As the Retail industry gathers again to share its latest thinking and technology at the NRF’s Big Show I thought it would be a good time to reflect on what I have learned about retail innovation from my long association with the industry. I got my first job in a retail store more than forty years ago and have spent most of my career since then as either an operator, supplier, or consultant in retail businesses. The ability to innovate or change has always been important in retail but as the pace of digital transformation and globalisation has picked up it’s become imperative not only for success but survival. I have been fortunate for the last eight years to be in the thick of it as Retail Industry lead for Australia’s largest telco. It was my job to try and make sense of the changing world of retail not only for Telstra itself but for our many important retail customers. It would be fair to say that as we move in to 2019 there are now very few retailers that don’trecognise the need to change. Unfortunately, it would be equally fair to say that the number of established retailers who have actually been able to successfully execute programs of transformative innovation like Nike, Wal Mart and Starbucks is low.
First a few parameters. When I say innovation, I mean transformative change. Innovation does not necessarily mean new to the world initiatives, but it does need to represent a significant change for your business. New to the world innovation such as that seen at B8TA, Brandless and Bingo Box is rare in retail and has always been most common in start-ups. The comments that follow are not directed at start-ups but to established retailers looking to adapt to the changing world around them. Here are 13 observations. I will expand on each of them over the next few weeks.
- Innovation is hard in any industry, but it has an extra degree of difficulty in retail because of the short time horizons and executional mentality that are embedded in our DNA
- Golden rule: Innovation is only sustainable when it solves a customer problem, does something positive for the business and aligns with your purpose for being in business.
- New technology, new store designs and cost cutting are often mistaken for retail innovation. They are not. (See golden rule)
- Purpose is the foundation on which retail innovation is built. Without solid alignment on purpose innovation will always be on shaky ground (tip: customers and team members are motivated by a purpose that goes beyond a return to shareholders)
- The consequences of not innovating in a changing world are declining customer counts and declining sales. Not innovating is an unsustainable strategy.
- Retailers who don’t innovate drop (or raise) prices, cut rosters, close stores and pressure suppliers and landlords to cover the loss of customers and revenue. All of these tactics are unsustainable in the long term.
- Retail Innovation is a chain of interconnected processes. Each process has its own dependencies. If one link in the chain fails, the process fails
- Idea generation is easy, but idea filtering is hard. The best qualified customer problem filtering experts are the team who serve your customers every day. Management’s responsibility is to make sure the ideas generate a return and that they align with business purpose. All three conditions must be met before proceeding with any idea.
- Filtered ideas must be supported with resources, be implemented by cross functional teams, and sponsored by the most senior manager (usually CEO). All three conditions must be met before proceeding.
- Ideas need developing, prototyping and refining before testing (tip: if it takes too long, you’re doing it wrong)
- The best place to test is in a trading environment with real customers. Every other form of testing is biased or theoretical. Set benchmarks based on the golden rule in advance and trust the data. (tip: If in doubt what is in the cash register is always the ultimate arbiter)
- If the test works plan the transition to the new way of doing business, deploy and embed the change
- Rinse and repeat. Innovation is a perpetual process not a destination.