Why Retail Innovation Is Difficult
Retail, like other industries, has its fair share of problems.
Clients shift their loyalty, profits are elusive, merchandise may not be in stock, shrinkage happens, prices change, etc. For every one of these, there are dozens of solutions. No retailer that I know of is ever short of ideas. They get some of the shrewdest ideas, the cleverest use of technology and the slickest application of technology and ideas to solve problems.
However, what is often missed in retail is that at the store end of retail, the problem is one of scale.Consider a retailer having 2,000 stores. Even a simple innovation that costs $100 per unit, if required to be deployed in retail stores for this retailer will now cost $2 million per instance of application. In many cases, there will have to be multiple instances of
application, such as one tablet per sales associate, or one device per check-out lane or per shelf. If there are 10 such instances per store, then the cost of deployment, just for hardware, has suddenly shot up to $ 20 million. This does not include the business cost of developing training programs, and imparting training to associates in stores who have to use them. The training cost will have to include the time the associates are away from their regular job to attend the training costs.
Retailers regularly spend around 1% or less of their annual revenue on IT. More than half of this is on regularly recurring expenditure such as licenses and salary costs of IT employees who maintain these applications. The other half a percent is available for new developments or modifications. Given such a scenario, no retail CIO will encourage discussion of any innovation that will cost more money than s/he has for regular IT operations.
Even the most promising of innovative ideas will not find sympathy with the non-IT C level executives in a retail environment that is hard pressed to make and meet margin and growth targets. Retailers have always been known to struggle to meet margin and growth targets.
Retailers with deep pockets, such as Walmart or Amazon can every now and then afford to experiment with innovative ideas. Every viable ideas will be more acceptable in an Amazon environment than in a Walmart environment. The reason? Amazon has far fewer store and deployment needs than Walmart. This is one of the main reasons that Amazon is often seen as a giant in innovation and in advancement of retail. The reason is not lack of ideas, but the economy of implementing them.
Post by Mani Subramaniam, President, Business Focus at Litmus7
