Innovation in the UK Retail Sector - Nesta

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Vignette 4.1: Hotel Chocolat: multi-channel format Context: Offer-related innovation Innovation in the UK Retail Sector Example: “British chocolate has been a joke for quite a while. We are at the forefront of its resurgence.” (Angus Thirwell, cofounder). Hotel Chocolat has exploited a vacant niche within UK retailing for authentic, high quality, British-made chocolate. Hotel Chocolat was founded as a catalogue business in 1993. Its first store did not open until 2004. It now operates a corporate gifts service and a tasting club with 100,000 members, in addition to its web site and 22 outlets in the UK., which generate £39mn in sales. It won Emerging Retailer of the Year Award at the Retail Week Awards in 2007 as well as being nominated as a CoolBrand and plans international growth. It is already available online in New York, Boston, Atlanta, San Francisco and Chicago. Vignette 4.2: Migros – sustainable brands Context: Brand innovation Example: Migros is the largest Swiss retailer with 2m co-operative members, 590 stores, and sales of CHF 21 billion. Over several years the retailer has agreed with its suppliers a set of ethical standards manifested through the launch of its range of own labels under the umbrella brand ‘Engagement’. Each individual label represents a kite mark for a particular initiative of Migros, for example the elimination of child labour, better living conditions and the conservation of tropical forests. These initiatives predate much UK activity. Examples of such labels are: – BIO is for organic products manufactured without the use of chemical-synthetic pesticides and fertilizers, – Max Havelaar (Maximal Fairness) is for products complying with our fair trade guidelines, – 7-point meat guarantee label is for healthy meat from healthy animals, – IP-SUISSE guarantees that the bread, flour, potatoes and rapeseed oil are produced in Switzerland under environmentally friendly conditions, – Marine Stewardship Council guarantees that the fish is from sustainable fishing grounds, – Forest Stewardship Council for timber from forests that are managed in an environmentally friendly and socially acceptable way – ECO is guaranteeing environmentally friendly production of clothes, home textiles and shoes, – Bio Cotton for organically grown cotton According to Claude Hauser the Chairman of Migros alongside technology and product extensions innovation in Migros is about principles. Although the company acknowledges that generally grocery markets are quite price sensitive there is also an increasing sensitivity among shoppers about ethical, environmental, and health issues underpinning the growing need for the Engagement brands (Hristov 2004; Migros 2006). Vignette 4.3: Retail Clinics Context: Co-innovation in new services Examples: Recent example of new service introductions in US retailing are the trials in-store retail clinics. In this case more than a dozen clinic operators in co-operation with retailers such as CVS, Wal-Mart, Target, Walgreens and Kerr Drug are piloting the idea in-store clinics which will be providing convenient but limited service at a low cost offering basic procedures such as inoculations and treating common ailments such as strep throat, ear infections and allergies. These walk-in clinics are seen as alternative to the more expensive doctors’ surgeries and emergency rooms, although this has provoked serious backlash from family doctors who call for tighter regulation of such practices. In the UK in 1999 Boots trialled dental clinics in some of their high street stores after the acquisition of Dental Body Corporate and Wilson's Dentistry Limited, the initiative was later abandoned. The company however continues to offer flu jabs and free prescription collection. (www.usatoday.com; www.ft.com; www. bbc.co.uk, 21.10.2007) Vignette 4.4: Wal-Mart – limits to format innovation Context: Retail format innovation Example: Having created the Supercenter years ago, Wal-Mart has continued to incrementally evolve the concept. Over time it has deliberately pushed the envelope creating new more productive versions of the format roughly 20 000 sq ft or more larger Page 30
Innovation in the UK Retail Sector than the initial one, gradually taking it from 120,000 sq ft up to 200,000 sq ft. The new stores are testing added features which are subsequently rolled out nationwide such as new lines of clothing, extended electrical department selling computers, iPods and DVDs and a full-range grocery department. The stores are also testing new media with TV screens navigating shoppers in store. However, the standard Supercenter format did not work as well in Japan or Germany. According to Wall Street Journal the company is also working on two new smaller store concepts in direct response to Tesco’s US grocery stores. The first is an urban C-store catering for more affluent tastes in city centres while the second is a standalone retail unit offering a wide range of health services and products. (Accenture 2005; www.walmartfacts.com; www.csnews.com, 23.10.2007 ) Vignette 4.5: Zara: threats to ‘fast fashion’ Context: Business model innovation Example: Zara, the retail subsidiary of Inditex was among the first proponents of the ‘fast fashion’ business model which was built on the basis of: − partial vertical integration, − in-house design, − buying of merchandise much closer to the season and − fast feedback from stores. The model allows for high stock turnover, 4 weeks at most lead times from concept to consumer. The result is a constantly refreshed product range of more than 12 000 SKUs (e.g., new styles every week in low production quantities) and on average 17 customer visits per year. The ‘when-it’s-gone-it’s-gone’ approach also means far less price mark downs, i.e. higher profitability. However the ‘fast fashion’ model of Zara, Top Shop and H&M now appears to be under pressure from a new breed of clothing discounters such as Primark, Peakocks and fast growing grocery labels such as Cherokee (Tesco) and George (ASDA) which are managing to offer clothing with contemporary styling at discount prices. Vignette 4.6: TK Maxx: the ‘off price’ model Context: Business model innovation Example: The ‘off-price’ business model of TK Maxx (the British affiliate of the US company TJX), suggests another type of innovation. The appeal of its offer comes from a wide range of well-known designer brands sold at 20 to 60% discount. TK Maxx is able to do this through its opportunistic buying strategy. Unlike more traditional department stores which commit to quarterly buying cycles, the merchandising teams at TK Maxx wait until both suppliers and retailers have committed to their orders and then look for excess or unwanted stock at discount prices (Ritson, 2006). Vignette 4.7: Somerset Local Direct Context: Business model innovation Example: Somerset Local Food Direct is retailer offering their customers every day online the same quality of local foods as they can buy at farmers’ markets. The company was set up with the help of funding from DEFRA. The retailer’s philosophy is about supporting ‘local food culture’, providing value and convenience to customers and helping local agriculture survive in the face of imported produce. Most of its suppliers are farmers and producers who also sell at local farmers’ markets. Somerset Local Food Direct’s business model is simple. The company has a catalogue of locally sourced foods, augmented by organic and ethically sourced produce from further afield. It proudly emphasises the predominantly local nature of its range pointing out that 80% of suppliers can see the local landmark, Glastonbury Tor. The catalogue can be accessed online or as a paper copy. Customers can then place an order (80% do so on the web site, 20% by phone) up until Tuesday morning. The company then places orders with producers on Tuesday for exactly the amounts required to fulfil that week’s orders. Suppliers then deliver their produce to the Glastonbury warehouse on Wednesday and it is put out onto the shelves. The orders are picked and a fleet of vans delivers the orders to customers’ homes on Thursday and Friday. Produce is packed in insulated boxes to keep it fresh and this also means that customers do not need to be at home when it is delivered. Because of its origins, and numerous contacts in the farmers’ market movement, the company has been quickly able to develop a competitive product offer, achieving the necessary critical mass to be successful. Keys to profitability are strict control on costs, sufficient density of customers to make delivery viable and attractive range available in all seasons of the year. There is obviously a limit to the distance from the warehouse within which delivery is economic. Crucial to the whole operation is a computer Page 31
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 29: 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

Innovation in the UK Retail Sector - Nesta

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