BrainTrust Query: Do retailers need to find new ways to innovate?
By Kenneth A. Grady, President and Attorney, K.A. Grady PC
(www.kagradypc.com)
Everywhere you turn, someone is talking about innovation. Tom Kelley, author of the recent book, The 10 Faces of Innovation, calls it “the lifeblood of all organizations.” According to some industry experts, there now exists a greater need for retail innovation than ever before.
Yet the retail industry seems to have few innovation stories to tell. Each year, only a few chains pop up as the new, cutting edge retailers to watch. Some stores, such as Teavana or Massage Envy, push into new territory. More often, however, stores focus on different ways to reach existing target markets.
Many mature retailers attempt macro innovation, announcing plans to remake their stores or product mixes, or reposition themselves in the market. Not only are these retailers innovators, their innovation is on a “bet-the-business” scale. Whatever its form, macro innovation is risky and fails more often than it succeeds.
In contrast, there is what I call micro innovation. Micro innovations address small pieces of the business that could positively affect sales. Each micro innovation can be reversed easily if it does not work. Edward Filene was a retail micro innovator. He created special departments within a store, a concept that evolved into specialty shop collections in department stores. Although, today, many of Filene’s ideas are old-hat retail strategies, they were true micro innovations when introduced.
Micro innovation can be very powerful. A retailer with 1,000 employees has thousands of customer contact points each day. Every contact can inspire a micro innovation idea. Cumulated across many employees and stores, these innovations can transform a retailer from within. Micro innovations may be unique to one store, or may work across all stores in a chain. They may be ideas borrowed from other chains, or something entirely new. Each one alone may result in a minute increase in sales or profits, but when all the innovations are compounded across the whole chain, the effect is enormous.
Despite the benefits, retailers inconsistently practice micro innovation. Retailers’ systems to internally share micro innovations are hit-or-miss. Store managers may or may not share innovations with district managers, who may or may not share innovations among themselves or with regional managers, and the process continues (or not) up the chain. Often, senior managers must approve innovations before they can be spread around.
Today, technology can speed the sharing and approval process and eliminate missteps. For example, companies can create corporate “wikis” where employees can share, comment on and improve innovations. Each day, everyone in a company can evaluate micro innovations with the click of a mouse.
Discussion Questions: If innovation is the lifeblood of the retail industry and, through technology, retailers can rapidly and continuously evaluate
and share innovations, why does it seem as though very little innovation exists? Do retailers need new and more effective ways to innovate?
Ken’s distinction between macro and micro innovations is an excellent one, and highly applicable to retailers. Few (if any) industries have a better opportunity to formally test minor innovations than retailers do, yet retailers don’t do a good job of taking advantage of this resource. Retailers need to “think small,” in the spirit of Edward Filene, rather than relying on elaborate business development plans or (worse yet) inertia.
Macro innovators get all the headlines and praise, but micro innovators can make a ton of money with relatively little risk.
YES…retailers need to find new ways to innovate. I think the level of innovation has increased over the past few years. Some examples of this are new formats, electronic shelf labels, way finding, in-store handhelds, visual communications, etc. Innovation is the best way to differentiate from the rest of the market.
Most the attention in this area is directed to technology and/or overall formats. I would like to see retailers move their resources and creativity towards merchandising innovation. I think the next few years will move in this direction.
Merchandising innovation consists of creative shelf strategies, fixtures, signage, adjacencies, etc. Merchandising innovation should be driven by consumer and shopper insights as well as brand strategies.
Time will tell….
I agree with many of my BrainTrust writers, about their comments on retail management, innovation, development and customer impact. However, at the end of the day, what works often depends on recognizing what doesn’t work. Many retailers also tend to react, rather than anticipate. This means that innovation is often stifled, since reaction reflects fear rather than proactive development. We can’t forget that most retailers still don’t have the basics under control when we examine customer service, logistical control and product presentation, pricing, promotion and mix. Add to this employee concerns and the ever-changing place of the marketplace and confusion continues to be the standard rather than innovation.
Little innovation exists in the retail world because management has difficulty seeing areas outside of profit. Business schools pound the bottom line (hard issues) to such a degree, graduates are not coached to see the soft issues which can positively impact the bottom line. Limited, linear thinking. Also, chain retail firms do not offer their various locations budgets to be creative and often rely on the store’s manager to spend their own funds (similar to teaching industry) to add the perks.
Further, buying divisions neglect talking with locations to I.D. styles or colors of local/regional interest. What are the expectations of upper management? Are they clearly communicated and do they provide the necessary tools so their team can deliver?
Some signs of innovation “life” out there if you ask me . . . cases in point:
– “Nau,” the new concept staffed by former Nike and Patagonia vets. Ecology-minded stores operating as “Webfronts.” They maintain inventory off-site in order to present gallery-like environs. Non-profit employees get a 40% discount, each store will have a “giving wall” with touch screens that allow customers to donate to charities . . . sounds pretty innovative to me.
– Macy’s introducing Zoom vending machines in order to recapture department store small CE business without staffing up or eating up floor space . . .
– Sony using the same concept to dispense electronic staples in airports and malls (and coming to a grocery store near you). . .
– Wal-Mart’s walk-the-talk sustainability efforts and retro fits . . .
– The astounding advancements in product development timeline reductions, private label creation and brand-building. May not be thrilling news to vendors, but retailers are shaving serious time. Drawing board to selling floor in 2-3 weeks (H&M and Zara), 6-8 weeks (Target), or even five months (J.C. Penney?). Major accomplishment.
Exciting and innovative times at retail!
I sometimes ask people to look at the current list of 30 companies that are part of the Dow Jones Industrial Average and then look at the list 25 – 30 years ago. How many companies are still listed? Innovate, anticipate and adapt to market conditions, or join the retail graveyard.
It begins with the vision thing. But that’s rather nebulous, unless it can be clearly articulated. And the articulation must not be simply accurate, but inspiring.
This reminds me of Robert Schuller’s story about building the Crystal Cathedral. At a time when he had a small congregation, he had the idea of a large, all glass church, to reproduce, to some extent, his outdoor experience of church in a drive-in theater. When Philip Johnson, America’s top architect, asked him how much he expected to spend to build this church, Schuller explained that they had mortgaged their existing small church, just to raise the funds to hire Johnson. Consequently, since they had no money, it didn’t matter how much it cost! He was hiring Johnson to design a building that was so magnificent that when people saw it, they would say, “That building HAS to be built.”
In my opinion, Schuller’s genius was not in the vision but in the recognition of the need for inspiring articulation. That’s an important lesson for anyone who aspires to leadership.
Ian is right about “disruptors” but again, it all comes down to culture. How many retailers — particularly food retailers — actively recruit dissident thinkers? I believe we all know the answer. So, where are Ian’s disruptors going to come from?
Innovation doesn’t have to be about something new. Innovation can be about returning to basics. Staying on the sales floor and out of the office might be innovative for managers. Working with employees and teaching them about how to provide customer service by watching customers and anticipating needs could be considered innovative.
Have you ever wondered how businesses stay solvent when their prices and locations aren’t competitive? Is it because they are innovators or because they provide products with service and the combination is considered a value by their customers?
Innovation doesn’t equate to value. Service can enhance value. If a retailer can enhance value by providing innovative service, then you have a workable proposition.
I am reminded of the card scams that many retailers have fostered on the public. They ask you to become a member so you can receive discounts and promotions that they formerly offered to anyone. All of a sudden, your money isn’t as good as your neighbors unless you have the card. Do these innovative cards do anything for the consumer – absolutely not! I personally believe they should be outlawed along with any form of innovation that requires a consumer to show a retailer anything but legal tender in exchange for the retailer’s lowest posted price on each and every item in the store.
I think this is a great conversation and already I see a number of extremely relevant replies.
Macro innovators always get the headlines, and not always in a positive manor. Typically, this is because the size of change is more obvious and can be seen instantly; we can see the affect it is having.
The more strategic thinking retailers use minor innovation to truly add customer value. In most cases, these minor changes are very rarely seen, and certainly do not demand “front page” attention. Great examples of this are changes in processes within the corporate office to streamline speeds of product delivery, and in-store innovation to making the shopping experience enhanced, such as product information and advice terminals. Managing minor change allows the retailer to grow and test in a controlled approach, with strong process, without gambling potential sales through bad innovation on a larger scale. Smaller, controlled changes allow for additional growth and greater emphasis on the successful results. Any failure can then be analyzed and prevented in the future, without disrupting the customer or bottom-line too much.
Innovation and retail go hand in hand, however, in my experience, the biggest reason for a lack of migration from theory to reality is simply fear of change by retailers. Most of retail shares a common theory that it has been working in this way for a long time. Why change it? Messages appear frequently in the media, stating retailers are striving for change, but most should have small print saying, “We don’t really mean this!”
Retail is constantly changing, constantly being forced to adapt, and now more than ever innovation and technology is required to gain a competitive edge. Channel Blurring, increased multi-format shopping options and the addition of other international retailers into the US market will start and drive greater change through innovation.
The next few years are going to be very interesting in this space.
Harvey Mackay said in many of his books that little things don’t mean a lot, little things mean everything. Successful innovation in the retail industry today must be the compilation of many little things that add up to keeping your customers inoculated from the competition.
After you make your retail purchase, just ask yourself if you will return to that store again and why. Was it the direct marketing targeted message/offer that enticed you to shop? Did the associate thank you for your purchase and possibly follow up with a personal note. Is there an easy way for YOU to communicate with the retailer (i.e. website, 800 number, etc.) so you can share your experience? And, how will the retailer handle your compliments/suggestions?
All these little things are not innovations, but the execution of a simple concept of keeping the customer happy. Innovations may come in the shape of using technology to recognize a customer’s purchase. It may also be a text message to alert a customer to take action. In any event, it is the constant nurturing of a relationship that can become so fragile or rock solid in a matter of moments.
Nordstrom has been around for over 105 years. They have found the formula that competitively immunizes their customers from the moment they walk in and out the door. And the funny thing is, that all starts with a “please” and ends with a “thank you.” Now that’s innovation at its finest!
There are all kinds of reasons but two spring quickly to mind. The first is that retailing nurtures what I call a culture of negation, i.e., making of negative responses (“we tried that once in 1937 and it didn’t work”; “our company is different so it won’t work here”; “on our margins we don’t have the capital to even think about this”; etc.) more acceptable than suggestions which appear “risky.” The second is that TRUE innovators are almost always “selected out” of the workforce or self-select themselves out because they are hard to manage, impatient, critical and in every other way a pain to the defenders of the status quo. It’s a question of culture, not as Kelly suggests, one of process. Process is relatively easy to fix, culture is far more difficult.
Maybe Kelley was wrong and maybe innovation is not the lifeblood of the company. Maybe supplying and satisfying customer needs is what keeps a retailer in business. Maybe doing it better than its competitors is what makes a retailer grow.
Innovation in retail is challenging for two overriding reasons. First, national chains, which dominate the action, typically have a great many locations, and a great many suppliers. Change is painful because of the many points of failure. So they deliberate carefully on proposed innovation. Then they test. Because of the seasonal peaks, the retailer rollout window is between February and July.
Second, retailers are copiers and adapters. Innovation almost always comes from new players whose roots are outside the traditional retail community. Look at the primary innovations in the last twenty five years: Amazon, Dell, eBay, Prada, Zara, Polo, etc. All outsiders. Same for UPC bar codes, ecommerce, business intelligence, overnight shipping, and RFID. All came from outside.
Good retailers are always looking for constructive innovations as they enter the retail market place. Once identified, they nimbly adapt and copy to their business model. Good retailers are good at making sustainable changes across a growing universe of stores and suppliers, and at better measuring the benefits attained from their change. That intelligence is their competitive advantage. If they lose these essentials, eventually they find themselves in retail graveyard crowded with former retailer innovators who lost their ability to keep pace.
I somewhat disagree that retailing is not innovating. In the last 15 years we have seen many new successful formats. Examples include Club, Supercenter, Dollar, Limited Assortment and Big Box (Staples, Bed, Bath & Beyond, etc.). Within the supermarket there now is floral, in-store bakery, deli, prepared food, organics, wine, international aisle and home shopping. For me, the issue is speed of development & implementation. Supermarkets simply don’t spend enough time listening to customers and testing new ideas. Rather than test, refine and re-test most supermarkets wait for a loss of business to make changes. Very much it is a herd mentality. For only by trying and failing will we see real innovation.
Perhaps we simply don’t notice the “micro-innovations” that Ken posits? Many might not cite Wal-Mart as an innovation driven retailer — precisely for the reason that they have historically done such a good job of focusing communication on their value strategy. But they quietly test new concepts practically every year.
Much more noticed in the market is the “macro-innovation” which, as Ken points out, fails more often than not. But it gets noticed because it gets announced. Sometimes we scratch our heads and wonder if the subject company wasn’t more interested in finding a reason to make an announcement than in finding a good innovation to announce. Maybe that’s why they fail so often — they are usually the product of organizations that are already in trouble.
Here’s one theory on why there’s less visible innovation these days…consolidation kills innovation. The premise is this: innovation generally comes from small players looking for a point of differentiation to break into new markets or to gain competitive advantage versus established players. As organizations grow, the risk of macro-innovation grows (and therefore the appetite declines). Innovation significant enough to cause risk is avoided until the organization becomes large enough that macro-innovation becomes, in effect, micro-innovation because of the scale of the retailer — Neighborhood Markets for example.
I’ve always wondered why there are locks on suggestion boxes…there’s nothing in there. In the same way you can tell the health of an apple tree by the apples it produces, you can tell the health of a business by its innovative ideas.
Pantanjali in the 2nd century BC said “When you have some great purpose, some extraordinary project, your thoughts break their bonds and you mind transcends limitations.” He was the father of Yoga so he knew a little about creating sustainable customer experience.
So why is there so little innovation in retail? Maybe its the absence of some great purpose, some extraordinary project.
The human brain is capable of 10,000 trillion operations per second. I guarantee you in the minds of retail employees are more innovations than one could ever use in several lifetimes. Generally, however, we are pathetic at harvesting those ideas. The old suggestion box just isn’t going to do it.
The innovations we destroy first are those that threaten our current mindset. We “know” what a men’s store or grocery store should look like. What we don’t realize is that everything has a life span and if we don’t reinvent or transform our businesses they will die. Recent articles about RadioShack give testimony to that. What is ironic is that even our outdated methodologies were at one time an innovation that disrupted the status quo. Retail is in desperate need of ‘disrupters.’
In the universe of all business, products and services address literally hundreds of thousands of different needs. The overall potential for innovation in this universe is vast. Then take, say, a large food processor; they may have 40 or 50 lines, each with enormous potential for innovation, not to mention the potential derived from adding or extending lines.
Retail’s “only” task is to deliver products and services to consumers. Retail is a middle man. Retail doesn’t have 100 brands or 100 lines. It has one brand and one product: delivery (or marketing and delivery, if you like). Yes, there are hundreds of ways this can be done; dozens of channels; thousands of components. But, like the millions of lines of code that add up to a single computer program, retail is a very complex, single-product business.
Our data shows that consumers have eight core expectations that they expect this “product” to meet: high quality products/services for sale, wide selection/scope of items, items in-stock, abundant and friendly help, easy in-out and navigation (both in “bricks” and in “clicks”), easy returns, low price, fast and friendly checkout. You can add other features to this “product,” but if those eight are not met, consumers will not be happy. They MUST have these eight. You can be innovative in how these expectations are met (such as the discussion we had here yesterday about returns), but you must MEET these expectations, not dance around them as so many “innovations” do (such as self-checkout).
Unfortunately, these expectations are supremely difficult to meet: retail in general doesn’t meet them well so individual retailers have poor role models and low expectations for meeting them; the culture of retail organizations is highly defensive; 100% (literally) of retail organizations are 25% inefficient or worse, which means there is little money for innovation; with few retailers meeting core expectations well, there is little reason for competitors to do so either; there is little innovative thinking regarding core expectations but a lot of innovative thinking regarding peripheral expectations; and stubborn problems are not fun to think about or expend energy on.
Toyota employees submit 2.2 million suggestions annually and 95% are adopted. Allegedly the Toyota system was adapted from Ford, when Ford sent managers to Japan to help revive the Japanese auto industry at the end of WW II. (Later, Ford dropped its suggestion program.) The classic story of this success is Forty Years, Twenty Million Ideas: The Toyota Suggestion System, by Yuzo Yasuda. Used copies of this out of print book, when available, sell for over $250 each! A book that’s still in print is Improvement Engine: Creativity and Innovation Through Employee Involvement – The Kaizen Teian Approach (Japan Human Relations Association). The Toyota system has several precepts. Among them: (1) managers and fellow team members should help each other improve suggestions instead of simply finding things wrong with suggestions (2) it’s fine to have many suggestions each worth only a slight amount (3) managers whose staff don’t submit adopted suggestions aren’t good managers (4) don’t spend much effort trying to value suggestions with complicated financial formulas.
How many retailers would be happy to have the economic strength and growth of Toyota?
Being one that seems to always have some sort of music on my brain, when I first read this, a song immediately popped into my head. The lyric goes this way: “It’s all been done, It’s all been done, It’s all been done before.”
So how’s this relate to innovation? I believe that most things have already been thought of and moreover, many have been done as the lyric suggests.
Yes, there’s a suffocation of ideas. Yes, there are ideas tried and failed. Yes, few succeed in real innovation. Why? I believe it’s not the ideas that were bad or the fact that they may not have been even original ideas. Where they fail is in execution.
The failure to execute well and to provide for a process of continuous improvement can kill real innovation and prevent others from trying or achieving better results. Just consider e-shopping in the grocery industry.
In innovation, like most every other area related to retailing, it’s all about execution and improvement.
Innovation in retail always balances between being innovative, a profitable business case and the question: will the customer accept innovation?
Retailers always search the sky for technological innovation but, although well informed, few will take the first step. When innovation has a good business case, like making the logistical chain more efficient, retailers innovate on a large scale.
The most difficult part is how you can innovate your formula, innovate your service, promotions, store design etc. Good retailers are forward thinking and sense what customers drive, like and search for and every large retail store should focus on the shop floor to innovate customer centric. This though is one of the most complex parts of innovation and not measurable, so many retailers copy innovative retailers.
So, in the end, the real core of retail innovation is about old fashioned dealing with customers and serve them well. Always remember that.
Innovating just for the sake of innovation is not going to produce results. I think the biggest problem facing the retailer, or really anyone who wishes to innovate, is just how exactly to do it. Without a sustainable process you’re left with lucky accidents, or an innovative idea that came up as result of a crisis.
There are a number of ways retailers can use an innovation process to their advantage. Not through a suggestion box, but rather through a very focused approached, complete with metrics and targets. The ability to tap into the workforce and the customer is only part of this complicated process, but if done the right way the return can be huge!
It’s not a question of “should” retailers innovate – it’s that they “must” to stay competitive and continue to grow. So yes, retailers need to find new ways to innovate – and it starts by identifying the process by which to do so.