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 />
than <strong>the</strong> <strong>in</strong>itial one, gradually tak<strong>in</strong>g it from 120,000 sq ft up to 200,000 sq ft. The new stores are test<strong>in</strong>g added features which are<br />
subsequently rolled out nationwide such as new l<strong>in</strong>es of cloth<strong>in</strong>g, extended electrical department sell<strong>in</strong>g computers, iPods and<br />
DVDs and a full-range grocery department. The stores are also test<strong>in</strong>g new media with TV screens navigat<strong>in</strong>g shoppers <strong>in</strong> store.<br />
However, <strong>the</strong> standard Supercenter format did not work as well <strong>in</strong> Japan or Germany.<br />
Accord<strong>in</strong>g to Wall Street Journal <strong>the</strong> company is also work<strong>in</strong>g on two new smaller store concepts <strong>in</strong> direct response to Tesco’s US<br />
grocery stores. The first is an urban C-store cater<strong>in</strong>g for more affluent tastes <strong>in</strong> city centres while <strong>the</strong> second is a standalone retail<br />
unit offer<strong>in</strong>g a wide range of health services and products.<br />
(Accenture 2005; www.walmartfacts.com; www.csnews.com, 23.10.2007 )<br />
Vignette 4.5: Zara: threats to ‘fast fashion’<br />
Context: Bus<strong>in</strong>ess model <strong>in</strong>novation<br />
Example: Zara, <strong>the</strong> retail subsidiary of Inditex was among <strong>the</strong> first proponents of <strong>the</strong> ‘fast fashion’ bus<strong>in</strong>ess model which was<br />
built on <strong>the</strong> basis of:<br />
− partial vertical <strong>in</strong>tegration,<br />
− <strong>in</strong>-house design,<br />
− buy<strong>in</strong>g of merchandise much closer to <strong>the</strong> season and<br />
− fast feedback from stores.<br />
The model allows for high stock turnover, 4 weeks at most lead times from concept to consumer. The result is a constantly<br />
refreshed product range of more than 12 000 SKUs (e.g., new styles every week <strong>in</strong> low production quantities) and on average 17<br />
customer visits per year. The ‘when-it’s-gone-it’s-gone’ approach also means far less price mark downs, i.e. higher profitability.<br />
However <strong>the</strong> ‘fast fashion’ model of Zara, Top Shop and H&M now appears to be under pressure from a new breed of cloth<strong>in</strong>g<br />
discounters such as Primark, Peakocks and fast grow<strong>in</strong>g grocery labels such as Cherokee (Tesco) and George (ASDA) which are<br />
manag<strong>in</strong>g to offer cloth<strong>in</strong>g with contemporary styl<strong>in</strong>g at discount prices.<br />
Vignette 4.6: TK Maxx: <strong>the</strong> ‘off price’ model<br />
Context: Bus<strong>in</strong>ess model <strong>in</strong>novation<br />
Example: The ‘off-price’ bus<strong>in</strong>ess model of TK Maxx (<strong>the</strong> British affiliate of <strong>the</strong> US company TJX), suggests ano<strong>the</strong>r type of<br />
<strong>in</strong>novation. The appeal of its offer comes from a wide range of well-known designer brands sold at 20 to 60% discount. TK Maxx<br />
is able to do this through its opportunistic buy<strong>in</strong>g strategy. Unlike more traditional department stores which commit to quarterly<br />
buy<strong>in</strong>g cycles, <strong>the</strong> merchandis<strong>in</strong>g teams at TK Maxx wait until both suppliers and retailers have committed to <strong>the</strong>ir orders and<br />
<strong>the</strong>n look for excess or unwanted stock at discount prices (Ritson, 2006).<br />
Vignette 4.7: Somerset Local Direct<br />
Context: Bus<strong>in</strong>ess model <strong>in</strong>novation<br />
Example: Somerset Local Food Direct is retailer offer<strong>in</strong>g <strong>the</strong>ir customers every day onl<strong>in</strong>e <strong>the</strong> same quality of local foods as <strong>the</strong>y<br />
can buy at farmers’ markets. The company was set up with <strong>the</strong> help of fund<strong>in</strong>g from DEFRA. The retailer’s philosophy is about<br />
support<strong>in</strong>g ‘local food culture’, provid<strong>in</strong>g value and convenience to customers and help<strong>in</strong>g local agriculture survive <strong>in</strong> <strong>the</strong> face of<br />
imported produce. Most of its suppliers are farmers and producers who also sell at local farmers’ markets.<br />
Somerset Local Food Direct’s bus<strong>in</strong>ess model is simple. The company has a catalogue of locally sourced foods, augmented by<br />
organic and ethically sourced produce from fur<strong>the</strong>r afield. It proudly emphasises <strong>the</strong> predom<strong>in</strong>antly local nature of its range<br />
po<strong>in</strong>t<strong>in</strong>g out that 80% of suppliers can see <strong>the</strong> local landmark, Glastonbury Tor. The catalogue can be accessed onl<strong>in</strong>e or as a<br />
paper copy. Customers can <strong>the</strong>n place an order (80% do so on <strong>the</strong> web site, 20% by phone) up until Tuesday morn<strong>in</strong>g. The<br />
company <strong>the</strong>n places orders with producers on Tuesday for exactly <strong>the</strong> amounts required to fulfil that week’s orders. Suppliers<br />
<strong>the</strong>n deliver <strong>the</strong>ir produce to <strong>the</strong> Glastonbury warehouse on Wednesday and it is put out onto <strong>the</strong> shelves. The orders are picked<br />
and a fleet of vans delivers <strong>the</strong> orders to customers’ homes on Thursday and Friday. Produce is packed <strong>in</strong> <strong>in</strong>sulated boxes to keep<br />
it fresh and this also means that customers do not need to be at home when it is delivered.<br />
Because of its orig<strong>in</strong>s, and numerous contacts <strong>in</strong> <strong>the</strong> farmers’ market movement, <strong>the</strong> company has been quickly able to develop a<br />
competitive product offer, achiev<strong>in</strong>g <strong>the</strong> necessary critical mass to be successful. Keys to profitability are strict control on costs,<br />
sufficient density of customers to make delivery viable and attractive range available <strong>in</strong> all seasons of <strong>the</strong> year. There is obviously<br />
a limit to <strong>the</strong> distance from <strong>the</strong> warehouse with<strong>in</strong> which delivery is economic. Crucial to <strong>the</strong> whole operation is a computer<br />
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