INNOVATION IN THE RETAIL SECTOR
The retail sector has undergone a significant transformation in the past decade, especially in the post-pandemic era. The major drivers of change have been new technologies, such as AI, changing consumer behaviour, and external shocks such as supply chain disruptions and inflation.
The retail sector has long pursued efficiency, driven by the desire to gain margins. This led to many retail companies not keeping up with changing market conditions, customer expectations and technological developments. These companies attempted to grow by simply opening more stores, instead of strengthening their competitiveness through innovation. When these companies were stress-tested by increased competition and external shocks, many could not survive. And we have seen the demise of many iconic retailers.
At the same time, we have seen successful retailers, who are category leaders, embrace innovation as an engine for growth. We have witnessed both established and startup retailers innovating to offer a superior customer experience as well as to gain a competitive advantage. We have also seen innovative retail business models emerging in the past few years. These include subscription services (e.g., Birchbox), direct-to-consumer (e.g., Warby-Parker), pop-up retail (e.g., Glossier), marketplaces (e.g., Amazon), thrifting (e.g., ThredUp) and more. Many of these innovations came from startups that were not weighed down by conventional thinking.
Business model innovation has also led to the emergence of many intermediary players who elevate the customer experience. For instance, Flashfood rescues groceries close to expiry dates and offers it to customers at a deep discount. This creates value for consumers while reducing food waste. Blackcart works with retailers and brands to enable try-before-you-buy, which reduces product returns and increases customer satisfaction. Both companies were recipients of the David Sobey Retailing Centre’s Retail Innovation Awards.
Retailers have realized the immense potential of artificial intelligence and machine learning. There are many AI solution providers addressing everything from price and assortment optimization to providing chatbots that enhance the customer experience. The sudden emergence of Generative AI, such as ChatGPT, has led to many exciting innovations such as virtual-try-on, content generation for website, personalized marketing, product recommendations, and customer service automation. Other innovations with potential include the use of augmented or mixed reality to engage shoppers and the use of drones to deliver products.
As we examine retail innovation, we see that innovations can have a strategic or an operational focus. The underlying motivations for innovation are threefold: greater efficiency, growth, or competitive advantage through differentiation. In our research we find that more than the retailer’s size, having a culture of innovation and building the internal capability for innovation is critical for successful innovation. While AI is dominating discussions in boardrooms today, successful innovations can be low-tech. An innovative business model or a unique customer experience can set a retailer apart from competition, leading to a stronger market position.
David Sobey Retailing Centre is at the forefront of retail innovation. Projects at the Centre include a robot that uses computer vision for inventory and price checking, a frictionless store using computer vision and smart shelves, virtual reality digital twin stores that offer a unique online shopping experience and more efficient store operations, and the use of GenAI for self-serve customer service. The David Sobey Retailing Centre takes on significant challenges in the retail sector and attempts to solve them collaboratively with retailers through research and innovation.
Innovation is not engrained in the culture of many retail companies. One must begin somewhere, either by launching projects internally or by collaborating with suppliers or retailing centres. Status quo is not an option. In today’s rapidly changing and competitive retail environment, retailers who stand still and fail to innovate are likely to be left behind.
