Innovation in the UK Retail Sector - Nesta

1. Introduction
Innovation in the UK Retail Sector
1.1 There is a broad consensus that innovation deals with the successful exploitation of ideas
which leads to sustainable economic growth. However, the precise meanings, practices,
measurements of and potential support for the innovative activities of firms largely
depend on the context in which they occur. The present Innovation in Services initiative
recognises that innovation in services may be different in its nature, incidence and
measurability than that in more tangible sectors of the economy, and that different
actions and policies may be required of Government in support of service sector
innovation. What, then, of innovation in the retail sector, one of the largest in terms of
value added and employment within the UK service sector? Retailing is considered to be
a service but is, of course, a hybrid economic activity performing a bridging role between
production and consumption, in which firms bring together assortments of goods
relevant to the needs of consumers. Yet the nature of innovation in this important sector
is often poorly understood and inadequately measured.
1.2 Over the last forty years, UK retailers have become much more active in their own right
within the value chain. Indeed, large, professionalised, organizations now run most of the
retailing in western economies and are now coming to do so in emerging economies. In
addition to being substantial commercial enterprises, such retailers have also become
trusted brands with, in some cases, retailers’ own label brands being regarded as of similar
or higher quality than those of branded manufacturers. Now retailing is the legitimate
focus of business strategy, marketing, operations management and other conventional
business disciplines. How do such companies innovate, and what kind of innovation
matters for such firms? How do small and medium-sized enterprises – firms which
contribute to the vital entrepreneurial ‘froth’ of the sector - undertake innovation?
1.3 This report has been commissioned by NESTA to examine innovation in the retail
sector. It seeks to answer the following questions, using a common format and structure:
• What is the ‘innovation that matters’ in the sector?
• What is driving this innovation?
• What are the barriers to further innovation?
• How is this innovation evidenced within the sector, and how might this inform the
development of new metrics and tools for benchmarking innovation performance? It
finally considers and makes recommendations for:
• The role for Government in supporting these particular forms and systems of
innovation to create greater economic and social value
1.4 The report combines findings from a variety of sources. It analyses for the first time the
retail-specific responses to the most recent Community Innovation Survey. It draws upon
selected insights from a series of in-depth interviews and discussions conducted by one of
the authors as part of his doctoral research with over 50 senior retail executives and other
industry experts from over 30 retail businesses, consulting firms and industry associations
(within the UK and elsewhere) on how they define, encourage and manage innovation. It
brings together a wide range of secondary material dealing with innovation (examining its
relevance through a retail lens). It reviews existing Government activity in this area.
Finally, the report makes recommendations on the particular ways in which Government
may improve the effectiveness of its stimulation and support of innovation within the
sector.
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