Innovation in the UK Retail Sector - Nesta

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.
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