"Localization" of product assortments raises inventory and margins

Retailers that offer local and regional product assortments, promotions, and pricing appear to have found a winning strategy. Although their inventory levels have grown marginally, primarily due to an increase in the number of stock-keeping units (SKUs), retailers engaged in this practice of "localization" have been able to sell more merchandise than their competitors—and at higher profit margins. That was one of the findings in the report Precision Inventory Management in the Age of Localization, which presented the results of research conducted by Retail Systems Research (RSR) in partnership with the Retail Industry Leaders Association (RILA.) The groups surveyed some 80 U.S., Canadian, and European retailers from May to July 2009.

Twenty-nine percent of the survey respondent companies that were designated as "winners" (as opposed to companies classified as "laggards") have seen increased inventory levels. Meanwhile, 64 percent have achieved higher gross margins, and 55 percent experienced higher inventory turnover rates. "Winners associate better inventory management with the ability to localize the value offering to consumers," said Brian Kilcourse, a managing partner at RSR.

The study found that food, drug, and convenience stores are under more pressure to meet local consumer demands than other types of retailers. Fifty percent of the food, drug, and convenience store respondents said they face strong consumer demand for a localized product assortment, compared to only 37 percent of department and specialty stores, 33 percent of discount stores, and 25 percent of mass retailers. Yet food, drug, and convenience stores may have the hardest time meeting that demand: 58 percent said their trading partners don't have the flexibility the retailers need in their supply chains.

To manage the complexities that come with localization, leading retailers are starting to place a high value on a single demandforecast and store-level inventory management system. They place less value on such applications as logistics dashboards and transportation management as tools for managing inventory while providing a mix of localized goods, products, and pricing.

Source: Precision Inventory Management In The Age Of Localization, RSR Research and RILA, August 2009