Staying On a Local Level

In August, a majority of the National Retail Federation’s CIO Council members said a soft economy would not affect IT expenditures. But while the economy’s current downward spiral is not pushing retailers to cut spending, it is causing some to change project priorities. This is spurring interest in merchandise management and localization programs.

The impact of localization efforts was revealed during two recent Webinars in September: the “2008 Retail IT Budget Benchmarking Study,” presented by NRF and AMR Research, and “Best Practices to Localize, Differentiate and Win: Customer-Centric Strategies that Separate Retail Winners from the Laggards,” presented by DemandTec and Precima.

According to the 2008 Retail IT Budget Benchmarking Study, conducted by the NRF CIO Council and AMR, participants planned to increase their IT spending by 8% in 2008, compared to 2007. Thus, chains will spend approximately 1.62% of revenue on IT, compared to the 1.5% they spent last year.

This study was conducted before the economic crisis that is currently wreaking havoc on retailers and consumers alike.

“During the CIO Council meeting in August, we asked CIOs if the soft economy was causing any pushback within their organization regarding their planned IT capital expenditures. At the time, 75% said there was no pushback,” Dave Hogan, senior VP and CIO, for Washington, D.C.-based NRF said during the Retail IT Budget Webinar.

But even a 700-point plunge on the stock exchange on Sept. 29 hasn’t deterred retailers’ IT spending plans. An informal poll during the Webinar—which aired one day after the market shakeup in September—had similar results.

“Twenty-six percent of listeners said plans are not being impacted,” Janet Suleski, AMR’s research director, retail, said during the Webinar.

“Another 51% are still committed to their projects, but they are increasing their due diligence to fund these projects,” she said.

Some chains are also shifting gears and establishing new priorities. Among their new priorities is merchandise management.

Under this umbrella, chains can pursue more targeted, localized assortments.

Localization is becoming a stronger area of interest across the industry, especially as the retail landscape gets increasingly difficult. “Segments continue to blur, and categories are intermingling across chains, making it hard [for chains] to remain ‘interesting’ to shoppers,” Paula Rosenblum, managing director, Retail Systems Research, Miami, said during the DemandTec/Precima Webinar. “Localization is a strategy that can differentiate a chain.”

While there is a clear need for localization, there are factors holding retailers back. Too many chains are still hung up on how to use pricing to differentiate themselves from the crowd. Others fail to execute their vision.

“This is especially true of laggard companies,” Rosenblum explained.

“They get stuck in a downward spiral of weak sales and then they don’t want to make an investment in a solution to move out of this mode,” she said. “Instead, they continue to operate inefficiently.”

Many chains are also facing “a sea of sameness,” due to increased competition, Rosenblum noted. “As competition begins to enter the marketplace from unexpected, new places, some chains panic and begin offering discounts and markdowns.”

Retailers can overcome these challenges—and reconnect with shoppers—by targeting their assortments based on localization efforts.

“Chains need to understand how consumers shop and why they purchase certain items,” she said. “These points will help retailers understand the impact on specific categories, and allow them to optimize assortments at a local level.”

Companies agree that localization is the way to go. According to the “Consumer-Centric Merchandising: Driving Differentiation through Localization” report conducted by RSR, 93% of respondents have put localization at the top of priority lists. Meanwhile, 56% believe that localized assortments are critical to success moving forward.

While localization has clearly hit an industry nerve, many localization efforts continue to fail. “Many chains are inhibited by ‘the enemy within,’” she said.

“Too many retail winners are married to the idea that merchandising is an art, and they have a hard time incorporating science,” Rosenblum said. “Meanwhile, laggards often face a cultural resistance to the idea.”

By merging art with the science of technology, retailers can move beyond business challenges, improve internal processes and increase the planning of cross-functional teams.

To achieve localized assortments, successful retailers use price- and promotion-optimization solutions that enable them to determine customer purchase trends based on product location and time. “But there is another dimension to localization: customer data,” she stated.

“The more we can leverage our loyalty and transaction data, the more chains can understand about customer segments,” Rosenblum said.

“Once upon a time, we wanted to use this data to achieve one-to-one marketing,” she said. “But this data is also the key to creating more successful promotions and spurring everyday sales.”