I wrote recently about a couple of trips to Europe that I took that underscored some of the differences that I see between the evolution in omni-channel in the US vs. the evolution in Europe. I identified six: differences in demand forecasting, price transparency, cross-channel inventory optimization, personalization / relevancy, store labor, and finally, inventory localization. Today I want to tackle the last one – inventory localization.

Inventory Localization

Before I can get into any discussion on the current and future trends in inventory localization, it’s important to go over a little bit of retailing history. Retail started out as an inherently local business. As a shop owner, you acquired local goods to sell to local customers. As logistics and transportation improved, it became possible to obtain goods from farther away, so a shop owner might be able to feature something exotic to its local customers every once in awhile. When you live in a place where you can get almost anything you want within 3-5 business days, it’s hard to remember that it hasn’t always been like this. As an example, I guess there’s this tradition of eating oyster or fish stew on Christmas Eve. It wasn’t a tradition in my family, but I encountered it somewhere. But according to the tale, the tradition spread inland in the US primarily because December was the only time of the year that you could get oysters – without refrigerated transport, which didn’t come around until the 1880′s, delicacies could only avoid spoilage by depending on the weather.

So localization was the norm. During the 1900′s, as transport became more reliable and retailers recognized the benefits of economies of scale, US retailers in particular began to consolidate and centralize their inventory management. In a country the size of the US, consistency across a chain became a differentiator. McDonald’s built an empire based on the idea of consistency – a burger in Chicago is going to taste just like a burger in New York. I was a visual merchandiser at JCPenney not long after the retailer consolidated its buying centrally, and local department managers, stripped of their buying powers, were still grumbling about it while I was there.

While central control enabled efficiency, it meant a loss of that personal touch. That sense of local relevance and being a part of the community. Retailers have worked tirelessly over the last decade to recapture that sense of local, as everyone from Best Buy to Macy’s has claimed pursuit of localization.

But that’s a US story. In Europe, it’s been a bit different. There are a lot of retailers – Auchan comes immediately to mind – that, while centralizing to some degree, maintain a remarkable amount of control at the local level over inventory – not just what to stock, but how much of it to stock.

The challenge is that both of these models – centralized control vs local control over inventory – are two halves of the same puzzle. In the future, retailers are going to need both. In the US, retailers lost intimacy in the search for efficiency and scale. In Europe, retailers have traded visibility and efficiency for that local intimacy.

Today, retailers need both. They need a legitimate local presence with a credible curation of inventory to match. That can’t be done without on-the-ground input from a local store. But they also need visibility and access to that inventory from across the chain. It’s very difficult to promise a product to ship from store if you don’t really have a good idea of what that store is buying and stocking. And the pressure on inventory isn’t going to stop – financially speaking, no one wants to carry a shred of inventory more than they need. But when you match that up with a localization strategy, you find that it stretches your inventory pretty thin – a lot of SKU’s without a lot of depth behind those SKU’s. And that increases your risk of stockouts. Throw in demand coming from unexpected channels, like when your store suddenly becomes a fulfillment point for online demand, and the problem grows even more complex.

Personally, I think this is going to become an even bigger issue in the future. Stores, as you may have heard me say once or twice, are in trouble. They need to become much more relevant than they are now, as consumers showroom and price-compare and generally find online shopping to be more and more convenient. There are some retailers out there – Desigual comes to mind – that are working hard to bring more of that local community feel to their stores (Desigual does so by hosting friends and family parties in its stores).

I can see a future where the store manager or at least some kind of local-level marketing person has to become much more of a face to the community. Where the store is not a nameless, faceless presence of some distant corporation. Where community outreach occurs, where people in the community feel a sense of ownership over “their store “. Where, through the power of social media, retailers can harness both the local expertise of its employees and the local enthusiasm of its customers. And thanks to the power of technology, can do so in a way that provides insights that benefit the entire chain – or provide insights back to the location that it can use to become even more relevant over time.

The store model is going to have to change. Inventory localization is but the first wave of even more change to come. So, is this advantage US or EU? Neither, in my opinion. They both must move towards this kind of model – maybe the US is feeling the pressure a bit more for all the reasons discussed in the article on price transparency – but the pressure on stores is coming to everyone, everywhere. The US isn’t local enough, and Europe is too local – generally speaking, of course. There are always exceptions. So this one is still wide open for the future.

Part Three of an Occasional Series

Inventory localization is one six areas where I’ve seen some differences between US and European retailers. The other five are demand forecasting, price transparency, inventory optimization for cross-channel, personalization/relevancy, and store labor. I’ll write about each of these in the coming future. And, if you’ve got a strong opinion, I’d love to hear any other differences you’ve found to exist. Let me know what you think!