Innovation in the UK Retail Sector - Nesta

More documents

Recommendations

Info

4. How do retailers think about innovation? Innovation in the UK Retail Sector 4.1 The retailers to whom we spoke as part of this research (Hristov, 2007) acknowledged overwhelmingly the crucial role of innovation for the performance of any retail business. Without innovation, they suggested, like-for-like growth and profit margins decline and organisations run into life-cycle issues: “You get about two years under the sun and then suddenly there is a new kid on the block … ever so often you have to take a long hard look at yourself” (CEO) But our findings also indicated that there is a real range of meanings and interpretations among retail practitioners as to what constitutes innovation in retailing, and this may contribute to under-reporting in conventional surveys. It’s seen not just as: • A necessary means to continued existence, but also as • Change with positive, long-lasting effects, • A cross-business process of generating and implementing commercially viable ideas that deliver benefits to customers, and • A process of implementation of new ideas which creates differentiation in the marketplace. 4.2 Further, retailers acknowledged that defining and measuring retail innovation was difficult since innovations were largely dispersed across the business: requiring the co-ordinated effort of a wide constituency of people across functional areas and including suppliers and customers. As a term, therefore, ‘innovation’ often did not appear immediately self explanatory to retail practitioners. Or, as one senior consultant put it, “Innovation, its too big a term. To communicate it, one has to break it into its component parts.” 4.3 With some notable exceptions most of the retailers in the sample pointed out that they did not use the term in their everyday vocabulary. Yet they felt that their organisations innovated all the time without having innovation directors or departments. Some referred to ‘innovation’ as a composite term which in practice needed to be translated into more concrete operational terminology such as: ‘new product development (NPD)’, ‘new SKUs’, ‘new categories’, ‘refreshing the range’, ‘new formats’, ‘new markets’, or ‘new applications of technology’. “It is very hard to define innovation. We are a fashion retailer; therefore every time you design a new product is that innovation? How different does it have to be, to be innovation? We innovate in the product, in our designs, in our store environment, we are creative in the way we brand ourselves and in the way we interact with our customers but there are many levers to pull, I think the trick is to pull these at the right time and at the right level, rather than thinking next year I'm going for my store refit, or next year I’m going to launch an all-new product offering, one has to be entrepreneurial about that.” (CEO Fashion Retailer). 4.4 Some retailers perceive the term ‘innovation’ as a much more radical departure from ‘business as usual’ rather than incremental change in operational practices and new product development. Page 26
Innovation in the UK Retail Sector “We prefer to use ‘newness’. Innovation somehow carries the meaning of a radically new idea. I guess it is associated with blue sky thinking or something that has never been done before. The majority of our incremental growth comes from newness, which I would describe as a stage below innovation. We also use reinvention” (Commercial Director). 4.5 So what therefore constitutes innovation in retailing? Summarising the views of over 50 senior industry practitioners, we suggest that a broadly acceptable definition might be: Elements of the retail offer (i.e., products, range, services, retail format, etc.) in tandem with the underpinning organisation and technologies needed to deliver these to the market, which are new or significantly improved as a result of the retailer’s existing market or technological knowledge. 4.6 Whilst interviews with retailers indicated a plethora of meanings and views as to what might constitute innovation, it also found a distinction between those innovations which were strategic and these which were more operational in character. a. Strategic retail innovation 4.7 Although retail innovation tends to follow a pattern of a ‘continuous change’ mode rather than the more pronounced manufacturing pattern of ‘series of step changes’ between periods of stability, there is evidence that more radical innovations are often qualified as strategic in the sense that they are guided by corporate strategy. Examples of these are ‘sector hopping’ from food to non-food - for instance in the case of Sainsbury’s and ASDA - or pursuing new channels to market in the case of the John Lewis Partnership (Waitrose) with Ocado.com. (See also Vignette 4.1 – Hotel Chocolat.) Strategic innovations might also involve the development of new retail formats for international markets, in the case of Tesco’s new ‘Fresh and Easy’ concept for the US market. Similarly they involve innovative business models which combine a range of retail applications such as catering, retailing, entertainment and the internet often introduced by smaller retailers in rural communities. There are also examples of radically new approaches to sustainable development or retailer-supplier collaboration. (See Vignette 4.2 – Migros, 4.5 - Zara and 4.6 – TK Maxx, 4.7 - Somerset Local Direct). b. Operational retail innovation 4.8 At an operational level there seems to be a broad consensus that innovation is associated with new products, ideas or ways of operating. The predominant view suggests that operational retail innovations are mainly continuous, incremental and with a cost or value-added focus. They often involve planning, management sponsorship or resource allocation and have short innovation cycles of between 3 to 18 months. For example, one typical approach to innovation is experimentation through ‘test’ or ‘lab’ stores or through continuous store trials. The US electrical retailer Best Buy has opened over 60 ‘lab stores’ in which they test new ranges, technologies and services (discussed in Vignette 3.1, but see also 4.4). Similarly Metro set up its Future Store near Rheinberg in Germany (now closed) where alongside testing new technologies such self-checkouts, RFID and smart scales, they also tested and refined their new hypermarket footprint of Real Extra. Page 27
Page 1 and 2: Report for NESTA December 2007 Inno
Page 3 and 4: Contents Innovation in the UK Retai
Page 5 and 6: Innovation in the UK Retail Sector
Page 9 and 10: 2. The nature and contribution of r
Page 23 and 24: v. Retailers’ reverse innovation
Page 25: Innovation in the UK Retail Sector
Page 41 and 42: Vignette 5.3: Currys customer recyc
Page 43 and 44: 6. What are the barriers to retail
Page 47 and 48: 7. What are the measures of retail
Page 49 and 50: . Types of Measures Innovation in t
Page 65 and 66: . Promoting innovation in sustainab
Page 69 and 70: Conclusion/Next Steps: Innovation i
Page 73 and 74: Recommendation 4: Innovation in the
Page 77 and 78:
Appendix 1 Research Methodology 350
show all

Innovation in the UK Retail Sector - Nesta

Create successful ePaper yourself

Delete template?

Save as template?