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?