Innovation in the UK Retail Sector - Nesta
Innovation in the UK Retail Sector - Nesta
Innovation in the UK Retail Sector - Nesta
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<strong>Innovation</strong> <strong>in</strong> <strong>the</strong> <strong>UK</strong> <strong>Retail</strong> <strong>Sector</strong><br />
cloth<strong>in</strong>g retailer Zara’s quick response, vertically <strong>in</strong>tegrated bus<strong>in</strong>ess model made an<br />
opportunity of <strong>the</strong> transience of fashion to create dist<strong>in</strong>ctive competitive advantage,<br />
whilst Marks & Spencer’s growth of its Simply Food smaller format store was explicitly<br />
designed to br<strong>in</strong>g ‘convenience foods to more convenient locations’. A retailer with<br />
strong brand equity will be able to convey clearer value to customers which <strong>in</strong> turn will<br />
provide a more rigorous basis for <strong>in</strong>novation with<strong>in</strong> <strong>the</strong> firm.<br />
2.7 F<strong>in</strong>ally, as <strong>in</strong> o<strong>the</strong>r sectors, retail<strong>in</strong>g has also needed to come to terms with <strong>the</strong><br />
contemporary challenge of <strong>the</strong> ‘triple bottom l<strong>in</strong>e’, where <strong>in</strong>novation has to service <strong>the</strong><br />
need for environmental – and not just economic and social - performance. Partly because<br />
of <strong>the</strong>ir position <strong>in</strong> <strong>the</strong> value cha<strong>in</strong>, <strong>in</strong> be<strong>in</strong>g closest to <strong>the</strong> consumer, retailers have also<br />
become reference po<strong>in</strong>ts for <strong>the</strong>ir customers with regard to topical socio-economic or<br />
lifestyle debates about <strong>the</strong> environment, health, nutrition or fair trade. It is also <strong>in</strong> <strong>the</strong><br />
nature of retail bus<strong>in</strong>esses to strive to understand <strong>the</strong>ir customers and to quickly respond<br />
to new trends, needs or wants and, <strong>in</strong> <strong>the</strong> process, retailers’ brands have <strong>in</strong>creas<strong>in</strong>gly to<br />
function as guarantors for product quality, traceability, au<strong>the</strong>nticity, safety, reliability and<br />
convenience.<br />
b. Drivers of change<br />
2.8 The retail<strong>in</strong>g that we see today is <strong>the</strong> product of four ma<strong>in</strong> forces: economic, social,<br />
features aris<strong>in</strong>g from chang<strong>in</strong>g levels of competition and <strong>in</strong>novation (<strong>in</strong>clud<strong>in</strong>g<br />
technology), and those derived from evolv<strong>in</strong>g regulation. In some cases, <strong>the</strong>se <strong>in</strong>fluences<br />
act as constra<strong>in</strong>ts, <strong>in</strong> some cases <strong>the</strong>y provide real opportunities for experimentation and<br />
<strong>in</strong>novation. We elaborate upon <strong>the</strong> specific drivers for <strong>in</strong>novation as perceived by retail<br />
firms <strong>the</strong>mselves, from both with<strong>in</strong> as well as outside <strong>the</strong>ir organizations, <strong>in</strong> Section 5.<br />
We discuss regulation <strong>in</strong> <strong>the</strong> context of barriers to <strong>in</strong>novation <strong>in</strong> Section 6. Here, <strong>in</strong> l<strong>in</strong>e<br />
with o<strong>the</strong>r <strong>Innovation</strong> <strong>in</strong> Services reports, we briefly enumerate <strong>the</strong> ma<strong>in</strong> factors driv<strong>in</strong>g<br />
change <strong>in</strong> <strong>the</strong> sector and identify <strong>the</strong> pressures to which it is respond<strong>in</strong>g.<br />
i. Economic drivers<br />
2.9 Table 2.1 demonstrates that for much of <strong>the</strong> past fifteen years, <strong>the</strong> <strong>UK</strong> economy’s<br />
development has been underp<strong>in</strong>ned by extensive growth <strong>in</strong> domestic consumption. The<br />
broad consequence of this has been <strong>the</strong> relatively untrammelled growth of retail<br />
bus<strong>in</strong>esses and an optimistic and entrepreneurial outlook towards experimentation and<br />
expansion <strong>in</strong> a variety of ways. Most recently, <strong>the</strong> Bank of England has sought to re<strong>in</strong> <strong>in</strong><br />
consumer spend<strong>in</strong>g through a series of <strong>in</strong>terest rate rises. This, <strong>in</strong> comb<strong>in</strong>ation with<br />
concern over ris<strong>in</strong>g levels of personal debt and more general economic uncerta<strong>in</strong>ty, has<br />
led to growth <strong>in</strong> retail spend<strong>in</strong>g falter<strong>in</strong>g.<br />
2.10 In practice dur<strong>in</strong>g this period, <strong>UK</strong> shoppers have experienced substantial price decreases<br />
<strong>in</strong> a number of categories of consumer products over <strong>the</strong> past fifteen years – <strong>in</strong> categories<br />
such as cloth<strong>in</strong>g by as much as 20% and <strong>in</strong> audio-visual goods by as much as 60% -<br />
(Office of National Statistics, 2007). However, <strong>the</strong> debt which is of concern to consumers<br />
has not necessarily been <strong>in</strong>curred <strong>in</strong> consum<strong>in</strong>g retail goods, but as a result of higher<br />
utility, transport and hous<strong>in</strong>g bills. The pressure has <strong>the</strong>refore been upon retailers to<br />
clearly communicate fair, if not low, prices to those consumers for whom it is important.<br />
Those retailers which can cont<strong>in</strong>ually demonstrate ‘value’ <strong>in</strong> <strong>the</strong>ir propositions will w<strong>in</strong><br />
out aga<strong>in</strong>st those retailers with muddled price po<strong>in</strong>ts or value propositions.<br />
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