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Think Global Act Local: What Does Act Local Really Mean in Retail?

I am often asked a question as to why it is necessary for a retailer in the Middle East to

understand issues involved in transplanting retail brands from other countries to theregion. The question is prompted by the assumption that since most retail brands we see

in our markets are franchises, it is the responsibility of franchisors, and not franchisees, totackle issues involved with successful global migration of brands. Retailers in the region,both the home grown brands and the franchisees of global corporations, can benefit from

a deeper understanding of how retail brands globalize. Home grown brands benefit by

becoming aware of the potential competitive moves global retail brands may or may not

make to realize domestic market opportunity, and develop pre-emptive strategies tocounter potential threats to their businesses. Whereas franchisees benefit by identifying

issues that they need to influence in their relationships with the franchisors for the

domestic success of the brand.

How do retail brands globalize?

Branding has always been and continues to be an important part of a manufacturers

strategy for durable and packaged goods. Whereas retail branding, which used to be less

important for clothing and other soft goods because maintaining brand-based distinctions

in these products was viewed as just too difficult, has in the 90s become the sine quo nonof doing retail business.

A retail brand is significantly different from a product brand like Lux, and managingsuccessful globalization of retail brands is a more complex endeavor. For an FMCG

brand like Lux, beyond the product, branding predominantly relies on advertising tocreate a sense of identification with the brand, and successful globalization requires

managing the four Ps in new markets. The globalization paradigm requires positioning

the product to the new target segment, and the entire execution of the branding process isproduct-centric i.e. globalization starts with the product as given and rarely is their

consumer pressure for becoming locally responsive beyond changing the packaging and /

or marketing communication. In contrast the retail brand experience is more multi-sensory. The customer rarely purchases a single product but makes a choice from

amongst an array of options available. The customer purchases products in an ambience

created by the retailer and factors like service and in-store experience are integral to the

total brand experience. The globalization of a retail brands is much more complexprocess and starts with re-positioning the brand in the new market which in turn requires

re-assessing competition (retail competitors change with a change in geography), the

product assortment, product styling, product quality, merchandising, understanding howcustomers shop, staff interaction, in-store and post sales service, etc. Globalization of

retail brands, therefore, requires managing three more Ps to the 4Ps of marketing (people,

processes, and physical ambience) and requires a much more customer-centeredapproach.

Retailers have traditionally followed two strategies while globalizing. At one end areretailers like Zara and Starbucks, who have developed successful retail formulae that

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consist of a retail format and associated codified operational systems, and they exportthese virtually unchanged. The successful replication of the retail brand requires new

organizational capabilities to be successful the capability of implementing the same

business system in new markets (i.e. how to explain brand standards to frontline workers,and suppliers, etc. and how to ensure conformity), and how to select and manage

franchisees. The benefits of such a rigid approach are many - one global managementstructure that controls merchandising, new product development, and marketing, andassociated economies of scale in sourcing and manufacturing. The challenges of a rigid

system are the difficulty of identifying good yet subservient franchisees (owner-managers

who will listen), and motivating staff to deliver results through a process whose

inflexibility discounts individual creativity and innovation. The rigid replication of retailconcepts implicitly assumes that the brand will be automatically repositioned in the new

market i.e. the target customer and the brand-customer value proposition will fall into

place.

On the other end are retailers like Carrefour who have a grasp of what it takes to run

hypermarkets, and whose key capabilities are developing an understanding of newmarkets, adapting formats to fit new markets, and linking formats to a standardized look.

Carrefour leverages these capabilities in new locations by replicating hypermarkets to

suit local tastes. This flexible approach is entirely customer-focussed, is based upon

repositioning the hypermarket value proposition in the new geography, and itsimplementation requires skill, patience, time and deep pockets.

Fast food chains like McDonalds fall somewhere in between it has rigid operationalsystems that it implements worldwide but makes small changes in menu in every country

while maintaining its core value proposition low cost and quality fast food. McDonaldsapproach of localization is often cited as an example of Think global (international best

practices) and act local (adaptation to local tastes).

In the globalization process retail brands are concurrently challenged by two

contradictory impulses to be creative and adaptive to local tastes to maximize

opportunity, which puts an upward pressure on costs, and execution of concepts throughstandardized operational processes that reduces costs through economies of scale.

Key issues in retail brand migration repositioning, differentiation, and competition

Positioning is the starting point of retail strategy, and consists of identifying customer

segments of a practical size (i.e. accessible in a cost-effective manner), and understanding

consumers in terms of their needs that trigger a demand for goods, how they shop forgoods, how they make brand / store choice, and what services they expect when they

shop. The outcome of the positioning exercise is an identification of the unique customer

value that the retail brand will provide and then engineering the multiple dimensions ofthe retail brand to identify and explain the store to the customer through consistent

communication. The true test of correct positioning is that customers must be able to

discern the value proposition and have real reasons for consistently choosing the retailbrand / store over another. A retail brand is able to achieve differentiation when a brand

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is not just different but significantly more attractive. The attractiveness of a retail brandand its strategic differentiation is a function of how different a brand is with reference to

its closest competitors.

Let us hypothetically review the evolution of a globalization strategy for retail brand. A

retail brand usually evolves in its home country where its positioning and strategicdifferentiation is fine tuned. As soon a brand is transplanted into a new geography itspositioning and differentiation can be expected to be in a state of imbalance influenced by

differences in consumer demographics, consumer behavior, and competition etc.

Successful transplantation, therefore, requires the retail brand to be repositioned based

upon redefining the target customer segment in the new geography, and adequatelymodifying the dimensions of the retail brand based consumer purchase and buying

behaviors, to achieve strategic differentiation from competition.

This repositioning and differentiating process is usually difficult to execute for retail

brands that follow replication strategy. Their inflexibility often enables the agile domestic

retailers to beat the international retail brands at their own game. In our markets HomeCenter versus Ikea is a classic example. Ikea carved a distinctive niche in the global

furniture market by offering products with North European styling, merchandised in life

style settings in large format stores where customers could spend time seeing various

permutations and combinations of furniture in real home like settings. Ikea products weresold at discount prices based upon effective sourcing, savings on freight based upon the

flat packs, and the do-it-yourself furniture assembly (Ikea transferred assembly costs to

the customer). Ikea products are not of exceptional quality. They work well in economieswhere a large percentage of the population moves every year, and can afford to treat

furniture as disposable. Ikea replicated its concept in the region with strict adherence toglobal standards. Walking into an Ikea in the region is like walking into any Ikea store

overseas. In the replication of its successful global formulae Ikea exhibited a poor

understanding of the buyer behavior of the local multi-ethnic community. For a majorityof South Asians furniture purchase is a long term capital investment and they are not

attracted to disposable furniture. The regional customers also prefer more ornate furniture

and North European styling is too plain. Ikeas adaptive rigidity has enabled manydomestic competitors to upgrade their retail formats taking the best of Ikeas model.

Home Center, a home grown retailer, which operated from a warehouse in Sharjah in

1995, has evolved into a major furniture and household retailer by cloning the Ikea

model. It showcases furniture of a better quality, more appropriate designs and atcomparable prices to Ikea a very strong value proposition.

Carrefour, even though it follows a reasonably flexible model of developinghypermarkets to suit local tastes, underestimated the potential of local retailers in not only

replicating the model but even bettering it. As per newspaper estimates Lu Lu chain of

supermarkets and hypermarkets has a sales revenue of AED 1.75 billion in 2004 whereasCarrefour sales are estimated at AED 0.75 billion for the same period. Carrefour entered

the UAE market around the same time as the Lu Lu group was embarking on a growth

path. Carrefour and Lu Lu differ in a very simple positioning strategy. Whereas Carrefouris predominantly positioned as destination stores in shopping malls, Lu Lu center has

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taken the Carrefour formula to the neighborhood through a variety of formats supermarkets, department stores, hypermarkets, etc. demonstrating a flexibility of format

to give convenience and value to customers. Same value at more convenient location in a

traffic congested world is a strong value proposition.

Implications for action

In a retail buying and merchandising class I teach I ask the students whether a retailer is

an agent of the retail brand owner or the an agent of the customer. It is rare that students

answer that a retailer is an agent of the customer. The economic reality is that retail

industry exists because it serves an economic purpose the role of accumulatingmerchandise in one location that fulfills needs of consumers, needs that each

manufacturer / supplier cannot efficiently fulfill on their own. This perspective change

requires a 180 degrees shift in operational emphasis from being distributors andimplementing what the retail brand owner wants to achieve, to serving customers in a

cost-effective manner, and often influencing the retail brand owner to become more

responsive to both local customer needs, and domestic competition. This will requirenegotiating more wiggle room in franchise agreements that often dictate merchandise,

merchandising, and promotion decisions. Retailers, who have abdicated much of their

stores marketing and positioning responsibilities to the manufacturers or suppliers,

conditioned by the marketing and promotional allowances they can negotiate, may needto take a more active interest and influence the retail brand owners to appreciate ground

reality and support proper brand positioning. I often wonder why no local distributor /

retailer have influenced foreign retail brands to launch a range of footwear for Arab men.

Retail brands also need to pressurize the franchisees to become more responsive topositioning the brand. Brand managers or buyers often tend to cherry-pick high sales

potential assortments, ignoring those with low volume potential, and destroying the brand

image. I am always unable to get relaxed fit Levis jeans and relaxed Dockers in thebrand stores in the Gulf.

Conclusions

Act local in retail business requires brand repositioning that creates a distinctive pull

in the minds of consumers. Traditional paradigms of globalization, replication or

reinvention, are useful but weak concepts for the retail brand migration. Successfulmigration of retail brands requires focus upon the details of brand re-positioning and

strategic differentiation while balancing the contradictory pressures of how much to adapt

and how much to standardize.