Throughout the year, Kurt Salmon Associates has discussed numerous localization topics with the industry’s leading retailers. Not surprisingly, a few key themes emerged from nearly all the conversations we had with top executives. Regardless of industry segment or brand positioning, there are three key insights for successfully implementing a localization strategy. Here is what we found.
- It’s all about the local customer.
- Localization involves more than just merchandising and inventory management.
- It’s easier said than done.
Localization touches all the key drivers of a retailer’s business. Because of this, it can be remarkably powerful in yielding benefits across key financial metrics. Retailers have begun to realize the importance of integrating consumer insights into the business from top to bottom, and many leading players have already begun to implement localization strategies. They are designing new processes, developing new tools (from spreadsheet solutions to more sophisticated, customized software packages) and tailoring their organizations to clarify ownership over new responsibilities. However, localization can also be incredibly complicated and difficult to implement successfully, requiring supporting tools, organization and new processes. Ultimately, it will involve collecting and integrating disparate data, analyzing it to develop real insights, and finally to feed that intelligence back through the operations. Importantly, as with any large-scale implementation, localization should be tested first (in a few stores, across a few categories) to determine what works and what doesn’t before it is scaled. The need for a unique plan for each retailer is paramount. Nearly all retailers we spoke to emphasized the importance of establishing variables and parameters early on, defining success metrics and building consensus among cross-functional executives before kickoff. Because a successful strategy impacts so many aspects of the company, leadership must be involved from the start. In fact, having CEO sponsorship is key. A senior executive at a leading national big-box retailer explained, “We have made a commitment and set the expectation that localization is going to happen; it’s that important. This is more than a process change. This is a shift in mindset—a shift we all have to make, starting with leadership.”
Across all retail segments, we found that nearly 30% of retailers in our study had a full localization program in place for assortment planning and inventory management. However, a myopic focus on these functional levers limits a retailer’s ability to see the often larger opportunities that come from a holistic approach to localization. The more sophisticated retailers become, the more they recognize the benefits of pulling more than one lever to truly impact the customer experience. Leading retailers understand that the strategic value of localizing isn’t one size fits all, even within a segment. They are tailoring strategies around customer service, seasonality, even store design. Each localization strategy, then, must be tailored to the respective business and the needs of its local customers. One approach is to test various formulas. The leadership team at one international specialty brand told us they were testing lots of different things: “We have already rolled out localized markdowns because we saw that as successful. Now we are testing localized marketing and we have given the stores control over determining a specific promotion.” Retailers who have developed and implemented a holistic strategy have been incredibly successful. Recent examples in the marketplace are Macy’s, Lululemon and Kroger, a regional grocer.
No matter how comprehensive the plan, a deep understanding of the local customer is the linchpin of a successful localization strategy. The time-honored approach of overlaying store performance data with customer demographics, which provides only a rough sketch of the local customer, just isn’t enough anymore. Localization demands that retailers then fill out this sketch with psychographic and behavioral details. Ultimately, it is the richer, more complete picture of the local customer that reveals actionable insights. For example, one specialty apparel retail executive noted that “age is no longer important to us. It’s all about how she sees herself. It’s about attitude. What this means is that we have to understand her at the local level in order to tailor the type of product and service she is offered.”
Christina Bieniek, partner, authored this article and oversees Kurt Salmon’s localization research. Clementine Martin, manager, also contributed to the work.