What Localization Means

Macys, citing initial success, is expanding the "My Macys" initiative.  Wal Mart recently split itself into 3 separate regions with a merchant organization for each.  H&M admits that it has purposefully focused it 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 homogenous 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, and 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

. 

So what are some of these differences?  From most obvious to more subtle, they include:

• Climate - average temperature, rainfall
• Demographic - Population density, Average Family Income, Average Age, Number of school age children, etc.
• Psychographic - A combination the first two elements into shopper attributes like Urban sophisticate, Soccer Moms, 1st jobbers, Single Moms, Empty Nesters, Retirees, and so on.
• Culture - The dominant ethnic and cultural backgrounds of the trading area.
• 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.  Indeed, it was the primary benefit most often cited to rationalize the consolidation of the industry.  Changing that approach goes right to the heart of most retailers' operating philosophy.  That makes it a big and messy cultural change.
• Senior management commitment to the change.  One of Newton's Laws is that bodies at rest tend to stay at rest.  Large organizations and the way they operate tend to reflect this law.  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.  The reality is that it takes the same time and energy to buy and manage a small quantity for a subset of stores as it does to manage a chain-wide purchase.  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.  IT systems are one of the primary enablers of centralization.  While these increasingly sophisticated 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 thay should have made relative to different markets.  Systems also tend to focus attention on national SKU performance and can mask local success stories.  Successful localization requires eyes, ears, intelligence, and decision-making authority in the field so as to better understand the local preferences and competitive environment and capture the opportunities.

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.

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