Local, independent, mom-and-pops—whatever you call them—these retailers are back in style, while you don’t have to look hard to find an example of a struggling national chain.
Consumers value mom-and-pops’ tailored product assortments, unique store designs and personalized customer experiences. In fact, 29% of consumers say they are shopping more at neighborhood stores now than they were three years ago, and roughly half said local stores account for at least 50% of their shopping trips.1
Meanwhile, many national chains’ approaches still feel far too big box, leaving little doubt national chain retailers can do a better job of emulating their smaller counterparts in winning the hearts and minds of their consumers while still leveraging the incredible competitive advantages of scale.
By unchaining three key elements of traditional chain retailing—product, store design and customer experiences—even the biggest retailer can drive deeper brand connections and stronger loyalty.
What Consumers Mean When They Think Local
Consumers appreciate some of the scale advantages of large national chains, namely their wide product selection and good value. But they faulted these same retailers for a lack of unique or locally sourced products and an impersonal store look and feel.
When it came down to it, 67% of consumers in a recent 1,000-person Kurt Salmon survey thought large national chains should do more to act like the little guys.
What does this really mean? When consumers were asked what three words came to mind when they thought about local stores, overwhelmingly, “friendly,” “convenient” and “unique” floated to the top. But, in reality, consumers tend to have a very comprehensive definition of local—and what national chain retailers can do to measure up to it. First, when it comes to products, when consumers think “local,” they really want to understand the story behind a product, as they are nearly as likely to accept something made in their city, state or even just in the United States— with roughly 60% thinking each met their definition of local. Second, they also think localized store design means that the store has an intriguing personality instead of a sterile feel and is built to blend into the neighborhood. Third, 60% of consumers also rewarded brands that create experiences that help build and foster their community.
When defined in this holistic way, localizing a store not only helps a retailer differentiate itself, but also provides consumers a more compelling reason to visit the store and develop a deeper brand connection, which encourages more purchases across all channels.
In fact, consumers said they would shop more at national chains if they took certain steps to feel smaller. (See Exhibit 1.) Leading the pack are localized products and a personalized store look and feel.
Many retailers think they have highly effective product localization strategies. However, the vast majority are typically merchandising strategies that focus on products that perform well at a regional level and account for differences in climate.
While these tactics are essential, they do not go far enough to meet many consumers’ needs or wants.
Consumers have a deep desire to not only try new products, but also to understand the story behind a product to help establish its authenticity. Retailers can address this by effectively telling consumers where a given product came from, how it was made or grown, and by whom.
Whole Foods is a prime example of a retailer that creates an independent feel in each of its 411 stores with a localized assortment. In fact, 15% to 30% of the goods in any given Whole Foods are locally sourced.2
To accomplish this, Whole Foods employs a team of “foragers” who source from more than 6,500 local vendors across the country. The program has grown to 12 foragers—up from just one in 2010—each responsible for a region. Each region has a different definition of “local”—in the Northeast, local foods come from in-state or a contiguous state, while larger states are divided into zones within 200 square miles of a store.
Foragers are also a resource for small local businesses that have never worked in a major format before, helping with everything from packaging to branding, labeling, supply chain and even financing through the Local Producer Loan Program. The program provides low-interest loans to help scale small producers and has funneled over $14 million to more than 155 local producers since 2007.
The grocer also hosts local suppliers’ summits in advance of new store openings in previously untapped areas as a way to connect with local brands.
As Whole Foods offers more local products, consumers expect and value more of them as well, creating a virtuous cycle of sales growth for the retailer. In fact, sales of Whole Foods’ organic and non-GMO products, responsibly farmed seafood, grass-fed beef, and exclusive products all continue to grow faster than the store average.3
Localized Store Design
Several other chain retailers have successfully cultivated a local feel by changing not what’s on their shelves, but what surrounds them, helping to add personality that facilitates consumer connection.
Starbucks has always tried to have some degree of personalized customer interaction by writing customers’ names on their cups, but more recently, it has focused on localizing store design through remodels and new build-outs.
This approach is helping Starbucks rejuvenate itself in the highly saturated and highly competitive U.S. market and adapt to a set of diverse new markets that represent its large opportunities for growth.
How did this mega chain start moving from what was a template style to a more customized approach? Starbucks has a 350-person-strong store design group with studios in 18 cities around the globe focused on designing stores to reflect the unique characteristics of the neighborhoods they serve.4
Location and traffic dictate how much customization a given store gets, but the majority of Starbucks’ 20,000 stores have been updated to some extent and 90% of the 3,000 new stores it’s added in the past few years are localized in some way.5
Many stores use locally sourced wood and reclaimed materials. For example, a store in Portland, Ore., features artwork made of salvaged bike tubes—a nod to the city’s large cycling community. A location in London features artwork made of old tea boxes found in a nearby town and saved from a landfill.
Some of the stores’ buildings are the attraction —from a New Orleans store housed in an early 20th-century apothecary to a train-car store in Switzerland that actually rolls, and from a drive-through location in an old shipping container to a store inside a former bank vault in Amsterdam.
These localization efforts have been paying off. Since Starbucks started increasing its capital expenditures in 2012, gross profit margin has risen as well—from 55.8% to 57.9% in Q2 2014 following $247.5 million in expenditures.6
Remodeling entire stores isn’t the only path to localization. Trader Joe’s takes a more intermediate step by decorating their stores with local art that celebrates each neighborhood while still maintaining the chain’s consistent standardized island theme. Each sign or mural in every one of Trader Joe’s 400-plus stores is unique and painted by local artists, which helps cultivate the feel of a local market.
Localized Brand Experiences
Developing local brand experiences tailored to a community’s population gives the retail chain a chance to authentically connect with consumers beyond the register and ultimately foster long-term advocacy.
REI is perhaps one of the best big boxes at extending its brand beyond products and into brand experiences. In fact, brand experience is a crucial element of REI’s value proposition. REI doesn’t just sell products; it sells the passion, education and adventure behind them. Employees live and breathe the brand and are often true enthusiasts with their own experiences, tips and tricks up their REI-branded sleeves.
This often begins at the corporate level. REI’s employee bonus program, which encourages inter-store competition, helps ensure employees are invested in their store’s performance.7 Employees are also encouraged to get outdoors during their breaks from work and use firsthand the products they sell.
But like any successful brand, REI’s customers are its biggest ambassadors. REI engages them through local activities that show consumers how to use their favorite products in the real world. With more than 50 activities and classes per city per year, these classes have drawn in more than 1 million customers since the program launched in 2005.8
While stores across the country host standard classes like GPS Navigation 101 and how to ride a bike, REI’s real genius comes from tapping into local activities and destinations, often partnering with local nonprofits to increase community connection and credibility.
For example, take the Seattle store’s Mount Rainier snowshoeing event, which also includes lunch from a local bakery. Or the Knoxville, Tenn., store’s events on hikes in the nearby Smoky Mountains or the best local fly-fishing.
These events bring fellow enthusiasts together, helping REI step aside and let its consumers connect over shared experiences, interests and products.
REI also helps support the local community —and these efforts are directed locally. In 2014, REI awarded over $4 million in grants to more than 300 nonprofits working on restoration and preservation projects in 650 locales across the United States.9
These grants can also turn into community events as well. For example, one grant-funded project involved more than 2,000 volunteers removing 60-plus tons of trash from a San Diego park. The volunteers were also treated to a guided tour of the park from an REI guide.
Combining localized assortment, store design and experiences is especially powerful, as Urban Outfitters demonstrates.
Urban’s assortment strategy has a strong focus on what works in each region. For example, Esperanza ATL, a popular Southern apparel brand, is available only in select Southern stores.
The company’s real estate strategy is also critical to supporting its small-feel ambitions. For starters, it opens new stores in historic buildings that are special to the local community. For example, Urban has a store in a New Jersey bank building from 1922 that uses the original basement vault and one in a 1917 downtown Los Angeles theater that preserves the original doors and marquee.
Urban is also piloting new initiatives to support local artists and designers. For example, a Los Angeles concept format hosts a rotating group of local musicians, artists and designers, creating an area where the community gathers for more than just shopping, and a Brooklyn concept format includes a rotating space for local retailers and Local Made, a continuously evolving shop-within-a-shop that features a collection of artisanal objects from lesser-known local artists and designers.
How to Act Like a Little Guy
Thinking small requires an attitude adjustment. Brand stewards and marketers will have to let go of certain elements of brand consistency to ultimately deepen brand connection and loyalty.
This may feel counterintuitive and uncomfortable, at least at first, but improved sales and consumer advocacy will go a long way to making the case for being a bit more hands off.
To accomplish this, retailers likely need to empower their regional- and store-level employees to make a wider set of decisions. This may mean hiring employees with different capabilities and more of an entrepreneurial mindset. Regardless of how operations are set up, the corporate level has to set clear parameters and build in checks and balances to ensure individual regions and stores don’t compromise any of the core brand DNA.
That isn’t to say that every retail chain needs the same level of localization across all three dimensions. The degree of localization required depends on the chain’s brand positioning and competitive set. And, even then, it’s critical to really know the brand’s core DNA in order to understand which key brand elements to hold onto while enabling the other elements to live naturally in each local environment.
Ultimately, it’s about finding the right way to deepen the emotional connection—local consumers have to feel that the brand reflects their personal identity and values.
- Kurt Salmon consumer survey, 2014
- Bloomberg, 2013
- Whole Foods Market, 2014
- Seattle Times, 2013
- TheStreet.com, 2014
- Bloomberg, 2005
- REI press release, 2014
- REI website