Retail Innovation is hard

By Gareth Jude | Jan 18, 2019 | 0

Innovation is hard in any industry, but it has an extra degree of difficulty in retail because of the short term thinking and executional mentality that are embedded in our DNA.  Here are a couple of examples of the way retailers think that makes us different to other industries and some ideas on what we can do to acquire the skills to develop programs of transformative innovation in our businesses.  

“You never get today back”. 

In Retail it’s said that you never get today back. If you have bad sales on Monday and good sales on Tuesday that doesn’t mean you’ve caught up, it means you’ve had a bad sales day on Monday. Retailer logic says the dollars spent today are not available again tomorrow. Most other industries don’t take this view. In other industries if you have a bad sales day, there is always the rest of the month or the quarter to make up the difference. On the face of it, retailer logic may seem short sighted, but economics broadly support the way retailers think. At a macro level retail spend is very predictable. In the USA retail sales are said to be booming with year on year growth of around 5% while in Australia retail sales are said to be sluggish with year on year growth of around 3%. That’s a 2% delta between terrific and terrible. When overall spend is so predictable it’s very easy to calculate the size of the available market on any given day. This means Monday’s spend can never be replaced by Tuesday’s spend because each day’s available market is effectively predetermined. If you have a bad day on Monday and a good day on Tuesday you haven’t caught up, you have missed Monday’s opportunity. Retailer logic is economically sound.

Retailer logic is further backed up by the nature of retail spending. Most retail spending comes from discretionary dollars i.e. the amount left after you have paid the bills and covered basic needs. Discretionary spend is notoriously fickle. It can switch between retailers or categories based on deals, proximity, mood, who’s hot and who’s not or any other reason the consumer might come up with. It can also stay in the wallet if none of what’s on offer is appealing. If you applied these behaviours to a purchase for a business, you would probably lose your job. For consumers there are generally few negative consequences from any purchase decision apart from occasional bouts of buyer’s remorse. Discretionary spend is also finite. Some consumers will supplement discretionary spend with credit but generally the amount of debt they are prepared to incur on retail purchases (credit cards, buy now pay later schemes etc.) remains reasonable static from year to year. With fickle consumers and a finite spend available retailers know they have to catch the fish today because they might not be back in the river tomorrow!

If you believe that you never get today back it makes sense that retail management focus on same day last year comparisons. When you manage that way, success means making incremental improvement on last year on a day by day basis. While this is great for maximising daily opportunity the flipside is a management culture based on short term thinking and an incremental rather than transformative approach toward business improvement.   

“There are no rewards for a bright idea. All the rewards are on execution”

One of my former bosses used to remind me regularly that there are no rewards in retail for a bright idea, only for execution. He was right. Retail is traditionally not a place for dreamy blue-sky ideas it’sa place for plans that are implementable now and can change the daily scorecard tomorrow. In other industries this is not necessarily the case. In other industries it’s normal to be developing concepts that may or may not get to market, for a number of years. Some of these ideas may seem bizarre and unmarketable at first but genius level breakthroughs when eventually launched. The people and teams who generate and develop dreamy blue-sky ideas are valuable resources in other industries. In retail the most valuable resources are the people and teams who can execute.  The people we promote are the ones who get the stock out and ticketed, order enough stock for promotions, get the till to balance, minimise shrink and waste etc. To coin another retail catchphrase they, “do it once and do it right.” The dreamers, who think about the world as it could be, generally stay where they are or leave the industry. The ranks of retail management have historically been stacked with execution led executives. 

Now the disclaimer. There is absolutely nothing wrong with having a laser like focus on today and valuing the ability to execute. They are qualities that allow good retailers to react to the market quickly and make it an exciting a dynamic industry to work in. They also help the retailers that get behind programs of innovation like Nike, Wal Mart, Target and Starbucks to be really good at it. However, these core competencies of retail are not necessarily the qualities you need to develop a program of transformative innovation. Most of the studies on innovation say that to be successful you need to think big, think long term, think different, be prepared to fail and embrace change as part of your culture. So, what can retailers do to combat our cultural disadvantage when it comes developing programs of innovation? 

The first is to find the dreamers in your business. They are the team members who write the emails with detailed plans about what the future could look like when you are busy trying to finalise this month’s promotion or bend your ear on store visits about all the things the business could do better. Their time has come. Great execution is no longer enough.

The second is to look for the skills we need outside the industry. In retail we prefer to recruit from within because experience has taught us that not many outsiders have the appetite for the relentless daily grind of our industry. However, as we all know when the world changes we need to change. A few years ago, we didn’tneed data scientists, social media experts, digital marketers or web masters but these are now mandatory competencies for a serious retail business. In the era of Amazon and Alibaba the ability to develop programs of transformative innovation is an equally important mandatory competency. Given it’s not our first language it may need to come from outside. 

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