Three Innovation Imperatives for Retailers

The transformation of brick-and-mortar retail to the new digital world is not without its trials and tribulations. Walmart has recently sputtered as the company consolidates or divests digital initiatives gained over the past couple years. The Kroger Co.’s recent financial performance has been impacted by massive investments in e-commerce and numerous other digital efforts.

Some retail executives have sought solace in these well-publicized stumbles, believing it is validation for a “go slow” strategy, reinforcing once again the time-proven value of being an innovation follower. For decades, grocery retailers have achieved success by not being a leader, happy to let someone else bear the pain of new innovation.

But when considering the truly transformative developments that have occurred in grocery retail over the past 100 years, there’s really only three: the development of the modern supermarket, where customers shopped for themselves; the development of the barcode and product scanning; and the development of customer-identified transaction data.

Now think about what’s happened in just the past two years. The Amazon Go store opened to the public just 24 months ago. Robots are now roaming the aisles of a growing number of stores. AI-powered pricing and promotion optimization tools are used by an increasing number of retailers. We can pay with our phones or watches. And personalization is everywhere. We have hit the inflection point on the exponential growth curve of tech-fueled innovation, and tomorrow will no longer resemble today.

If this explosion of innovation fails to fire up some urgency, consider this Harvard Business Review article from Thomas Davenport, noted professor and author, who said: “By the time a late adopter has done all the necessary preparation, earlier adopters will have taken considerable market share—they’ll be able to operate at substantially lower costs with better performance. In short, the winners may take all and late adopters may never catch up.”

While retailers seem inured to the forecasts of store closings, the reality is the trend continues unabated. “More than 9,000 stores closed in 2019, way up from the 5,800 that closed in 2018,” according to Coresight Research, New York. Well-known grocery industry adviser Thom Blischok projects that 30% of existing supermarket chains will be gone by 2025. And UBS Securities of New York states that 75,000 stores will go away by 2026 if online retail grows from today’s 16% of industry sales to 25%. This is all happening in real time as Lucky Markets closes most of its stores and Fairway Market has filed for Chapter 11 bankruptcy protection, under which it intends to conduct an auction of all its assets.

Against this backdrop, many retailers are simply not moving aggressively enough. I believe there are three imperatives for retailers if they are to survive, let alone thrive, in the near future:

Prepare for the Age of ‘i’: As I wrote about in my latest book, "Retail in the Age of ‘i’," the world is increasingly tailored to each of us individually. The personalization we have come to take for granted online is quickly manifesting in the physical world as 3D printing and product customization spread. Retail, and especially food retail, is no exception. Shoppers, increasingly using their smartphones, don’t have the tolerance for spam—and that’s what irrelevant offers and promotions are. Real-time contextual relevancy is the new mandate.

Think about the massive changes required in systems, processes and practices across the retail organization as the business model shifts from a century of product-driven mass promotion to a world focused on growing the individual customer’s share of wallet and lifetime value.

Innovation as a process: We talk a lot about the need for retailers to view innovation as a process. Specifically, there are four steps:

Organizational transformation: Remember playing the telephone game when you were a kid? Someone starts by whispering a word or phrase to the next person, who then passes it on to the next person, and so on, until the last person’s iteration of the message bears little resemblance to the original. This is how innovation often happens today inside organizations. One person seeing something at a trade show and then telling someone else about it. That person then sharing it with someone else, maybe in a different department. Eventually, the original vision is lost.

Retailers should stop playing the telephone game and focus on how new innovative ideas are socialized within an organization with a goal of making faster, more effective decisions around new innovation. This is not about simply doing what you do today faster, it is about learning techniques to facilitate innovation.

In today’s world, speed counts.

Gary Hawkins is the founder and CEO of the Center for Advancing Retail & Technology (CART). He can be reached at [email protected].