Innovation in the UK Retail Sector - Nesta

Innovation in the UK Retail Sector
2.18 Technology has played a complex role in relation to retail change. Retailers themselves
have been generally reluctant adopters of technology (CEC, 1991). The majority of firms
have tended to be adapters rather than innovators, using information technology to
support existing operations. As a result, investment in ICT conferred little lasting
competitive advantage even if it managed to raise rudimentary barriers to entry. Indeed,
‘successful’ retail ICT for many in the 1990s comprised projects that did not involve long
term research & development, provided a visible financial benefit, came without
extensive capital commitment and provided for low risk, staged implementation. Even
today, ICT accounts for extremely low levels of capital spend in the sector. However, a
number of leading firms have used technology to achieve significant gains in productivity
(Johnson, 2002). In addition, disruptive innovations driven by technology, such as ecommerce,
have resulted in significant challenges for the sector. 2 For example, the
anticipated compound annual growth rate between 2007 and 2012 for retail online
spending is 14%. The expectation is that online sales in the EU will overtake those in the
USA by 2011.
2.19 One driver of domestic format innovation comes of course from continually growing
international activity within the UK. Estimates made in 2005 suggested that over 500
non-UK retailers currently trade in the UK, numbers which have been rising over the
past twenty years, with high proportions of operators in clothing, footwear and
accessories, health & beauty, toys and games and department & variety store retailing
(Retail Knowledge Bank, 2005).
iv. Regulatory drivers
2.20 Regulation is often seen by retailers as an unnecessary cost to the business, but regulation
can work to direct and focus innovation in unanticipated and otherwise unexplored ways,
in seeking to attain specific social, economic and environmental goals. There is no central
financial analysis of the administrative burden of regulation on UK business, although the
estimate is of some £20-£40bn per annum across all firms (Better Regulation Task Force,
2005). The Task Force also estimated that small retailers were disproportionately affected
over large: with small shopkeepers spending 3-5 days a month dealing with a range of
government administration (Better Regulation Task Force, 2001).
2.21 There is some evidence that the burden of retail regulation on the sector has reduced
(Figure 2.1). Recent work by OECD suggested that the UK fell from the 8 th to the 17 th
most regulated market from 1998 to 2003, although the difference was not statistically
significant (OECD, 2006). Regulation can affect retailers in two ways in relation to
innovation. The overall economic viability of any retail business model might be adversely
affected or constrained. Additionally, however, because of the nature of retail business,
regulation also influences the possible locations available for a particular retail format and
the costs of servicing those locations.
2 Christenson & Tedlow (1999) define disruptive technologies as innovations that change the economics of an industry (even if they may not be
initially profitable innovations).
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