Technological innovation is radically changing shopping and retailers have realised they can’t be passive observers in this process. Rebecca Thomson finds out what they are doing.

Technological innovation is no longer limited to companies such as Google

It wasn’t so long ago that technological innovation was something that happened somewhere else - in Google’s colourful offices, California’s Silicon Valley, or more recently in east London’s flourishing network of start-ups.

But a growing number of retailers are waking up to the fact that it may not be enough to wait patiently for the tech gurus to come up with the next big thing. The tech scene is too important and too wide-ranging for retailers to take a back seat.

Retailers are increasingly realising that they need to be part of this innovation ecosystem, and have started work on both generating ideas internally and tapping into the creativity of technology start-ups and suppliers. For years, retailers have focused hard on innovation in other areas of the business and many have come to excel at store design or product innovation. It remains to be seen if they are able to replicate this in the technological sphere, especially when it is an area some have ignored as a competitive advantage for decades.

eBay’s vice-president of UK marketplaces Tanya Lawler says the need for more innovation in retail is being driven by consumers’ desire for convenient shopping, and many of the most important technological ideas of the past decade - from retail apps to contactless payment - have been borne of a need to smooth the shopping process.

She says: “The pace of innovation and consumer expectation is accelerating. From inspiration to purchase, technology plays an integral role in creating the consumer experience. Retailers have to respond, to innovate and to embrace mobile and other technologies in order to deeply engage their consumers.”

Legacy systems

This tallies with the views of Apple co-founder Steve Wozniak, who spoke at the Apps World conference last month in London. He said: “Technology is better if I feel that I’m working less. If I’m not having to think or do things or work, it’s a better product.”

The only way to keep up with the pace of change is for businesses to develop the ability to respond quickly to whatever the future holds.

Senior retailers must become well informed and interested enough to be able to take part in the discussion surrounding new technologies and innovation and where they might take the industry.

Some are doing this. Tesco has a large research and development department that develops its own ideas and works closely with start-ups. John Lewis has run internal innovation competitions. And bosses including Dixons ecommerce director Jeremy Fennell have spoken of the need to develop an effective network that will keep them informed of new trends.

For many retailers, the task is made more complicated by the fact that they are also busy removing or improving clunky legacy systems. But it’s all too easy to hide behind this excuse. While they undoubtedly create a lot of work for retailers, the most forward-thinking chief executives and chief information officers realise that dealing with large legacy systems is one part of their job. The other part is keeping one eye on how the technology industry is developing and what it means for retail.

It’s clear that some bosses are starting to wake up to technological innovation. In July, Morrisons chief executive Dalton Philips described the grocer’s systems as being “firmly stuck in the 20th century”, and said £310m will be invested in technology by the end of the year.

Leaving customers behind

But it’s not just about money - it’s about culture as well, and this is traditionally where retailers have fallen down. Chris Allen, emerging technologies manager at Morrisons, who is charged with managing the introduction of new technologies into the business, points out that this is perhaps natural. “We’re not Google - we sell baked beans. We want to be sure customers want [innovative technology] in their environment.”

Retailers are wary of leaving consumers in their wake if they change the shopping experience too quickly. It’s all very well for companies such as Apple, whose core ‘fan boy’ customers are early adopters of technology, or Google, whose business depends on staying one step ahead of the rest. For most retailers, however, shoppers are far less concerned with cutting-edge technology.

Most consumers still care about which shops are nearest, which are cheapest and which have the best range - technology can improve the experience, but sleek gadgets sometimes do little more than add an element of novelty. Retailers need to tread a fine line between not alienating present customers and preparing themselves for future shoppers.

The growth of online businesses such as Asos shows the sort of dent start-ups can make on a market unprepared for new technology. As etailers such as Amazon soared to success, too many traditional retailers were swamped by the development of online commerce.

Luckily, the present wave of innovation is coming from software companies focused on helping retailers adapt to a changing environment. Julie Meyer, founder of investment firm Ariadne Capital, said at Retail Week’s Technology Summit in September that there is now little room for new etail businesses such as Notonthehighstreet.com or Asos - it would simply be too difficult to develop the kind of audience these early dotcom pioneers managed to amass.

She said: “The chance of a company today becoming an ecommerce business with 100 million customers is very low. It is the digital enablers that will do best.” Which means it is the business-focused start-ups providing mobile, payments or content-related services that are getting investment.

This means retailers need to keep an eye on companies such as mobile payments business Paddle, interactive image app Taggstar, ecommerce platform Atosho or any other of the myriad companies springing up in the gaps that retailers’ own historical dearth of technological innovation has left.

Which isn’t to say that retailers aren’t making real progress. Asda for instance - which has often languished far behind rival Tesco on innovation - has ramped up its efforts in the past 18 months or so. It was the first to trial retail tech firm Wincor Nixdorf’s 360-degree scanner, which enables shoppers to place products on a conveyor belt that takes them through a tunnel full of lasers, scanning the items as they go. Asda has also experimented with 3D printing. Allen says such projects benefit the whole sector.

He says: “We feel more empowered to be able to [innovate] by consumers now, and possibly by our peers. Asda’s trial of the 360-scanning till - until they did that I’m not sure we would have wanted to be the first mover. Now Asda has done it that helps. The whole sector is willing to be more flexible towards innovation, and is willing to be seen to be innovating.”

It is this change in attitude that is more important than anything else. John Lewis chief information officer Paul Coby says retailers must keep their eyes and ears open - there are plenty of sources of information on what’s happening for those who want to look for it.

He says: “You need to be open to all these different sources of innovation, whether it’s your own people, start-ups or big suppliers in California. You just need to think about what’s happening and how you’re going to do all this stuff.”

Court the start-ups

John Lewis, along with Morrisons and Tesco, has become one of a number of retailers to hold Dragons’ Den-style events that give start-ups the chance to pitch their ideas to a business audience. Tesco uses a speed dating format. Twelve start-ups each have a few minutes to pitch their projects to 12 Tesco technologists. The retailer then starts a trial with the start-ups whose ideas it liked the most. Head of research and development Nick Lansley said at Retail Week’s Technology Summit that this open approach is crucial. “We are not the sole owners of new ideas, but should be looking to people who have those ideas,” he said.

There are pockets of improvement and innovation springing up across the retail industry, but there is still work to do. There is an understandable reticence to move too fast from retailers that are wary of leaving customers behind. But a slight tweak, at least, in culture and direction is crucial - as digital natives become fully fledged consumers, few retailers without some level of technological innovation are likely to be around in 20 years.

Change from within how retailers can foster innovation

  • Work hard on improving communication. Paul Wilkinson, innovation ambassador at Tesco, said in a recent blog: “Good communication and teamwork are essential if we want to devise creative solutions. It’s important to gather ideas from people around the business, share our research with them and, most importantly, listen to our customers.”
  • Make innovation part of day-to-day operations. The technology companies and retailers that are good at innovating have succeeded because they absorbed it into the ethos of the company. Retailers have historically ploughed energy and resources into product and range development, and they will need to do the same thing with customer experience. Colin Jeffrey, Deloitte digital retail director, suggests setting up a customer experience research and development department, for instance.
  • Customer experience and technological innovation should be everyone’s responsibility, Jeffrey adds, and priority areas should be agreed on for the whole business. There should be rewards to encourage employees to think of new ways of doing things, and each department should be incentivised. HR departments could devise schemes to recruit and retain employees using social and mobile tools, for instance, while finance could change the key performance indicators of staff to encourage innovative thinking.
  • Senior directors need to be on board and Jeffrey advises hosting a digital bootcamp for executives, to make sure everyone has an understanding of the attributes and thinking involved in digital development and innovation. The bootcamp could look at innovation from a few perspectives - what your competitors are doing or the consideration of a disruptive proposition that will threaten an existing business model.
  • Hackathons, where developers meet in one location, often with pizza and beer, to solve a certain problem or come up with ideas in a 24-hour period, can be useful. But they only help once processes for innovation are already in place. Tesco has run two, and Wilkinson says they are a good way of testing technologies and assessing what might happen in the future. The events involve staff from across the business coming together and can produce interesting ideas.
  • Appoint a mobile or innovation expert if there is no-one in that position.
  • Improve the business’ access to other companies and communities that specialise in innovation. Maintain links
    with start-up communities, develop more formal processes for firms to pitch new ideas, and consider opening an office in creative areas, as Tesco has done in Shoreditch, east London.
  • Get customers involved with new services via social channels and face-to-face panels.
  • Sign up to technology trends and entrepreneurial news feeds, using news aggregating apps such as Flipboard.
  • Younger members of staff are a crucial part of improving innovation. Utilise younger staff such as graduate recruits who are digital natives and often more open to new ways of working.
    Source: Deloitte