Focusing on Local Helps Retailers Boost the Bottom Line

Knowing customers' likes and dislikes is about as basic as it gets in retailing. But for years, chain department stores got it wrong. More concerned with profits and keeping down costs, big retailers kept a tight rein on inventories and focused more on sameness -- what shoppers could find in New York, might also show up on store shelves in San Francisco or San Antonio.

Not anymore. After decades spent gobbling up regional department store chains coast-to-coast and subsequent restructurings, mega-retailer Macy's (M) has broken out from the sameness mold and has begun embracing the unique tastes of its consumers in individual markets.

After pilot programs in 2008, Macy's rolled out its "My Macy's" localization initiative nationwide last year, creating 49 new districts, bringing the total to 69.

Catering to Local Tastes

One example of the effort was a prominent display this month of white satin women's suits at a Macy's store in suburban Atlanta. In October in most U.S. locales, finding white clothing items to purchase is about as easy as finding an Easter bonnet. But as human resources manager Terry McDonald told The New York Times, the region's many churchgoers ensure there's a steady demand "all year long."

In going back to its stores' roots, such as those in Atlanta and Seattle, and appealing to local tastes, Macy's is advancing a trend that is fast being adopted by other retailers such as Saks Fifth Avenue (SKS) and Best Buy (BBY), the Times noted.

As the year-round demand for white suits in Atlanta illustrates, consumer preferences, emboldened by the recent recession, have driven retailers' efforts at localization, says Kelly Tackett, senior apparel consultant with Kantar Retail, a Columbus, Ohio-based consultancy.

The lingering effect of the recession means consumers continue to be a bit hesitant about opening up their wallets, Tackett says. "And when they do, they really want to make sure that the item that they're purchasing is really what they want." Further, shoppers don't want to waste time dealing with retailers that don't understand their personal preferences.

The need to appeal to the unique needs of a given market is also being driven in part by savvy, Internet based e-commerce retailers. "There's just an absolute breadth of merchandise possibilities out there," Tackett says. "And shoppers are looking to store-based retailers as a curator of the latest trends, the latest hot items, that are relevant to them, rather than getting bombarded by too many choices," she says.

Becoming Part of the Neighborhood

Though technology is partly responsible for the current trend toward localization, responding to the needs and demands of a local market isn't new, says Elizabeth Purinton-Johnson, associate professor of business at Marist College in Poughkeepsie, N.Y. "It seems Macy's is learning a lesson plenty of other companies, including big ones like Coca Cola (KO) and little ones like your neighborhood grocer, knew all along," Purinton-Johnson says.

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Coke alters its recipe slightly to appeal to native preferences in markets worldwide. Similarly, Kraft Foods (KFT), maker of Philadelphia brand cream cheese, performs extensive market research to know which grocery stores sell more strawberry-flavored cream cheese and which sell more with chives.

Even Wal-Mart Stores (WMT), king of central distribution, has some differences in inventory between stores based on location, Purinton-Johnson says. "But Macy's is going one better than some other chains."

By offering locally popular items, Macy's doesn't appear aloof and sends a message that it understands its customers. "If you appeal to the very local market," she says, "you become one of the neighborhood."