Localisation can lift retail sales and satisfaction
M&S is attempting to 'localise' its stores
Plans by retailer Marks & Spencer to group its stores into clusters and stock products tailored to local needs could deliver a 5% increase in market share and greater customer satisfaction, a consultancy firm claims - but could also take up to two years to yield results.
Marks & Spencer could gain up to a 5% improvement in market share by adopting localisation as a business strategy for growth, predicts Tim Robinson, a partner in the UK practice of global retail and consumer goods consultancy Kurt Salmon.
"Localisation is now gaining momentum in the UK as retailers look to sweat their assets; it's a very relevant strategy for a business such as Marks & Spencer with its diverse store portfolio and customer base.
"Historically, many retailers have attempted to 'localise' by tailoring elements of their ranges or category mix to meet local demands, such as sending more green jackets to rural stores than urban and more knitwear to branches in colder locations.
"However, this just touches the edges of what can be a very powerful business strategy able to drive like-for-like sales growth, margin, and, perhaps even more important in the long term, customer satisfaction," says Robinson.
While localisation has picked up pace in the UK in the last couple of years, the US has moved much faster in this direction, with businesses seeing typical benefits of:
- Comparable store sales up more than 3%
- Net margins up by almost 3.5%
- Inventory turns up by 12.5 %
- Market share up by 5%
While some might argue that the US is a more diverse market, the UK does show big differences in demographics, competitive landscape and buying behaviour between locations - and even in the US most retailers have not actually localised most of what they could.
A Kurt Salmon survey found that while 83% of US retailers said they were localising, most were only in the early phases with many focused on assortment and inventory planning. Today, only around 40% of retailers have a fully implemented programme.
"For its first season of implementation, experience suggests that Marks & Spencer is largely going to have to make the most of what it has already ordered, but should be able better to match the needs of its individual stores and allocate product accordingly," confirms Robinson.
"In reality it can take one to two years for key components of a localisation strategy to be fully implemented."
This is because localisation is more than just about assortment planning and inventory management. With the support of technology and processes it can also be applied successfully to marketing, pricing and staffing, as well as store design and presentation.
"Even performance management can now realistically be tailored to driving each store more closely to meet the needs of its own customers and markets, even over a very large and diverse estate," adds Robinson. "A 10% improvement in customer satisfaction over two years, and commensurate sales increases, are being seen by pioneers in this area."
However, Robinson warns that the localisation journey should not be undertaken lightly.
"The move to centralisation brought huge benefits and these must be preserved, ensuring clear communication of brand values and efficiencies of scale while more closely matching the needs of individual stores and markets.
"In practice each store will be unique, but delivering this will require businesses to cluster stores in different ways at different levels to support decision-making. This will have an impact on sourcing, distribution, logistics etc - all of which must ultimately be addressed if the strategy is to achieve its potential.
"Add to this the over-arching need to offer a seamless customer experience across channels, which is now a priority for many, and the continued growth of multi-channel, which impacts both infrastructure and delivery, and we can see the huge challenge that retailers face as they look at driving growth in a challenging UK market."
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