“Retail is not dying or dead. It’s just changing dramatically”
While consumers think that the retailers are not innovative, there are some different options how to cope with both needed development of the retail model, and the every day harder competition with disruptive start-ups.
Doug Stephens, the founder of Retail Prophet, recently agreed (with Marc Andreessen) that “Retail is not dying or dead. It’s just changing dramatically”. Taking that as a starting point, and with the long and never ending list of disruptive start-up together with the evolving consumer’s needs and behaviours, how are the retailers preparing their companies to change and innovate?
1- Do not innovate.
Even if “innovate or die” is a lemma shared by most retailers, it is not very difficult to forecast which will be the next retailers having serious difficulties. The signs are often the same:
– no investments in old stores
– little expansion
– late technology development
– ageing management and conservative organisations.
In general, the belief that the product itself or the concept is so good that it will survive forever is the first break to innovation. Everyone has in every country examples of this in recent history and some ideas of who will be next…
2- Innovation within the company.
Some years ago Sears has built an integrated innovation lab in Chicago. Despite belonging to the holding, the Integrated Retail Lab has been organised as an independent unit. This choice has been made by quite some North American retailers, believing that their competence of retail and the market would me more important than the lack of technological competence (that they would recruit outside). This is probably right when talking about solving the actual and well-known issues that retail has been facing and is still facing today. However, this is for sure not enough to anticipate the quick changes of behaviours of the customers nor the disruptive start-ups coming with completely “out of the box” ideas and creating solutions at no costs. When looking at Sear´s IR lab web page you get a clear example of the above.
Some other retailers with integrated innovation labs:
– Staples: Three labs in separate locations. “Velocity Lab” in Cambridge, MA, “Innovation Lab” in San Mateo, CA and “Development Lab” in Seattle. A more modern site.
– Walmart: Despite its size, the world biggest retailer seems to have a “start-up like” way of working in his lab, divided in 3 development centre, one placed in India.
– Sephora: But with very little exposure and not accessible from their site.
– Tesco: Seems more like a “technology watcher” than really committed to development or implementation, a nice vitrine.
– Inditex: Close to its head office has invested in the past 4 years 1000 M€ in its technological Center in Arteixo (A Coruña). A clear way to keep full control of development and speed in the fashion sector where reactivity (and not only innovation) is key to success.
Finally, the key question is whether it is possible to be big and think small, to think strategy and “just go for it” and to spend months in budgeting, forecasting and adjusting billions, and at the same time go and spend a few million without a clear ROI.
3- Partnering with retail incubators
Another approach, more European, has been for some retailers to create a partnership with start-ups incubators. There are many ways of financing and supporting these projects but the objective is clear: a wider perspective to innovation at the lower possible cost and risks.
Carrefour has recently started a partnership with PARTECH Ventures and The Family (one of the 3 main French start-up incubators with Numa, and 50 Partners) to strengthen its development and create start-ups linked to its needs.
Another example comes from Galeries Lafayette, the Parisian department store that has launched its own start-up incubator together with the American Plug and Play calling itself the ” The world’s biggest start-up accelerator”. The French version becomes “Lafayette Plug and Play” and is “a ground-breaking innovation platform designed to boost the next generation of retail and fashion companies”.
The last example of this collaboration can be found with the PICOM, focused on the future of shopping, and supported by a lot of french retailers like Auchan, Boulanger, Fnac (has its own Start-up price), Castorama, Kiabi or IKEA.
Finally, many of these collaborations happen through presentation events or pitches (A pitch is basically delivering a business plan verbally) or even competitions. My experience after looking for some innovation in customer tracking is that the product development is (obviously) not linked to the capacity of its founder to communicate and sell… but unfortunately, its capacity to raise fund yes.
4- Acquiring external start-up
Another option, more often used in Noth America over all industries, is simply to keep an eye on the companies developing innovative solutions that can improve your business or disrupt it in case you don’t control them.. and buy them. This is how Home Depot has purchased Blacklocus to starts its innovation lab.
There are a few benefits for the purchaser. First, you limit the risks met by most start-up to disappear before the product or service is born. The creativity (and energy) of the new company growth supported by a pioneer spirit. The involvement in the project can be graduated, also mitigating the risks, with first a collaboration (securing the quality of the testing), then financial participations (shares) and finally take over.
Despite these advantages, there are very few “purchases” done in Europe. The recent crisis has probably taken down the willingness to take short time risks, therefore increasing the probability of reacting too late.
To conclude this article about how retailers are innovating we can see two different behaviours, one in North America, more tempted to invest in expensive internal innovation labs, or finally, purchase at a high price the disruptors. In Europe, the tendency for retailers is to support (and watch) innovative companies through retail incubators or accelerators but with finally limited important financial operations. One aspect of the innovation has not been touched in this article (but I will in the future), is concerning management, leadership and organisation innovations in retail that seems very limited, and is one of the key for big retailers to bring innovation in their DNA instead of looking for (or waiting) it outside.