Retail

Inventory Localization Drives Incremental Profits and Competitive Positioning

By Sam Young • July 24, 2015

For many national retailers, senior management standardizes item stocking across the company at each store. In addition to the universal stock, these retailers are giving the authority to regional managers to make in-store assortment decisions to provide a more personal feel for shoppers. Macy’s has been one of the first, as CEO Terry Lundgren is pushing for the localization of merchandise to stimulate growth. Starbucks has taken a similar approach, announcing plans to decorate coffee-shops to reflect the local culture. This is even more important for fast moving consumer goods products, for which it is more common for customers to flock to competitors if they can’t find what they want.

 

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Localization – how is it done?

Localization is not something that can be executed in a matter of days. It is an extensive process that first involves thorough research of customers’ store-level or regional wants and needs. Executives must then strike the right balance between localization and standardization as too much localization can dramatically increase costs, while standardization may not deliver the most relevant items to each store, impairing the customer experience. There also isn’t just one way to implement localization; many retailers cluster, or group stores into region or by similar patterns, like by the demographic served. By clustering stores, executives will not need to plan for each individual store, but can focus on groups of stores, utilize economies of scale, and rely on regional managers for the execution phase.

What challenges might they face?

Decentralization is not always an easy task. There are various challenges retailers face as they go through the process of localizing merchandise, specifically with organizing and managing the transition. Executives at the national level usually give power to regional managers, allowing them to choose products and advertising programs, but this can backfire. Managers at the local level typically lack the data, analytical skills, and resources the national chain uses to make efficient stocking decisions. There are also high costs and expensive investments involved with deciding how exactly to localize merchandise. Companies might prioritize the opportunities that have the greatest returns with a crawl, walk, and run approach to large and more important categories.

The Success Stories

Macy’s

Macy’s is at the forefront of localizing merchandise. They rolled out the MOM initiatives, including the “My Macy’s” strategy which encompasses the localization efforts, but also includes strategies to interact with customers on a variety of channels (Omni-channel), along with implementation of new training tools for customer service representatives (Magic). According to CEO Terry Lundgren, My Macy’s has improved stores in 20 pilot districts for localization that accounts for 10%-15% of a store’s inventory. One example was in the Columbus, Ohio region where the store managers added golf attire and more Ohio State paraphernalia after noticing their popularity.

Starbucks

Starbucks is making similar moves to further their appeal to local consumers. While stores already have cozy atmospheres, some customers view the brand as the coffee-equivalent of a fast-food establishment. To debunk this stereotype, they have opened eighteen different design stores around the world to research how to mix the Starbucks brand with local culture. China is a prime example for how these efforts have been largely successful. Starbucks built over 1,600 stores in 90 Chinese cities and culturally it has made a prominent impact. The localized store offerings and lounging areas have made the brand iconic, as holding the coffee cup with the Starbucks logo has even become a symbol of high status across the country. Its market share supports these trends, as Starbucks dominates 60% of the coffee drinkers in China.

QuikTrip

QuikTrip is seen as one of the premier convenience chains, but they are now moving towards more localized offerings by implementing made-to-order menus at some of their stores. The menus, cooked by QT Kitchens, have already been rolled out to stores in Arizona, North Carolina, South Carolina, Oklahoma and Iowa, among other states. The menus include a variety of hot-cooked food items, along with customized desserts, like flatbreads, toasted sandwiches, and real fruit smoothies. They chose to implement the made-to-order menu based on positive feedback they received to the idea through multiple surveys; it seems customers are demanding higher quality food that is local to each QuikTrip store.

About SwiftIQ

SwiftIQ uses high scale data processing and machine learning to deliver contextually relevant insights and digital experiences for retailers and brands. Its platform unifies and analyzes data primarily from in-store transactions as well as online behavior and third party sources to predict and inform category captains, shopper marketing, assortment, supply chain and content delivery decisions. SwiftIQ’s unique ability to process billions of basket-level transaction records in near real-time and convert that into on-demand mobile visualizations, dayparts, affinities and attribution fosters a new level of retailer/supplier collaboration and innovation.

Since launching its category captain and consumer behavioral analytics platforms in 2014, SwiftIQ has doubled in the first quarter of 2015 and now manages nearly $30 billion in offline, receipt-level point of sale data. The company provides software to 4 of the top 10 global CPGs and several billion dollar retailers. SwiftIQ, named a Top Innovator twice by DataWeek, has also been recognized by Google, Forrester, Forbes, ProgressiveGrocer and ComputerWorld for its achievements. For more information, visit www.swiftiq.com.

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