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RetailWire Discussion: Localization and limited buys

The pendulum has swung away from generalization and back toward localization, but retailers and brands are learning how to execute locally through their existing buying models.

December 2, 2009

What follows is an excerpt from one of RetailWire's recent online discussions featuring commentary from its "BrainTrust" panel of retail industry experts.

Back in the early '80s, J.C. Penney was the only retailer of its size that maintained a decentralized buying structure. Each J.C. Penney store had individual buyers who could either go along with the corporate buyers' recommendations, or they could make individual choices that they believed were best for that particular store (or, as was most often the case, they combined both strategies). Penney's reasoning was that the store buyers knew their customers best.

They defended this system even as J.C. Penney's competitors subsequently moved away from regional buying offices and toward completely centralized buying structures. Their competitor's philosophy was that good product was good product and that any benefits from regionalizing assortments would be trumped by the economies of scale achieved through chain-wide buying. By 2000, Penney, teetering on the brink of bankruptcy, began moving toward a centralized structure as well.

Since that time, the pendulum has since swung away from generalization and back toward localization and specificity. Fortunately, retailers and brands are learning how to execute locally through their existing centralized buying models.

Macy's recently launched its My Macy's localization strategy, which leverages proprietary software and newly created teams of district planners and merchants to ensure that each Macy's store is relevant to the community it serves.

Best Buy is encouraging its store teams to go off-script by instituting everything from community-specific store hours to merchandising variances that place regionally relevant items front and center in certain stores. And, in a radical departure from the previous corporate-knows-best information flow, Best Buy is gathering insights from individual stores in order to drive incremental opportunities that otherwise might escape notice.

Home Depot began sorting its stores into "clusters" with similar attributes after realizing that some stores were selling one riding mower per month while others were running completely out of tools under its one-size-fits-all purchasing structure. And Walmart, through its Store of the Community program, intentionally distributes certain products and brands to limited stores based on the attributes of particular communities, and even neighborhoods.

One of the more common problems I've begun to encounter in my consulting practice is retail suppliers misunderstanding, or not knowing at all, their retail partners' visions for their products, brands or services. When a supplier's efficiency-through-scale expectations are completely out of alignment with a retailer's more limited intentions, misunderstandings — and in some cases, business failures — result. For example, a consumer electronics client that I worked with recently was stunned when one mid-tier retailer eliminated its brand entirely from one geographic region due to the growing strength of its top competitor in that market. The client had always been an "all-store" resource and assumed that wouldn't change.