Retail innovation: Trends, challenges and opportunities

July 9, 2018
7 mins

Retail giants such as Amazon have literally eaten up thousands of stores world over, capturing considerable market share. Although legacy retailers can blame Amazon (think Prime, Marketplace, Echo, Go, and several patents and acquisitions) for anticipating consumer needs and redefining retail, they have to look ahead and make bold moves to win over the eternally disgruntled shopper in a VUCA world.

A word to the wise

Every innovation in retail is now about designing an experience that’s remarkable and creates value that keeps bringing the "discerning" customer back. Shoppers are critical influencers thanks to the insane growth of social media networks and mobile commerce. To turn the “increasingly digitally connected” customer into a brand advocate and to drive sales, retailers recognize the need to be five steps ahead at all times.

Great customer service, impressively quick responsiveness, ease and flexibility, nifty tools, and mind-boggling choices have contributed to a community of happy campers worldwide. We don’t even have to go back decades to see how retailing has changed, and how much the buyer is deciding the goal of the retailer’s innovation strategy.

Retail Innovation: Consumer demands

Always Be Connecting Dots

So, says Sir Richard Branson who successfully helms diverse businesses. The A-B-C-D principle tells you to find new ways to do things with what you already have; innovation is not just finding cutting-edge technology to boost revenue. Making sense of disparate activities is a critical capability that requires effort—this is what most innovative retail companies such as Walmart, BMW, Everlane, IKEA, and Sephora do. They take these dots—customer insights, cross-functional activities, and data—and string them together to create retail magic! Twitter is perhaps a good example with SMS technology, Live Journal, and vehicle dispatch that were integrated to build an entire business.

Imagination, ideas, possibilities—the wheel, the press—make the world move forward. By seeing dots where there aren’t any, top retail companies

  • Apply existing knowledge in new ways
  • Create a culture that encourages unconventional thinking
  • Open up ideation and collaborate with diverse sets of people

For example, P&G’s Connect + Develop is a popular example of how the global company capitalized on open innovation to accelerate growth. Many successful products including Glad Press ‘n’ Seal, Swiffer Duster, and Olay Regenerist came from this approach.

(Check out the Kx Retail Innovation Index UK Analysis 2018 here for more examples and insights.)

Retailers are moving in new directions

In his 2015 report, Leading Trends in Retail Innovation: Insights from Some of the Most Progressive Retailers Changing The Game, Brian Solis Principal Analyst, Altimeter, tells us winning retail companies:

  • Constantly map the customer journey
  • Engage in and understand deep consumer research
  • Challenge their own conventions to see how the customer is changing
  • Translate customer insights into innovation pilots and programs
  • Gather the required teams and expertise to enable a test-and-learn environment

Companies are moving away from traditional approaches to newer ways to find unique value propositions. For instance, Hindustan Unilever, a subsidiary of British-Dutch company Unilever, used Sprint, an innovation management platform, to crowdsource ideas to understand consumer preferences in small retail stores in neighborhoods; the company wanted to capture sales data through the point of sales system and leverage it with innovative Machine Learning (ML) and analytical models. HUL found three exciting winning solutions from over 138 ideas that were submitted. In another example, Future Group, one of the largest retailers in India, conducted a datathon to understand consumers better from data-driven insights and embrace digital transformation. The company chose three winning ideas from over 200 submitted by 4500 participants.

The way retail business models offer, and capture, value has evolved over the years. Whether it’s changing the existing retail landscape or creating a new market like Apple did with iTunes, there has been huge upheavals in the way business is done. Most retailers now have an omnichannel strategy focused on more than just selling products and services; they want to engage the end buyers; they want to empower them; they want to create unforgettable experiences.

Top innovations transforming retail

Here are some examples of different innovations in the retail industry.

  • Method's squirt bottle — Innovation in packaging
  • Stella McCartney for GAP Kids — Innovation through collaboration
  • Meal solution Mix & Match Creations from Birds-eye, Tyson, and Walmart — Innovative product
  • Uniqlo’s HEATTECH design, AIRism line — Innovation in product design
  • Try Before You Buy Service from Amazon — Innovation in customer service
  • HDFC Bank’s Eva Chatbot — Innovation in communication
  • Coca Cola’s Customer Engagement Platform — Innovation in customer engagement
  • Holition (AR-enabled mirror) from Charlotte Tilbury — Innovation in in-store shopping experience
  • Zara’s manufacturing process — Innovation in business process
  • Everyday low prices at Walmart — Innovative business model

Top Innovation Transforming Retail

There are even retailers who are encouraging innovation that brings them no profit. For example, Danish hypermarket chain Bilka is helping small food producers for no fee or benefits. The project facilitated by the Danish Food Cluster is an attempt to iron out the creases in food innovation. “We are not going to profit from the initiative, but we are giving our customers a great experience, and we help the food innovators try out their ideas to a large number of consumers. Who knows, in the future exactly their products could be one of our most successful products. So, this is an investment in the future, both for us and the small producers,” said Bilka CEO, Mark Nielsen.

Look at a few more cases of innovation in retail from this interesting paper on “Innovations in Retail Business Models”:

Business model innovations in retail

Many retailers struggle to reinvent themselves

*Research shows that about 80 percent of new products fail, and about 70 percent innovations fail.

Admittedly, not every company can think of Google Express or Bingo Box or CardPointe. Some unfortunate ones go the British Home Stores or the V&D way.

As the bar continues to be set higher and higher with low prices, speedy delivery, product choices, and huge investments in technology by companies such as Alibaba and Etsy, using data and digital technology as creatively as possible is the only option.

*In early 2018, 11 US retailers (such as Nine West, Claire’s, and The Walking Company) announced liquidation or filed for bankruptcy. Most of these distressed retailers, which are struggling with mounting debts and low cash, plan a comeback with a stronger online presence, keeping only the flagship physical stores operational and focusing on newer markets. The North American retail apocalypse will result in the closure of more popular brands by year end according to trends.

As senior retail analyst for Moody's Investors Service Charles O'Shea said, “You could throw a dart at that board and basically hit somebody who's defaulting on company debt or filing for bankruptcy court protection.”

The retail (apparel and footwear as well) sector faces challenges when it comes to understanding and execution. The barriers to success, according to a research study on retail innovation from Kalypso and the Indiana University Kelley School of Business Center for Education and Research in Retail, are the following:

Retail Innovation: Barriers to success

What stops retailers from achieving new heights in digital innovation?

  • Except for leaders in the space, most chains do not (or rather are unable to) leverage analytics or SaaS solutions, adopt cloud infrastructures, embrace agile approaches, or boast omnichannel offerings.
  • Reluctance to upgrade brick-and-mortar stores and/or adding a digital component in delivery or supply chains (Blockbuster, for example) is a major disadvantage.
  • According to BCG’s report, “only a handful of retailers practice ‘innovation discovery’, a fourth measure of IT innovation that is about exposing organizations to new ideas and tactics.” This would refer to how much they used hackathons, mergers and acquisitions, venture capital, innovation labs, incubators, and other external collaborations.
  • When retailers are no longer connected to the product like traditional merchants, they also fail to connect with the customer and the market. The lack of a customer-centric approach is the biggest obstacle to retail innovation.
  • Companies sometimes measure customer experience against competitors in the same vertical. But that doesn’t work for today’s shopper. They want booking a hotel to be as easy as buying a pair of shoes. They want the retailer to be mobile-friendly to help them clinch the best deal.
  • Choosing short-term metrics and not treating failures as learning prevent organizations from moving forward.
  • Lack of leaders who nurture a culture of innovation and embrace uncertainty can spell doom. If you want to be Apple, you need to lead like Steve Jobs. (Well, try at least.)
  • Strict regulatory policies, low trade efficiency, and non-tariff barriers are significant hurdles to innovation in retail, especially in developing regions.
  • Other reasons could be an inconsistent and dull branding strategy, lack of up-to-date information on inventory and pricing for customers, unclear return policy, boring store layouts, and a lack of accurate product tracking systems.

Conclusion

Looking at the following analysis, you can see how emerging tech and innovation initiatives to understand the behaviors, and satisfy the desires, of the connected consumer is going to define the future of retail. Reinventing business models trumps business as usual, doesn’t it?

Retail Predictions 2018

Source: ZDNet

Perhaps as Deloitte says, it is about retail renaissance and not retail apocalypse, at least in the US. Not all brick-and-mortar stores are going to close doors and make shopping malls into mausoleums. There are companies such as Costco, a retailer popular for its warehouse club model, and Lululemon, leader in premium athleisure clothing, that have been growing steadily in terms of both e-commerce and store growth. In other regions too across the world, retailers are investing in analytics and IT infrastructure and scouting for untapped markets. The situation is more hopeful than hopeless. 

Citing the Kalypso report mentioned earlier, the main aspects of today’s retail innovation include voice of the customer, materials innovation, digital product creation, smart connect products, mass customization, and crowdsourcing for design. These areas also draw maximum investment.

We believe that to not become yet another sad statistic, a retailer needs to

  • Recognize that success lies in the details
  • Understand the business’s problems and the possibilities
  • Keep abreast of current customer trends and technologies
  • Maintain organizational flexibility to find the innovation approach that works best
  • Understand critical interdependencies in the business model
  • Clearly define the value proposition
  • Ideate, create prototypes, and conduct trials
  • Develop a roadmap and build a strong business case
  • Scale up
  • Innovate iteratively

It’s not impossible to partner and/or compete with digital-first companies such as Amazon or constantly innovating companies such as Walmart.

The wake-up call happened a while ago. It is time to chart new paths.

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About the Author

Dhanya Menon
Dhanya Menon is an editor and academic writer. This is her first stint in content marketing, having spent over 5 years in e-learning. Her interests are varied. She likes to lose track of time reading anything from chemistry to Allende, from statistics to Thurber cartoons, from Ruth Rendell to listening to her son's unique take on life.

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