Party City, Berks County, PA, May 12, 2020 – Photo: Getty Images/arlutz73
Why does it take a crisis for retailers to get innovative?
Through a special arrangement, presented here for discussion is a summary of Steve Dennis’ recent Forbes article. Steve is president & founder of SageBerry Consulting and a senior Forbes Contributor. His first book — Remarkable Retail: How to Win and Keep Customers in the Age of Digital Disruption — came out earlier this year.
The COVID-19 crisis has led to tremendous innovation and experimentation on the part of just about every retailer.
From curbside pickup (and other forms of contactless delivery) to appointment shopping, hyper-online growth and more, so much change has occurred in such a short period of time.
Legacy retailers are being applauded for embracing the notion that most customer journeys are digitally-driven and that online shopping and brick-and-mortar stores can work in tandem to produce remarkable results.
To this I say, “Really?,” adding: “Glad you finally woke up, Rip Van Winkle.” (Note to Millennials: look him up.)
Clearly, some shopper behaviors (and resulting retail responses) are very much of the moment and it’s uncertain to what degree they’ll continue. Yet there’s no denying the retail industry witnessed an epic revolution during the past two decades, much of it driven by digital technology. In turn, the power has shifted to the consumer and the underlying bases of competition have been upended. Even in the pre-COVID world, shifts were happening faster and faster all the time.
Many retailers — from Home Depot to Lululemon, Best Buy Nike and many more — were keenly aware of the shifts and responded in remarkable ways well before a crisis. Their commitment to innovation and agile business models explains their better than average performance thus far during the crisis.
Retailers that have been asleep at the wheel do not get a do-over. Their boards should demand an after-action review to discern which outcomes were unpredictable and simply bad luck versus those that reveal systemic failures to understand where we have been headed and why leadership failed to embrace a culture of experimentation years earlier. As just one example, it’s been pretty obvious for close to a decade that BOPIS would eventually become table stakes for most retailers. Yet still only half have implemented it.
I am hopeful that one of the lessons of the COVID-19 crisis is that retailers that defended the status quo will become retail radicals, rewiring their processes to say “yes” more often and aggressively fostering a culture of experimentation. Time will tell.
Discussion Questions
DISCUSSION QUESTIONS: What lessons does the COVID-19 crisis offer about the barriers retail management teams often encounter to innovation and experimentation? What’s the likelihood that legacy retailers will more readily embrace digitally-first approaches as the crisis lifts?
Poll
BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Mark Heckman
Principal, Mark Heckman Consulting
Many retailers suffer from institutional inertia and COVID-19 was a shock to the system. This was not a cyclical decline or a soft holiday season, it was the mass shutdown of retailing (along with most everything else). Many retailers are very much still in the throes of survival mode, and innovation is happening as a matter of necessity. Any retailer that successfully navigates the near-term challenges of the COVID-19 pandemic and survives had better re-prioritize their digital platforms and services.
A crisis forces retailers to act and breaks many out of their complacency. However, it should not be this way. Even in normal times, retailers need to innovate, experiment and evolve constantly. Far too few do and that’s precisely why so many are struggling.
Comparatively, when you look at retailers holding their own — Target, Amazon, Best Buy, Home Depot, and others — they’ve all taken bold, sometimes risky decisions that have helped them respond to changing demand. This attitude comes from the top. Sadly too many executives are timid and simply don’t deliver the change that is needed within their organizations.
“Complacency” is a kind word for the lack of innovative thinking by retailers in general. I find retailers to be the least innovative thinkers across all major industries. I will go one step further … many just pay lip service to it and some even reject it out of hand. The results are written in history and emphasized in this pandemic as big doors and small doors are closing at an astounding rate.
Because organizations are a collection of individuals and there is a thing called organizational DNA. Much like individual humans, many businesses react only when pushed to the brink, and the “fight or flight” sets in. The behavior is not surprising at all.
When it’s do or die, people tend to do what they need to do to survive. There have been many other death threats to retailers for many years, but the COVID-19 crises has, I believe, scared them into taking real action this time.
It is extremely difficult to invest in innovation that does not address a visible problem. Even innovation investment that promises valuable enhancement to business process is a psychological stretch because the cost is a known and the results/returns are an unknown. What is known is the odds — they are not good. Maybe 1:10 for true innovations (not iteration of current process) — maybe 1:100? Even worse when you start talking Elon Musk moonshots. That’s a big ask of a management team running on 1-2% net margins.
Retailers HAVE to embrace digital first. A classic example is how long it took to get BOPIS going, both on the development and retailer side. COVID-19 made it a must have but in the meantime, Walmart had 3000 stores with great, customer driven, BOPS-enabled units and did very well.
The idea of staying a “fast second” or laggard with new customer driven initiatives is dead in the water. It’s a hard lesson and many, many stores will close, affecting development and the overall economy, but hopefully that lesson is now learned and more digitally integrated units, like Starbucks, Walmart or even HEB will become the norm.
There are plenty of retailers who have been consistently innovating including this one from Nordstom seven years ago with their sunglass innovation project, which was ahead of its time.
There are a lot of stakeholders with larger brands and it is easy to kick them when they are down. Legacy Frankenstein systems that don’t play well with each other cost a hell of a lot and are rarely embraced as must-have. That’s just reality.
If legacy retailers commit to being in business and changing the narrative of “survive” etc to winning, I’m convinced they will embrace anything that gives them wins. And that starts at the top. No vision; no strategy … no results.
There is a relentless need for continuous innovation and creativity to adapt business operating models to changing consumer behaviors. The COVID-19 pandemic has essentially served as the great acceleration for emerging trends and technological innovations.
Unfortunately, sometimes it takes an unprecedented epidemic to drive the innovation imperative. However, legacy brick and mortar retailers, in particular, are challenged to be far more flexible, agile, and adaptive to changing consumer behaviors. The pandemic has also exposed companies that were not well-positioned or adapted their operating model to a digital-first strategy.
Innovation is not a switch that could be turned on to evolve into a digital-first company, There has to be the executive sponsorship, change management, and the culture to drive this transformation.
Necessity is the mother of invention. There is a need to prop up sales until we resume normalcy, whatever that will be by then. Creativity is addressing that need, albeit, not one hundred percent. As to whether it is “digital first,” not sure. Digital? Yes! First? Not necessarily. Digital Also? Definitely! Knee-jerk reactions in the direction of one objective at the expense of a bunch others is going to come back to hurt many retailers.
We must remember that shopper demand is a contributing factor to these new ways of working having success. Some services may endure, especially ones that shoppers find convenient. Necessity is still the mother of invention, however, I must defend those perennial innovators, like Amazon, Apple and others that don’t wait for a disaster to happen.
Pain. The pain of change has to be less than the pain of staying the course. Numbness. A total lack of the ability to feel pain or see it coming.
Retail, and especially apparel, can sometimes have a one word definition … change. So there has to be a mechanism for understanding and probing for and testing for change. Risk is not an off/on switch. It’s measured. It’s gradual. It’s also manageable if it’s set up to be manageable. Risk can be a retailer’s best friend. It’s a differentiator. So it’s not about avoiding risk, it’s about embracing it and managing it. The right amount at the right time in the right dosage.
The lessons aren’t anything new. Longer-term perspective, willingness to fail, more openness to test and learn with clear goals, objectives and KPIs. The mindset starts at the top.
As for “digital-first,” I think by now, legacy retailers see the writing on the wall and have moved, or are moving in that direction. But “digital-first” has many interpretations. My caution would be they should focus less on “digital” itself, be shopper-first and build the right total solution that aligns their business and their shopper. Furthermore, their internal teams have to be structured right or else anything they do will be sub-optimal. And senior management has to get educated and live their ecosystem and shopper journey so they can appropriately support the teams in the trenches.
Most management is risk and change averse, especially when it comes to critical business decisions that bring in the bucks. What the pandemic has done is introduced a new rule in the game where earlier business decisions no longer guarantee bringing in the bucks.
Innovation is something every company must learn to engage, and retailers who have been set in their ways must adapt to new scenarios and new ways of doing business to be successful. For some retailers, digital first still might not matter, but for most, there will be a rapid shift demanding digital as part of their offering. Darwinism at its best — survival of the fittest.
Any company that is having trouble getting innovation funds from its board of directors needs to find a new board. This virus isn’t going away anytime soon, and robust digital equals survival.
There really are two types of crises that retailers (and all other organizations) can face – ones that impact the company alone, self-made or otherwise, and ones that impact the entire industry. The first variety is often an exercise in emergency management, putting out fires and trying to establish a solid plan to emerge in whatever shape on the other side. Not a lot of opportunity for innovation when the threat is existential. The second variety, with competitors facing the same conditions, means companies need to not only get through the crisis but do so in a manner that positions them for a potential performance advantage on the other side. This is prime innovation territory for both technology and process. This is why companies that invest more during the down times succeed after them.
Even in this discussion the “solution” is predetermined — i.e. the answer is digital. That is why so few have learned how to see what is actually possible. This is how most of us have been educated since kindergarten right through graduate school: fit into what is already known.
This will sound strange, but we have to stop merely solving problems. Solve every problem retail has and all we’ll get as a prize is “caught-up.” Then we won’t know what to do until we’re presented with another problem.
My belief is that everything that will ever be possible is already possible. We may not see it, believe it, or know how to grasp it … but that doesn’t change the reality. For the most part we have little experience in seeing possibilities. And even when we do while in the shower, in dreams or while on a run, institutional forces make sure we stay tied to what already is.
All this to suggest that “innovation” is a low bar. There is so much more.
Do you mean why does it take a crisis for BIG retailers to get innovative? Because independents have been innovative all along. For them, pandemic or not, every day is do or die. It’s their money that’s invested in the store and they don’t have the deep pockets that allow them to sit around. Or sit it out.
Changing the dynamics of a big corporation is like steering a cruise ship. Or maybe the Titanic. Companies like Target and Walmart operate like indies. These retailers have been able to bypass the layers of meetings and committees and get the job done.
The barriers exist both culturally and within the systems necessary to execute on the omnichannel strategy. It’s been my experience that the change-management component has a huge influence as to whether to start, or whether retailers have started only to stop (or worse, fail). The technology barriers have, over the last five years specifically, become a moot point. If you need systems and system-process to execute, then there are a number of technologies and partners available to execute. You simply need a leader in the organization, a goal to hit, and to have it adequately staffed. This obviously means an investment is necessary but the question should be, what’s the payback period and where in the business is the payback going to occur?
As discussed in my books on marketing strategy, businesses — including retailers — all suffer from complacency at some time during their life cycle. The problem occurs when a company achieves some measure of success, possibly with good strategy, and believes it can’t fail. Success breeds complacency, and complacency leads to failure.
Remember as a kid you played a game called “king of the mountain” or “king of the hill.” Someone started by standing on the top of the hill. To get to the top you had to kick, scratch, and claw your way up the hill. Remember how you stayed on top, not by being smug and complacent, but by doing the things that got you there, namely, kicking, scratching, and clawing.
This kid’s game analogy is true in business as well. Companies need to stay vigilant. Current success does not guarantee future success. Remember the old adage, “Whom the gods want to destroy, they send 40 years of success.” Or, in the words attributed to the late Malcolm Forbes, “The toughest business obstacle to overcome is success.”
COVID-19 simply highlighted the barriers to innovation brought on by complacency.
For decades, shoppers (at least in the supermarket channel) provided very high marks on surveys for their favorite stores, which may indeed have fueled the notion that “nothing needs to change … our shoppers love us!” However, shoppers are typically not very good about projecting “what else” they would like to see from their favorite retailers until someone else does it better. Then the fast-following begins.
With COVID-19, along with all the supply line issues that accompanied the pandemic, shoppers immediately sent clear signals to the retail community that their priorities have changed. They included digital first, limited time and social contact in stores, and a renewed focus on top-selling, essential items. The retailer’s dilemma now becomes how to affordably re-position to embrace these new priorities, knowing that some of them will have lasting “shelf life” and others will likely fade over time.
Why does it take a crisis for retailers to get innovative? Because in business, a crisis creates hunger. And when you are “business hungry,” you get very busy looking for solutions. And this in large part has shown all retailers that they must always be focused on innovative solutions to customer needs and wants. And that certainly doesn’t mean following the crowd, but it does mean they must remain hungry and aggressive.
I recently re-watched “Sully: Miracle on the Hudson” and the challenges Captain Chesley Sullenberger faced to save the lives of all aboard his plane, which took guts, leadership, and experience. Flip now to retail leadership earning millions in compensation, tasked only with innovation and experimentation to save a business entity and the jobs of hundreds of thousands of employees. If as it is said, past behavior is predictive of future behavior, why would digital laggards now embrace innovation, experimentation (and hmmm, a decade late), digital transformation? The future of retail belongs to the retailers who are right now, not next year, not post COVID-19, creating the new retail through vision, guts, and leadership.
In this case, retailers are faced with a massive shutdown of stores and no way around it. The traditional process, legal and HR barriers had to be broken and rebuilt in short order for retailers to survive. Some legacy retailers couldn’t make the shift and I think will go under as the financial resources drain and outlook worsens over the next few months as the shutdown continues and re-openings are cancelled in certain regions where outbreak is increasing. The brutal truth is those that could adapt did so and survived but many of those that didn’t adapt are in bankruptcy.
Legacy retailers’ slow speed to innovation may be a case of the chicken vs the egg. Is it retailers’ slow speed that makes shoppers adapt to (and expect less) technology-driven store visits? Or, is it the extensive habituation of routine shopping that marginalizes both in-store and online expectations and thereby, diminishes retailers’ motivation to act?
Either way, the time for change is now and retailers must take the lead on transforming the digital shopping experience.
The “innovations” that retailers turned on in the past 4 months have been decades in the making by real innovators — and in the public eye for anyone who wanted to see them. To my knowledge, Best Buy introduced BOPIS 20 years ago. To me, the issue is related to the people in senior management. They generally either constantly strive to find ways to create incremental value for customers or they look for every excuse to maintain the good old days. There have been no good old days in retail for a couple decades, so any company that has people opposing test and learn initiatives has a board of directors that is asleep at the wheel. Those companies deserve to fade away so the resources they are consuming can be repurposed by those creating real value in the modern economy.
Retail may be poor at this, but the two very last sectors that are innovating the least are loyalty programs (largely the same as 20-30 years ago — but because they typically generate positive ROI, nobody wants to touch them) and politics — where we still elect intermediaries to represent us in government. Loyalty programs are leaving so much money on the table it can’t even be quantified. Investors and customers pay the price for this lack of innovation.
It is unfair to say that it has taken the crisis to waken up retailers. Certainly in Europe many retailers were already using BOPIS or Click & Collect as part of their strategy and developing many new ways of fighting back against pure play online retailers. However, I agree that there were also a large number of retailers who seemed to be caught in the headlights of ecommerce and unable to move forward when they should have been looking at all options for meeting changing customer expectations.
Will the crisis change that? I doubt it. The good ones will embrace the additional speed of change and prosper, the poor ones will just use it as another excuse for not performing. Retail has always been a dynamic environment where retailers have grown and changed the game. The crisis is likely to bring along more young pretenders with new ideas and exciting offerings that will challenge the market. We’ll just have to wait and see if any of them join the giants of the industry.
I see very little in the way of numbers here, and I think they’re the key to answering the question(s): curbside pickup, appointment shopping, (even) delivery were all embraced in a desperate effort to try and save (at least some) sales … not because they were “better.” So as stores reopen, I expect they will retain the large majority of sales. Online, and other “digital-first approaches” likely received a boost, and the crisis moved the curve up, but a full transformation — if it’s ever to occur — is still a ways off. Retailers still need to find ways to make it consistently profitable.
Risk aversion leads to complacency, causing retailers to believe they can wait to innovate. They don’t realize that they have to change their mindset to one of constant innovation. The pandemic accelerated many trends that already existed. Retailers that were already innovating around those trends are the ones surviving, while those that were still waiting for a reason to innovate are now finding ways to innovatively explain why they are filing for bankruptcy. Part of the reason for this is having so many retailer executives who have been in retail more years than they can remember and (back to that complacency issue) don’t feel an urgent need to change their ways. They would rather find a way to innovate within the boundaries they are used to, rather than embrace new ways of doing things. Independent retailers tend to be much better at this as are DTCs. There is a reason we call those that disrupt retail “disruptors”!
“Digital First” in its true sense needs an overhaul in the retail organization culture. While many retailers will perhaps think of BOPIS and other engagement models as a transformation into “digital first,” the true change comes when you leverage “data driven” experimentation and innovation in every aspect of the retail business. As the market transforms, a lot of new questions around the role of the store, design of new customer engagement models such as subscription, and re-imagining the supply chain is all going to come out of earned, owned and paid data, along with advanced AI models. It is time to let AI allow retailers to “fail fast” at finding the eventual winning ideas in the new “digital first” world.