One of my colleagues at Spigit, our VP of Product Development, Hutch Carpenter, circulated an excerpt from Don Norman's column titled, "Why Great Ideas Can Fail"
(http://www.core77.com/blog/columns/why_great_ideas_can_fail_17235.aspn )
in which Don stated:
"...most of the value of innovation comes from small, incremental change, not massive, paradigm-shifting change, in part because these enhance the market size and efficiency of the operations, but also because they are readily accepted by the organization,"
The rest of Don's article is excellent and I recommend you check it out, however, this little tidbit got me thinking, so I am asking the question:
Why don't retailers formalize Innovation as a key practice?
Obviously some do. I pointed that out last week. One major retailer I am working with is using our platform not for the "big idea", but instead they are looking for little ideas that will boost sales, and they continue to run "Innovation Events" as a regular practice. The question is, do they really benefit from these events?
According to the Food Marketing Institute, in 2008 (okay dated, but relevant to this discussion), the average supermarket transaction was $27.61, and the average store handled about 1,725 transactions/day. That is roughly $47,000/day in sales. If a retailer can come up with a way to increase that transaction by just $1, that will result in a monthy increase in sales of $51,750/month, without needing to add more labor in the store, be open longer or anything else for that matter. So let's break that down further. Let's assume that the average retail margin is 1.46% (also from FMI, circa 2007), that means that the extra $1 we discussed, actually results in $755/month in real profit/store. YAAWWN, right? WRONG!!!!!!
If I am a retailer with 100 stores, that equals $75,000/month in PROFIT or $906,660/year!
That's right, even a SMALL REGIONAL RETAILER can benefit from one good idea. The reality is (and you naysayers are shaking your head right now) is that sustaining that additional buck/transaction is pretty tough. I mean no one person can come up with a killer idea that will increase the average sale by $1 for a whole week, every week of the year, right? That's not a one person job, is it. You need a team to do that, don't you.
And then it hits you. Most retailers don't practice formalized Innovation as a practice, because they look at it as a daunting task that requires resources to do it. Guess what. They are right! Sustaining Innovation on any level requires an investment in good people, and a plan. Yet most retailers are so used to digging, clawing & scraping for that extra % of a point of margin, that they just cannot see the forest through the trees, and don't know where to look or who to ask.
Incremental Innovation is not exciting, and neither is shopping at the grocery store (for me anyway). But what makes Walmart, Starbucks and BestBuy, successful is their ability to scale their businesses. In fact, if look at most annual reports from retail companies, almost all of them cite their ability to scale as a competitive advantage. Yet when it comes to investing in innovation programs, most retailers say that it isn't a priority because they don't have the resources.
You know what, I can build an Innovation team to serve that small retailer we talked about earlier for about $300,000/year that would generate $900,000+ in sales (using the example above). That would include salaries for 3-4 + software that could tap all employees for ideas. That results in an annual ROI of 300%.
That's a pretty good investment....if you know where to look.
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