By Deborah Weinswig, Managing Director, Fung Global Retail & Technology
Innovation, collaboration, and change are the keys to remaining relevant in today’s evolving retail landscape.
Times are changing, and retail is experiencing an outright revolution — not just an evolution. Traditional retailers are being forced to rethink everything just to remain relevant. There are three main aspects to the current retail revolution: traditional retailers are becoming less relevant, emerging players in different segments are increasing competition, and higher e-commerce penetration is challenging brick-and-mortar retailers. The old guard, particularly department store and specialty retailers, is going through severe changes, including store closures, bankruptcies, and management turnover.
Store closure announcements have been concentrated among department stores and specialty retailers. Five specialty retailers have announced that they will file for bankruptcy this year and are in the process of closing their entire store base. Meanwhile, we have seen high turnover in retail C-suites, suggesting that many companies are looking to reshape their strategies from the highest levels. There have been 29 recent announcements of C-level management changes among the global retail companies we track, concentrated among luxury retailers and specialty retailers.
So, how do retailers win the retail revolution? Innovate. Collaborate. Change.
Innovate: I was recently in Israel, where I learned that General Electric (GE), Honda, HSBC, Merck, Porsche, Shell, Tyco, and others are partnering with startups to find solutions. Startups can breathe life into a company that has not previously focused on innovation by providing a fresh approach, an outside perspective, and new solutions. A startup collaboration can also solve specific problems, as an outside team can provide technical, design, or product expertise in specialized areas.
Shell, for example, has approached innovation with an eye on the future of energy consumption and an “innovate or die” mentality. The company is looking at consumer and market behavior regarding energy consumption, and its innovation models include inhouse, external, and hybrid startup solutions. Using external startup partners, Shell created the FarePilot app, which helps taxi, Uber, and Lyft drivers find riders faster. The app pulls data from social media and weather sites and combines that information with other analytics.
Collaborate: Some companies are launching their own accelerator and competitive innovation programs to drive excellence and innovation within their organizations. These programs can run anywhere from eight months to two years. In partnership with OurCrowd, Adidas recently launched the leAD Sports Accelerator, which is designed to discover high-potential innovation in sports-related products and services on a worldwide scale. The program is built on the legacy of Adidas founder Adi Dassler and aims to “create tomorrow’s legacies” while building on the core competencies and history of the company.
GE has also launched its own accelerator program. The company has already had to reinvent itself twice, once in the aftermath of 2001 and then again since 2008, and it is now leveraging startups in order to become more agile. GE recognizes that it is not the only game in town, so it is partnering with startups that excel and take risks and is looking to inject that spirit into its entire enterprise. It has already launched its own industrial Internet of Things by partnering with 16 other companies.
Change: A number of retailers have been talking recently about stores needing to fill a bigger purpose than just selling merchandise. New store formats will be set up accordingly, with more space that allows for social interaction as well as the provision of various services. As people spend more time alone and on their devices, many find themselves craving human interaction, and retailers that make efforts to build a sense of community will see benefits. Consumers will be drawn to retail formats that provide a place where they can socialize, interact with peer groups, and be part of something bigger than just shopping. Angela Ahrendts, senior vice president of retail at Apple, said at April’s Global Retailing Conference that even though Apple has roughly 500 stores, the channel represents just 0.2 percent of the company’s total distribution. The stores are meant to serve as more than merely a place to transact; they are gathering places. In fact, servicing the consumer accounts for 64 percent of store head count.
At the recently held NACDS 2017 Annual Meeting, one health and wellness retailer said that companies will use information sessions and new store formats that are more open and inviting to get customers to stick around and interact with others whom they may not engage with in another setting. There is a particular opportunity for drugstores to create a community around their pharmacists. These professionals are valuable resources for customers and can provide information and services face-to-face in a caring and personalized manner — something that customers cannot get by ordering pharmaceuticals online.
Retailers must do something they are not doing today and take some calculated risks. Those that don’t will actually be moving backward.