Innovation in the UK Retail Sector - Nesta

2. The nature and contribution of retailing
a. The size and growth of the retail sector
Innovation in the UK Retail Sector
2.1 Retailers were once seen as ‘downstream resellers of products’, simply ciphers in
manufacturers’ distribution channels, intermediaries whose only role was to enable the
flow of goods and services between suppliers and consumers - and who were of
themselves incapable of innovation. This conclusion could be attributed partly to the
dominant nineteenth century view that manufacturing rather than services provided the
primary motor of economic growth and partly to the fact that in many developed
markets, until the early 1970s the retail industry was fragmented, mainly consisting of
single-store and smaller chain retailers.
2.2 This is a view, curiously, reflected until very recently in the way in which innovation is
defined and measured. As little as fifteen years ago, the late Keith Pavitt (1984) in seeking
to explain variations in the nature and impact of innovation between sectors, in terms of
their contribution to technological change 1 , suggested that innovation in retail firms was
essentially supplier-dominated. Firms in the sector, he suggested, were passive adopters of
supplier technologies rather than more active non-technological innovators. Such views
have been strongly contested, but have become embedded in policy. According to
McGoldrick (2002, p.2) it is equally, if not more, realistic to talk about ‘channels of
supply’ within a retailer-centred vertical marketing system.
2.3 Indeed, today, retailers are no longer hired links in a manufacturer’s supply chain but
comprise an independent market, the focus of a large group of customers for whom they
buy (McVey, 1960; Spriggs, 1994; Reynolds, 2004). They provide readily identifiable
locations where final consumers enter into the transactions by which they acquire goods
and services sourced by the retailer. In addition, they provide support services of various
kinds. As such retailing is an extremely significant economic activity which bridges
production and consumption and affects most of the population every day (Burt, 2003).
It is the eight-biggest sector of the world economy in terms of total market value
(Financial Times, 2006). Whilst as recently as 1990, there were no retailers in the US
Fortune 500, by 2006 Fortune reported that nearly one fifth was now made up of general
merchandisers, food & drug store and speciality retailers alone (Fortune, 2006).
2.4 In the US, retail trade accounts for 9.2 % of the GDP and employs 17.4% of the total
working population (Hristov, Cuthbertson et al., 2004). In the UK the sector represents
7% of total value-added and employs 2.6 million (10%) of the total working population
(Burt, 2003). In 2006 general retailing was the UK’s eighth biggest contributor to value
added. Tesco is the biggest UK private employer (240,000 employees) (FT 500, 2001), the
twelfth biggest individual contributor to value added and among the eight fastest growing
UK companies (DTI, 2005; DTI, 2006).
1 Pavitt’s essentially manufacturing-led perspective distinguished among three main types of firms; (1) supplier dominated (2) science-based, (3)
production-intensive firms.
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