an understanding of space constraints can lead to average results, with the delivery of consumer specific presentations that are not based on the true realities of execution.

It is worth considering the differences between facing sizes, backroom size or variance in the daily forecast rate of sales dependent on location. It is fair to say that consumers buy products at different rates from one store to the next and facings should account for and reflect these differences where possible.

The caution in assortment optimization or giving the accountant too firm a hold on the reigns is that the flash role of assortment and presentation can be lost – the stores can be a little too productive, a little too routine. Recognizing the need to cater to both shoppers’ rational and emotional conditions, you have to recognize the transcendental role of the cool and hip, the new and improved, and the theatre these create. Productivity must be measured, but the success of a retailer depends on the ability to selectively step beyond this and make every effort to engage with the local market’s culture and understand how it affects consumer attitudes to the entire shopping experience.

The road to localization can quickly become rutted if you do not have systems in place to support it; these systems require localization not just to be a feature, but in the very DNA of the company and its solutions; localization is not an add-on, it must be core.

Fundamentally you must have a system that enables regional and local planning with capability to communicate guidance directly into a planogramming system, which can automatically accommodate all these substitutions along with store specific variances in demand and fixtures.

Collaborative planning is crucial to localized success and as such it is imperative that the system should integrate with the supply chain so that authorizations are tightly managed. Anything less and the reality will be a long-drawn-out process of key punching and drawing planograms which cannot be delivered upon; or worse still, simply letting the assortment flood gates open – over exposing shoppers with a saturated offering.

The hallmark of such a system is an assortment tool, which allows for synchronized chain/cluster planning, and set size planning with space awareness; the ability to step beyond linear analytics to include cannibalization at the cluster level; the articulation of the local items by store; and, the ability to pass this guidance seamlessly to the merchandising function who can maintain a portfolio of cluster, set size, and store specific localized planograms without having to let their capacity constrain strategy – and without having to employ an army of staff and vendors just to draw them.

J. Kent Smith is VP of business development & consulting for Galleria RTS. He can be reached at [email protected].