Innovation in the UK Retail Sector - Nesta

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Innovation in the UK Retail Sector Table 2.1. Key indicators of UK retail performance and economic contribution, 1990-2006. Sales (£mn) UK GVA (£mn) Index of Services (Retail trade) Enterprises Employment (**) 1990 £ 159,519 n/a n/a n/a 2,101,882 1995 £ 171,535 £29,598 73.8 209,386 2,146,940 2000 £ 207,168 £49,415 86.4 214,876 2,978,000 2006 £ 255,438 (*)£60,507 112.5 (*)201,420 3,109,000 90/95 8% n/a n/a 95/00 Source: Office of National Statistics, 2007, 2003, 2000. (*) 2005 data; (**) Average during the year n/a 2% 21% 67% 17% 3% 39% 00/06 (*05) 23% (*)22% 30% (*)-6% 2.5 The contributions of retailing can be seen as economic, social and environmental in their nature. From an economic perspective, retailers make both: • Direct contributions towards GDP, employment and the supply of vital products and services to the population which stimulates demand and economic growth. (The output of the sector is considerable (see Table 2.1) and stretches across the whole services-to-goods continuum with offerings ranging from intangible-dominant ‘pure’ services such as insurance or internet access, to tangible-dominant physical products such as food or furniture); as well as: • Indirect contributions, which are less easily recognised and work in the form of a multiplier effect. (For instance, by developing new services, new formats, new products, or new stores, retailers stimulate demand not only for goods for re-sale but also for a wide range of intermediate inputs which they may buy from other industries to produce their output and which stimulate business activities and employment outside the sector. Such inputs may be in the form of transportation and construction services, consultancy, ICT, advertising and other business services. Similarly, efficiencies and productivity gains within the sector create the potential for retail price deflation which in tandem with increases in consumer real income stimulates consumer spending and has a positive effect on economic growth (Hristov, Howard et al., 2004). “Between us, we've achieved a revolution in shopping over the past 10 years. The price deflation we've pushed through in clothing has even forced down the overall rate of inflation, which is pretty major stuff.” (Andy Bond, CEO, Asda) 2.6 However, retailing has a role to play not only in economic but also in social terms. “Branding is the dominant strategy around which retail competition is structured. In the case of the retail sector, products, ranges and the company itself may be branded.” (Pettinger, 2004) Some retail brands (not always the largest) perform as cultural innovators, creating or assisting in the creation of trends for new products and services; or making such products and services more widely available to larger sections of the population. For example, 4% Page 10
Innovation in the UK Retail Sector clothing retailer Zara’s quick response, vertically integrated business model made an opportunity of the transience of fashion to create distinctive competitive advantage, whilst Marks & Spencer’s growth of its Simply Food smaller format store was explicitly designed to bring ‘convenience foods to more convenient locations’. A retailer with strong brand equity will be able to convey clearer value to customers which in turn will provide a more rigorous basis for innovation within the firm. 2.7 Finally, as in other sectors, retailing has also needed to come to terms with the contemporary challenge of the ‘triple bottom line’, where innovation has to service the need for environmental – and not just economic and social - performance. Partly because of their position in the value chain, in being closest to the consumer, retailers have also become reference points for their customers with regard to topical socio-economic or lifestyle debates about the environment, health, nutrition or fair trade. It is also in the nature of retail businesses to strive to understand their customers and to quickly respond to new trends, needs or wants and, in the process, retailers’ brands have increasingly to function as guarantors for product quality, traceability, authenticity, safety, reliability and convenience. b. Drivers of change 2.8 The retailing that we see today is the product of four main forces: economic, social, features arising from changing levels of competition and innovation (including technology), and those derived from evolving regulation. In some cases, these influences act as constraints, in some cases they provide real opportunities for experimentation and innovation. We elaborate upon the specific drivers for innovation as perceived by retail firms themselves, from both within as well as outside their organizations, in Section 5. We discuss regulation in the context of barriers to innovation in Section 6. Here, in line with other Innovation in Services reports, we briefly enumerate the main factors driving change in the sector and identify the pressures to which it is responding. i. Economic drivers 2.9 Table 2.1 demonstrates that for much of the past fifteen years, the UK economy’s development has been underpinned by extensive growth in domestic consumption. The broad consequence of this has been the relatively untrammelled growth of retail businesses and an optimistic and entrepreneurial outlook towards experimentation and expansion in a variety of ways. Most recently, the Bank of England has sought to rein in consumer spending through a series of interest rate rises. This, in combination with concern over rising levels of personal debt and more general economic uncertainty, has led to growth in retail spending faltering. 2.10 In practice during this period, UK shoppers have experienced substantial price decreases in a number of categories of consumer products over the past fifteen years – in categories such as clothing by as much as 20% and in audio-visual goods by as much as 60% - (Office of National Statistics, 2007). However, the debt which is of concern to consumers has not necessarily been incurred in consuming retail goods, but as a result of higher utility, transport and housing bills. The pressure has therefore been upon retailers to clearly communicate fair, if not low, prices to those consumers for whom it is important. Those retailers which can continually demonstrate ‘value’ in their propositions will win out against those retailers with muddled price points or value propositions. Page 11
Page 1 and 2: Report for NESTA December 2007 Inno
Page 3 and 4: Contents Innovation in the UK Retai
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Innovation in the UK Retail Sector
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. Promoting innovation in sustainab
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Conclusion/Next Steps: Innovation i
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Recommendation 4: Innovation in the
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Appendix 1 Research Methodology 350
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Innovation in the UK Retail Sector - Nesta

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