Innovation in the UK Retail Sector - Nesta

v. Retailers’ reverse innovation cycle.
Innovation in the UK Retail Sector
3.21 Finally, retailing can experience a reverse innovation cycle (where financial and
organizational costs are incurred at the end of the innovation process rather than at the
beginning). This has also been observed in the financial services sector (Barras, 1986). But
among multiple retailers we can also see both reverse innovation development and
innovation investment cycles similar to those of many manufacturing firms. In
manufacturing, the biggest financial outlays tend to be associated with R&D and the
following NPD process. Once the product gets to market radical innovation gives way to
incremental improvements throughout the product life cycle (as in the software industry).
In retailing, the initial idea - even at the stage of initial prototyping - is relatively cheap
and largely experimental. However, the process of scaling up an idea across a large
portfolio of stores often requires radical innovations (such as in organisation and process)
and major investment and management resource. For example, it took Tesco nearly 12
years from 1994 to 2006 to bring to full scale their initial idea of an Express store. That
included trials of the concept, limited rollout, location planning, refinement of the
concept and subsequent scaling up through the acquisition and re-branding of T&S
Stores as well as organic growth to what is now a portfolio of over 730 stores. Once at a
critical mass this innovation had a transformational effect on the market and led to a
range of radical innovations in logistics and marketing.
“I think the actual development of a concept is not complex and as soon as you know it works, then you
do it. However let’s take PC World, it would have taken ten years from the point that it was clear that
it was a success to having rolled out through the UK, and I don’t know how much longer it will take to go
out to Europe”
(CEO).
Vignette 3.1: Best Buy
Context: Retailers as innovation hubs
Example: Best Buy, the biggest US electrical retailer has set up what it refers to as a Venture Capital Network (VCN) for
identifying promising technologies for new products or services. The role of this VCN is to speed up the transition of these
technologies from concept to market. This is achieved through the creation of external innovation networks linking up venture
capital firms with innovation start-ups working on particular retailer projects. Best Buy stores are then used to hot-house and test
the innovations in a retail environment.
For a number of years the retailer has also been pursuing a ‘customer centricity’ program of segmenting their market and
developing bespoke retail formats for each of the target segments, for instance affluent professionals seeking the best technology
experience, younger males wanting cutting-edge new technology, fathers looking for technology to improve their lifestyle,
mothers seeking technology to enrich their children's lives or small-business people using technology to improve their bottom
line. The range and the services offered for each segment are tested in what the company refers to as ‘lab stores’, 68 of which are
located throughout California.
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