September 2007 | Commentary | Viewpoint

What North American Retailers Can Learn From Their European Counterparts

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On a recent trip to a local grocery store, I noticed the organic produce section had doubled in size.

I also noted the challenges this expansion presents to the retailer—the produce section had to be redesigned, produce bags specifically for organic foods had to be developed, and a little band with the word "organic" hugged each individual fruit and vegetable.

All this change underscored the reality that retail continues to be the most dynamic business in the world. But how will U.S. retailers stay ahead of ever-fluctuating market drivers?

When it comes to product traceability, workforce management, and merchandising, European retailers are, in many ways, far ahead of their U.S. counterparts.

Some advancements are the direct result of legal, political, labor, and cultural factors that they have grappled with for decades—challenges we are starting to see in this country. Others are the result of pure innovation.

Three challenges are emerging in the United States that European retailers have already tackled. Their experience and innovation can show U.S. retailers how best to succeed.

1. Food safety and traceability legislation. Recent large-scale food scares in the United States have put food safety in the public eye.

Currently, U.S. regulations surrounding food safety are poorly designed and difficult to enforce. History indicates, however, that the food scares of the 1990s had a tremendous impact on Europe legislation and increased food safety measures may not be far off for the United States.

2. Rising labor costs. The United States has long enjoyed lower labor costs than the EU. Lower labor costs, however, have led to a lag in the adoption of critical store and DC automation technologies that reduce required labor hours.

U.S. retailers have instead relied heavily on hiring part-time employees, a strategy with limited long-term viability considering that the minimum wage is on the rise.

Rather than add labor, retailers need to implement strategies such as perpetual inventory and computer-assisted ordering, which have helped European retailers free up labor from time-consuming tasks to make them available for more customer-centric functions.

They have also reduced the need for costly, skilled labor by automating inventory management tasks so they can be performed by the less-costly labor force.

3. Market segmentation. During my trip to the store, I also noticed the people shopping around me—young, old, black, white, Asian, Hispanic—each with unique shopping needs and habits.

The one-size-fits-all approach to retailing that was successful for retail giants in the 1980s and 1990s cannot be successful in a society with rapidly changing demographics.

European retailers have a long history of creating and managing multiple store formats and assortments, and have had great success in meeting and profiting from the demands of local markets ripe with diversity.

With leading U.S. retailers experimenting with smaller-store formats and re-arranging stores to match the geographic and demographic tastes of their locations, and top European retailers entering the U.S. market, U.S. retailers must begin to pay more attention to market segmentation.

Efficiently capturing and analyzing customer and sales data to ensure the right products are on the right shelves at the right prices will be key to success.

With the technology available to bring U.S. retailers in step with their European counterparts, there's no reason this country should lag behind—or why it can't take the lead—in retail innovation.

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