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It’s no secret that finding product assortments that address the needs of local communities can translate into higher retail sales. But it takes the right technology to pull it off.
Duncan Angove, general manager and senior vice president of Oracle Retail, said that the retail industry, from a software perspective, has been poorly served by “a lot of small fragmented technology providers, which resulted in a very complex and expensive environment that wasn’t easy to extend, wasn’t integrated and really became a bit of a constraint to strategies that retailers want to pursue.”
Oracle, a public company with sales of more than $15 billion, spends $1.9 billion a year in research and development to “deliver solutions that provide value and innovation to retailers.”
With the pressure of having to report figures on a monthly basis, retailers are forced to measure their performance constantly and must find ways “to reinvent, to innovate and deliver differentiation and value to customers,” Angove said.
One of the key ways is through localization. During the past two decades, retailers have put a lot of time and effort into standardization to “streamline and automate our business processes so we could squeeze every last dollar out of the supply chain and be more competitive,” Angove said.
Companies such as Wal-Mart are extremely go od at creating “cookie-cutter stores that follow the same format regardless of locale and use a hyperefficient supply chain to deliver goods to customers at the lowest possible price,” he continued, thereby ekeing out economies of scale and higher profitability.
The problem, however, is that retailers “start to lose intimacy with their customers,” which can actually lead to “diminishing returns and lower profitability per store.”
Wal-Mart understands that paradox and has started to move to more localization. Its upscale Plano, Tex., store may appear to have an assortment that is 50 percent targeted to the local community. In reality, that number is only 3 percent.
In the past, retailers assorted their stores according to sales volume — “that is, the stores who sold more got broader assortments and the stores who sold less got narrow assortments,” Hoffman said.
About 18 months ago, Oracle looked at retail balance sheets and saw that by reducing markdowns, stores could improve their gross margins 5 to 15 percent. Other categories it identified as possibilities for improvement included transportation, labor, inventory, working capital and real estate.
The retailers that have embraced this technology — J.C. Penney, Children’s Place and others — “are all at the top of their game,” he said.
“Delivering what the customer wants, when she wants it, where she wants it, at the price she can pay, is the Holy Grail of retail,” Angove concluded. “It’s not a one-size-fits-all strategy anymore. And the retailers that have figured this out are gaining disproportionate returns in the marketplace.”