Reading Time: 4 minutesIntroduction
The landscape of consumer-packaged goods is rapidly evolving, driven by digitally empowered shoppers engaging in cross-channel shopping behaviors. The product route to the consumer is mostly through retailers, who try their best to meet customer needs by playing around with business metrics such as consumer spending, necessitating the localization of assortments. Failure to respond to these demands results in loss of opportunity and reputation (in the long run) for retailers and consumer packaged goods manufacturers, which makes both inseparable.
In the intricate tapestry of retail, each decision made by a packaged goods manufacturer is pivotal. One such critical decision is the assortment of products offered in retail stores, which not only determines the brand’s identity but also its success in the competitive market.
This blog explores the importance of assortment localization, emphasizing the need to understand diverse consumer preferences across categories. It highlights how tailoring assortments to local needs can lead to significant sales growth. The significance of assortment localization, with insights such as varying needs across categories and the potential for significant sales increases through intelligent localization.
The Walmart fiasco
Let’s understand these pointers in detail using a case study where Walmart’s sales dropped for nearly two years, performing worse than their competitors. They expanded the project impact across their stores but later realized their mistake and stopped it. This cost them an estimated $2 billion in lost sales and, consequently, the consumer product manufacturers because they didn’t understand the importance of offering exclusive products to attract shoppers.
Assortment optimization becomes increasingly crucial for retail performance due to the following key challenges in the modern market landscape:
- Growing SKU complexity: Large brands continually introduce new SKUs, while the proliferation of small brands adds to the assortment. This explosion of product variety increases the complexity of managing assortments effectively.
- Limited shelf space: Despite the expanding number of products, physical shelf space remains constrained. Retailers face the challenge of maximizing sales within these spatial constraints without compromising the shopping experience.
- Supply chain complexity: Managing a growing number of SKUs complicates the supply chain, leading to inventory management challenges and increased operational costs. Retailers need to streamline their assortment to optimize supply chain efficiency.
- E-commerce challenges: In the digital realm, retailers must manage virtual shelves to capture customers’ attention and balance inventory and logistics costs effectively. This requires careful curation of online assortments to drive sales while managing operational expenses.
- Location-specific dynamics: Each store’s unique characteristics, including size, format, and local demographics, influence product performance. Retailers must tailor assortments to suit the preferences and needs of customers at each location, requiring a nuanced approach to assortment optimization.
The solution: Assortment localization
While there’s no one-size-fits-all solution, manufacturers and retailers need to develop tailored roadmaps by assessing their position and understanding their current capabilities and areas for improvement.
To effectively enhance the assortment localization capabilities, retailers will need to focus on areas such as:
- Implementing efficient processes to manage the complexity of assortments across multiple markets.
- Utilizing new data and analytics to identify locally appropriate products across various markets and retailers.
- Leveraging advanced software tools to generate customized planograms efficiently.
By leveraging data-driven insights and analytics, retailers can address these issues effectively:
- Systematic delisting: Identifying underperforming products and strategically delisting them can drive sales of higher-margin items, leading to improved gross margins. This process requires sophisticated analytics to pinpoint opportunities for SKU rationalization without sacrificing overall sales volumes.
- Macro space allocation: Optimizing space allocation within each store involves determining how much space to allocate to each product category. Data analysis helps retailers allocate space based on sales performance, customer preferences, and store-specific dynamics, maximizing the return on shelf space investments.
- Localization: Tailoring assortments to the unique characteristics of each store location is critical for driving sales and customer satisfaction. By analyzing local market data and customer behavior patterns, retailers can customize SKU mixes to meet the needs of diverse customer segments effectively.
- Store purchase pattern: Clustering stores based on purchase patterns helps consumer packaged goods manufacturers to share insights with the retailers and leverage the end customer by pushing products that never were in store but could have been bought. Analyzing only store data would not have helped retailers in stock up on products that were not never present in store.
Assortment Management
Effective assortment management can significantly improve financial performance, as seen in image 1 above. Some of the key improvements that can be noticed would include:
- Strategic listing of products can increase sales by up to 4 percent.
- Simplifying the product assortment streamlines the supply chain and reduces operational costs.
- Retailers can improve margins by up to 0.5 percentage points by optimizing operations and supply chain processes.
- Understanding product uniqueness helps in deciding which products to keep or delist.
- Better sourcing can be negotiated, leading to potential cost savings of up to 3 percent.
Conclusion
In a world increasingly characterized by globalization, the importance of maintaining a local touch through assortment localization in retail cannot be understated. It is a powerful strategy that allows retailers and manufacturers to connect with their consumers on a more personal and meaningful level, taking into consideration the cultural, economic, and individual preferences that vary from one locale to another. For consumer product manufacturers looking to stay competitive and relevant in the dynamic retail landscape, investing in assortment localization is not just an option; it’s a necessity. Embracing this strategy with the aid of technological advancements can pave the way for sustainable growth and success. It encourages brands to become more culturally competent, economically aware, and customer centric, and by doing so, it ensures that the local charm is preserved in the global shuffle, making every retail experience unique and every consumer valued.
