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The Next Level of Localization

April 12th, 2017 | Posted by APT in Retail

“Going local” has been a key ambition for retailers for years now. Recently, some retailers like Target and A.C. Moore have been using new store formats as part of their localization strategy, focusing on smaller-format neighborhood stores. Others are differentiating themselves in more nuanced ways, altering merchandise allocation in each store or group of stores to meet the needs and preferences of local shoppers. Nike, for example, has localized space allocation in some stores – for example, their L.A. store includes a greater assortment of clothing to appeal to soccer fans and a trial zone with fake grass to test out cleats, due to the sport’s popularity locally.

While localization has been front-and-center in the industry for some time, retailers still have a significant opportunity to drive profit with improved strategies to meet local market demands. There are many components of a successful localization strategy, including curating marketing and pricing strategies to a region’s demographics and competitive environment. However, one often-overlooked facet of an effective localization strategy is a connection to the store space planning process. Understanding how to tailor merchandising strategies for local market demands can ultimately lead to significant profit improvement and a better customer shopping experience.

How can retailers achieve these objectives? One critical component is understanding space productivity for every category and department to establish the optimal localized merchandising strategy. However, despite the desire to “go local,” many retailers have under-invested in their space allocation capabilities.

Even with vast improvements most retailers have made in other areas of their analytics programs, many organizations still rely on business intuition or very basic analytics to make space tradeoffs – which limits their ability to understand the true relationship between space changes and sales. Sophisticated analytics are necessary to accurately determine how much incremental sales or profit an added foot of space generates.

By developing a true understanding of marginal space productivity, retailers can accurately identify which products should occupy the next foot of space. Leveraging these insights, a retailer could determine, for example, whether it would be more profitable for the next foot of space within the salty snacks category to be allocated to pretzels or chips. By evaluating space tradeoffs across categories in this manner, retailers can identify which categories should gain space, and which should lose space.

To truly localize assortments, retailers must take this rigorous approach with each store or store cluster. They should analyze all of the factors that might be driving higher or lower category productivity, such as box size, surrounding store demographics, competitive presence, and weather. Combining these factors with operational considerations, retailers can then create clusters of stores to analyze together.

When introducing macro space changes, retail organizations should consider validating space allocation analysis by first implementing it in just a select set of stores. This approach is an efficient and reliable way for retailers to take space planning to the next level of analytic rigor by measuring the incremental impact of space changes. With this approach, organizations can evaluate a variety of large-scale space allocation changes, like category expansions or merchandise resets.

How does APT approach space planning? Watch this video to find out.

 

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