Innovation in the UK Retail Sector - Nesta

Innovation in the UK Retail Sector
consumption, consumer welfare, use of technology, fragmentation of demand, or the
emergence of a global consumer. Interviewees acknowledged that commercial survival
and success are intrinsically linked to their ability to innovate simultaneously across all
these areas of change. This results in plethora of retail initiatives around the retail offer,
delivery channels and the underpinning operations. One-stop shopping, the dollar store
concept, in-store theatre, multi-channel retailing, fast fashion, EDLP or more holistic
customer centricity initiatives are all innovative responses to changing consumer trends.
Here the dilemma for senior managers seems to be to what extent retailers need to be
customer-driven (focused on expressed consumer needs) and to what extent they could
actually drive consumer demand by focusing on latent needs.
“Ultimately of course all adds up to innovation in the proposition to the customer because the customer’s
buying the product and the service and it’s happening through the supply chain and they're buying it through
different channels”
(Marketing Director)
“I think the need to have competitive advantage over other people on the High Street, they want to be able
to have that product that nobody else has got ahead of everyone else. I think they are very keen to improve
the customer environment… I think they [retailers] are quite focused on the customer areas in terms of
delivering innovation”
(Senior Manager, Industry Association).
5.3 The competitive environment: (a 53% share of responses.) Growing international
competition coupled, with continued industry concentration and the effects of the
Internet on consumer demand and shopping habits invariably affects the pace with which
retailers innovate. Interviewees distinguished between two types of competition: the first
are ‘competitive pressures’ from direct competition in the marketplace from incumbents
in pursuit of market share and customer patronage. The second is what many retailers
referred to as ‘fear from industry disruptions’ coming within or from outside the sector.
These might include radically new retail business models, enabling technologies or even
new product propositions which compete with retailing for share of consumer wallet. By
definition, these often indirect competitive challenges are much more unpredictable.
While ‘sustaining’ innovation is about incremental improvement along established
industry trajectories, innovations that result from ‘disruptive’ competition are often
simpler and cheaper, but require very different set of commercial capabilities which
incumbents may find difficult to develop.
“I think a lot of it is down to competition, it’s always trying to be one step ahead other people or watching
the competition lead and then trying to follow very quickly”
(Innovation Director).
“A disruption to your normal business model from competitive activity, rapid market change - I think
these are main drivers on a macro level.”
(Marketing Director).
5.4 Industry cycles and organisational growth has a 47% share of responses. Here
managers associate industry cycles with their own organisational lifecycle. In this respect
innovation is seen as the means for continued existence. Retailing experiences distinct
phases of development, and change through innovation is seen by incumbents as critical
for developing new differential advantages and revenue streams. This is nowhere more
relevant than to retailers in mature and saturated markets. According to one Commercial
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