Retailers Take Note: A Shark Never Stops Swimming Forward for a Reason.

Susan Reda, the Editor of the National Retail Federation's "Stores" website (www.stores.org) recently published her 2011 predictions for retailers and made the following statement in her article "Opportunity Comes Calling":

The pace of change [in retail] in 2009 and 2010 was nothing short of extraordinary, yet insiders expect that rate to be five times faster over the next two years. The possibilities are both invigorating and frightening — retailers need to transform their business and adapt at the pace of the marketplace if they’re going to survive and flourish.

I think most retailers will agree that keeping up with “the pace of the marketplace” is one of their greatest challenges. Consumer behavior is in a constant change of flux and buying decisions can be predicated on one or many emotional, environmental and economic factors that vary for each individual. A few well known examples include:

• Convenience
• Peer & Social Exposure
• Income
• Generational Experience
• Technology
• Entertainment Factor
• Price v. Value

This is where the shark comes in. The shark is essentially a living fossil and has been on our planet for over 400 million years, and is still (at least in my opinion) the most prolific eating machine in the oceans! If you have ever watched National Geographic’s shark week, you will know that most sharks don’t have muscles that can independently flush freshly oxygenated water across their gills and into their bloodstreams. As a result, they must constantly swim forward or they die.



Furthermore, all that swimming around expends a tremendous amount of energy, so a shark needs to refuel. They do that by eating. A lot. All the time.

For a retailer, keeping pace with consumer change is as essential to its survival as it is for a shark to swim forward. That requires effort and fuel. For retailers, that fuel is not fish and the occasional beachgoer, it is instead identifying ideas and innovations that can help them:

• Make the consumer experience exciting and memorable
• Leverage the emerging and ubiquity of mobile communications and shopping
• Identify “new and cool” products that match changing demographics
• Create and maintain communicative and lasting relationships with consumers
• Increase revenue and gross margin while reducing inventory

Developing and maintaining a pipeline of truly innovative ideas that will help achieve goals is rapidly becoming an emerging business practice for major retailers. Some, including Walmart, Lowe’s and JCPenny have established innovation departments with the sole responsibility of gathering, qualifying and managing ideas that are aligned with their business goals.

They are like the Great White Sharks that hang out near Seal Island in South Africa. They feed where the food is.

These retailers have also established specific policies, procedures, infrastructure and architectures that make the mining and management of ideas highly efficient, which gives their merchandising and store operations leaders timely and accurate data points upon which they make decisions.

These companies are all leaders in their space because they learned from the shark. They are now built to survive and thrive for the next 400 million years.

Why are retailers afraid to look for the needle in the haystack when it comes to growing profits and growth?

Our CEO, Paul Pluschkell, shared this quote with us today about crowdsourcing:

""...finding the needle in the haystack is much easier when the hay helps you look."

http://twitter.com/#!/timoreilly/status/3861275117355008

Think about that for a second.  I live in Florida, and my family and I pretty much go to the beach every other weekend.  I've lived here for 7 years and was lucky enough to find a 17" whelk shell one day in the sand.  I look for one bigger every time I go to the beach, and have failed to find it's successor every single time.
The scary thing is that at the particular beach we visit. there are more than likely a few hundred, if not thousand bookshelf worthy shells hidden right under the surface.  I probably stepped on a few lugging my cooler onto the beach! 

Now consider Paul's reference.  If I could get sand particle to align themselves into little arrows to point me to the spots where one of these heirloom shells might exist, I'd more than likely have a pretty good shell business cooking wouldn't I.

Here's the thing.  Every business I talk to is looking for the next disruptive innovation in their space.  For retailers, that means they want to be the next Amazon or eBay.  They want to change the paradigm and give consumers the newest, latest, greatest in the ultimate shopping experience, and hope that their internal team of experts can sift through the surveys, the focus groups and the trials to figure out why offering earrings in the women's tennis apparel section will give same store sales a lift of 2.6%.

The problem with this is that sometimes, the needle draws blood because you sat down on it while you were looking somewhere else.  You, the merchandiser gets credited for a win, and you are now expected to repeat that performance again & again.  So why not ask the haystack (the customer), whether or not they would buy earrings while they were in the middle of purchasing tennis apparel?  Most retailers would say, whoa....that's kind of expensive.  The reality is that perception is simply not true.  With many of today's crowdsourcing tools, a retailer can ask their most loyal customers, that simple question, for the same cost as one focus group.  Getting customers engaged in helping you find solutions that they want to pay for seems like a no brainer, doesn't it?  So why don't retailers do it more often?

Here are a few reasons why retailers are reluctant to try, and ways to change that mindset:

1. We have over 1 million customers, and we don't want to ask them for help because we are not staffed to acknowledge everyone's comments.   This is a legitimate comment, scaling customer insights is the reason that focus groups and trials exist.  That being said, today's innovation management platforms can ask specific questions from a large group, and the group can qualify the answer in front of the entire community, making the discussion completely transparent.  What this means for resource challenges staffs is that the crowd can qualify (and disqualify) ideas publically, absolving the core team from the responsiblity of replying to every post.  This gives the marketing staff the time to analyze real opportunities more completely, and deliver information to the business units they support faster and with more confidence. We have found that this kind of community interaction is scalable far beyond traditional marketing intelligence tactics.   A simple way to accomplish this is to set up an innovation community and ask your customer how they might solve the problem you are looking at fixing. You might be surprised at the results.
2. The business units aren't compaining, so why should I bother?  This is a good one.  The pace of retail forces business managers to react to market demands, and as a result they marshall their teams forces to fix issues that crop up unplanned.  The business units themselves only care about the here and the now, and as a result never have time to ask for more complete customer engagement, even if they know in their hearts that would be helpful.  You might want to consider asking your internal customer what their goals are for the year, and what they think might be obstacles to making those goals.  Asking your customers about what you should do to overcome those obstacles, would not only give you more credibility with the business units you support, it would also help your team get ahead of the market and potentially introduce a disruptive product/service into the marketplace.
3. Dude.  I'd love to do that, I just can't get out from behind my current responsibilities.  Hmmm. so what is this person saying?  To me it sounds like s/he recognizes their company has a problem, but s/he is not empowered to fix it.  If you are in this camp and feel this way, you are not alone.  You more than likely need help, and if you find the right innovation partner, you should consider asking them to help you.  The cost of their short term consulting will easily pay for itself because their expertise and extra personnel will easily return an ROI of 10X+.  You just have to ask!

In conclusion, it is important for retailers (and any other business for that matter), to add their customers into their product development mix.  If you can organize them to solve a common problem, not only will they help you find the needle in they haystack, they will also buy the needle!

Does collaboration hurt a retailer's ability to innovate?

I had an interesting week talking with retailers that are using collaboration tools.  I'm not going to name names in order to protect my sources (their innocence or guilt is for you to decide), but what I found was extraordinary.

Each one of the retailers that I talked to (companies we all recognize) are using multiple collaboration, idea management and social tools to communicate with their employees and customers.  I don't mean one tool for customers and another for employees, I mean that they are using multiple tools for each!

I think we all know why.  I argued in my earlier post, "Does the Pace of Retail Preclude Innovation?" that the pace of retail retards innovation because business unit leaders can't look beyond this quarter's results. While that may be true, I also think that another major challenge retailers have when it comes to creating a healthy, innovative culture is the fact that they operate in silos.

Now the buiness silo has its merits.  It provides focus, creates experts, teams can form, goals can be set.  Good stuff, right?  Now throw the quarterly Wall Street number into the mix.  They whole team works together for a common goal!  That's good, right?  Of course it is.  Good department heads that have made this formula work are usually rewarded with more budget (and bonuses) to make themselves and their teams more successful.  Funds they spend on themselves, or jealously guard for a rainy day.  No sharing allowed, because they paid for it with their own budget money....

Sorry, I digress.

For all of the strengths this lends to a business unit, this focus can actually hurt the overall enterprise.  Retailers always say that "retail is different". Each of the major business units, Merchandising, Marketing, Store Operations, Logistics and Information Technology, often take that attitude when they talk to their peers working in other units in their own company, and as a result, they discount their opinions because they cannot speak the right language.  So when a ground breaking technology comes around like social innovation software, that is designed to get large groups to collaborate, you know what the first thing the business units do?  They only ask the people on their team for help, and they are unwilling to extend their budget to accommodate other perspectives because it's their money.

Listen, I am not going to argue with retailers here because these silos create more opportunities for social innovation platform to be deployed, and the type of innovation that this model spawns is pretty tactical, so we can generate pretty ROI charts that show big black numbers!  In addition, when it comes to collaboration & innovation, you need to start somewhere, and the business units are a great place to get started!

Real sustained innovation, however, is about marshalling the forces of your entire organization to contribute and comment on ideas.  Without a wider perspective, departments run the risk of doing the same things over and over and expecting different results.  In most circles, that is the definition of insanity! 

Open up your processes.  You might be surprised at the results!

Do retailers have the resources to innovate? Yes they do. If they look.

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.

Does the Pace of Retail Preclude Innovation

We’ve all heard it before. “”Retail is different,” “Our pace brings vendors to their knees,” “We have a culture of innovation that keeps us competitive” SCREEECH! Whoa! The last statement (which in some shape or form is in every retailers annual report), is a little stretching of the truth.


I am not saying that retailers don’t innovate. They do. There are scores of examples of retail innovation. TigerDirect gave a ridiculous presentation at eTail East in Baltimore, and BestBuy, Starbucks, Dell, Walmart and Overstock all have innovation programs that are ahead of the curve.

Unfortunately, it has been my experience so far that most innovation in retail is a reaction to changes in the marketplace. Social Media is a perfect example. A few firms (AutoNation, Kohl’s) recognize that engagement with the customer is integral to establishing credibility and managing successful facebook and twitter campaigns (full disclosure, one is a customer, one is not). The reality is that most retailers are just trying to figure out social media and the only reason they are is that their competitors are eating their lunch!

To further my point, let’s look at mobile apps. A good buddy of mine in the space, @shaunpope made an interesting comment about the internet tonight. He said, “It’s dead,” In context, he was referring to the proliferation of mobile applications and that widgets are now driving how individuals surf the web. His opinion was that as a result, traditional search engines like google, will be losing their relevancy pretty quickly. Is he right? I couldn’t tell you. He’s the expert there, I’m not. I can say, however, that the influence mobile shoppers have on retailers is potentially huge! Imran Jooma, Sears eCommerce guru pointed that out in a speech earlier this year! So is Sears innovative, or reacting to changes in the marketplace

So here’s the rub. Retailers are smart, and they get it. Technology and the way consumers buy is changing faster than I can type. To keep pace, they have to react. When they react, the best innovate. But, think about it. Is that kind of innovation healthy? Will it move the needle beyond this quarter’s sales target? I think not.

The best companies in the world budget for, and practice the art of innovation as a core competency. Cisco, Southwest, AT&T, Starbucks, & Dell have recognized that Innovation is something to be invested in. They budget for it, they allocate resources, and they enable their employees. And guess what. If you look at the stability of their stocks, for the most part, their shareholders are reaping the rewards.

Unfortunately, most retailers succumb to their quarterly projections. I am working with several right now that are running idea campaigns that are focused on getting their Q3 numbers on track. I just looked at my watch. I am looking at September 2. Does that kind of innovation really move the needle?

Is it safe to involve your customers in your business?

A few weeks ago, Holly Green wrote a nifty post on Blogging Innovation titled, "Making the Leap to Disruptive Innovation".  Her main premise is that getting your customers involved in the product development process can not only set you apart from your competition, it can also set your company up for "disruptive innovation," essentially innovation that can leapfrog you ahead of your competition.

While this sounds like a great concept, a number of organizations I have talked to have expressed some trepidation and even fear in getting their customers involved, and have cited a number of concerns that are preventing them from getting off the snide including:

• What if we can't control how are customers work with us?
• What if we can't do what they are asking us to do?
• If we open this up will our secrets get out?
• What if what they want will cannibalize our revenue stream?
• What if we don't have enough people to handle the load?

I think you get the picture, the question is, are their concerns valid?

In IBM's resent survey of 1,500 CEO's "Capitalizing on Complexity, "  http://www-935.ibm.com/services/us/ceo/ceostudy2010/index.html they found that of the 1,500 or so companies they interviewed, a small % outperformed their competitors, the market, and their previous year's results, and there are many factors that contributed to their successes.  One of the common themes, however, was the following observation that they made:

"The most successful organizations co-create products and services with customers, and integrate customers into core processes".

What has made these organizations different and more successful than their peers is their willingness to involve their customers (and business partners, and a broader group of employees) in the development of new products and services, and in how they communicate. 


Look at Best Buy  (twelpforce, IdeaX), and Cisco Systems (iPrize). 


Both organizations are reaping rewards by opening up their companies to ideas, and the results they are getting not only help the bottom line, but they also serve to build loyalty, recruits for employment, and always on focus groups. 

So how can you go from "I can't" to "I can"  when you are challenged to get your customers involved?

Here are a few thoughts:

1. Identify a small project and simply go for it.  By this I mean pick an area of your business that has a manageable customer base, pick an attainable goal or outcome you are hoping for, and ask for help. It is important to set and publish your objectives, and also set a timeframe for responses.  It doesn't hurt to provide a coupon or some other type of incentive to get the ball rolling.  Keep it simple!  Ultimately, your key takeaway here be to learn from the practice round.  Look for how people respond to your requests, and make sure you document it!
2. Don't be afraid to say no!  Inventors fail a lot more often than they succeed!  The same will happen with capturing ideas.  Most of the ideas you get will not help your bottom line, but there will be a precious few that you can reap huge rewards from.  Like in item #1, make sure you communicate your objectives, and share ideas with your customer community. When people can see ideas in context, they appreciate the transparency, and can understand when their idea doesn't make the cut.
3. If your customers figure out a way to cannibalize your revenues..... My guess is your competitors can, too. If you are really concerned about customers identifying holes in your business, you probably have some issues with your business model you need to address.  Have your customers help you before they help your competion by buying from them!

So, is it safe?