Tuesday 13 March 2012

Retailers hampered by lack of innovation?

If the test of innovation is a consumer’s willingness to pay, then it could be said that retailers have it all their own way. 
Whilst a brand owner can take nine months from initial idea until appropriate shelf-space is secured in a major multiple, for a retailer the source of a new idea can be a presentation by a supplier that morning, a hyper-efficient supply chain can have it on a shelf by noon, and by close of play that same day, the retailer is in a position to delist the brand or double the order…
Exaggerated, but you get the picture…  
Recent press reports suggest that retailers need to be more innovative.
In fact, the two types of innovation, products and channels, present different challenges for retailers in these unprecedented times.
The innovation challenge for retailers: products vs. channels
Product /service Innovation can be so easy for retailers
-       ‘Suppliers taking all upfront risk’
-       ‘Put it on shelf and let the market decide’
How private label can make a difference
In fact, with the right supplier-partners private label can be a means of making exceptional products available exclusively in a retailer’s outlets, with consumers having to return for any repeat purchases, willingly…
Traditionally, suppliers kept the best ideas for the brand and offered second-tier ideas to the retailer. However, one exception was a client I worked with many years ago, a leading yogurt brand. They took a more innovative approach to brand development: when the ‘Lab’ had produced six new flavours, the company would first offer all six to their own-label customer. Then, following  a month’s sales in Tesco/JS, the relative popularity of each flavour allowed the company to select the best three flavours for inclusion in the brand extension programme….(Tesco/JS were ok with this, given their innovator’s advantage and their different agendas)   
Different when innovating channels or changing channel emphasis
Retailing can be a zero-sum game, in that in general a retailer’s routes-to-consumer can be sub-sets of a fixed demand. In other words, the success of a ‘new’ channel can be at a cost to their main channel in terms of sales, for instance where online siphons off sales of many non-food categories from a superstore…    
Large outlet 'redundancy'
Although pop-up shops can make some outlet diversification easy, re-engineering a 100,000 sq. ft. outlet can take a little more effort…
Large outlet ‘redundancy’ was a natural consequence of increased shopper insight combined with improvement in supply-chain efficiencies, in that two facings and minimal stock levels can now do the work of ten facings and a week’s back-up stock.
Rescuing a superstore 
In fact, for the major multiples, the next moves are crucial, in that £50m investments in superstores cannot easily be reversed, without massive dilution of ROCE, and sell-off is not an alternative, in that a superstore’s traditional retail hyper-efficiency means that any alternative use of the building cannot match a superstore’s  financials…i.e. no one can afford to pay what the retailer needs...
Restoring its viability 
A more practical solution might be a combination of store-level assortment, extending the range of goods/services to include anything that can be legally sold to the public, and sub-letting some space to shop-within-a-shop specialist retailers.
How to attract, select and retain the right specialists?
Charge a minimal rent, and a percentage of sales, collaborate on purchasing, share insights on retail productivity, and earn some good press in the process…
This has to be an opportunity for suppliers willing to help a retailer to really innovate…
Seemple, right?    (i.e. seems simple....)

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