Retailers are dropping like flies out there. J.C. Penney, RadioShack, Macy’s, and Sears each announced more than 100 store closures last year.
We are in the midst of a mass brick and mortar retail extinction at the hands of e-commerce. To survive, retailers need to find new ways to innovate.
Most associate the word innovation with new inventions. But there are actually a wide variety of ways for retailers to innovate.
We are in the midst of a mass brick and mortar retail extinction at the hands of e-commerce. To survive, retailers need to find new ways to innovate. Tweet This
Perhaps the most transformative area of innovation in retail in recent years has been in the collection and interpretation of data. This happens to be the primary service Evo offers to clients.
The simple reorganization of data can have a major impact on retail businesses. Most retailers segment data based on their best guess. Stores in similar regions get segmented together as do products with similar attributes.
The problem is that human bias in segmentation often leads to grouping together products or stores that don’t actually have similar sales patterns.
To solve this problem of human bias, Evo employs an algorithm to segment data based on mathematical correlations. The result is a much more accurate picture of business performance.
Evo also collects new types of data for clients, like our automated field survey. Our survey gauges store staff’s favorite products, which tend to be a good leading indicator of what products will sell up to 12 weeks in future. This allows retailers to stock up on popular products ahead of time.
Moreover, Evo’s proprietary algorithms offer clients more data and a better way to crunch that data. Instead of sales forecasts based on simple heuristics like last year’s performance plus expected growth, Evo’s advanced engines use a huge variety of data—from SKU trends to weather—to forecast demand.
More accurate demand forecasts impact nearly every part of the retail business from supply chain to pricing. Knowing what customers will buy allows retailers to run a leaner, more profitable, business.
Customer experience innovation
Customer experience is the new frontier of innovation in retail. Retailers are competing to better exploit customer data for personalized shopping experiences both online and in brick and mortar stores.
Big data, artificial intelligence and machine learning are at the forefront of customer experience innovation. Take, for example, Amazon’s extremely successful AI-powered product recommendation engine.
Amazon’s recommendation algorithm suggests a multitude of other products based on what products customers have already bought, browsed or rated on the site. These product recommendations account for around 35% of total Amazon sales, according to McKinsey
Value capture innovation
Innovations can also be made in the way companies capture value. Google’s paid search is the seminal example: instead of charging for its search service, Google makes money by charging companies to advertise in search results.
Dynamic pricing is another major value-capture innovation that has the potential to make a huge impact on the retail industry. Simply put, dynamic pricing refers to price changes whenever there is the potential to capture higher margins or revenues.
Evo offers dynamic pricing as a service to retailers. By using AI and machine learning to forecast when price changes will boost top- or bottom-lines, we ensure our clients capture a larger share of the potential value of their products.
Business model innovation
Business model innovation has been the most striking variety of innovation of the last decade. With the advent of the sharing economy, businesses like AirBnB and Uber revolutionized entire industries by introducing household sellers into previously corporate-dominated markets.
In retail, subscription services like Dollar Shave Club have been extremely successful. When Dollar Shave Club first entered the market in 2012, Gillette had 72% of the US razor market. But, in just four short years, Dollar Shave Club sales exploded to capture 51% of the market, compared with Gillette’s 21%.
Process innovation is the unsung hero of profitability. This refers to innovations in business processes like accounting or supply chain management.
Clothing retailer, Zara, is a great example. Through various innovations in supply chain design and business processes, Zara has managed to shrink new product development from what is usually six months to 15 days!
But process innovation does not have to be an entire redesign of the supply chain. It can simply be adopting tools like Evo’s inventory optimization software to make sure your supply chain delivers the best possible results.
Our inventory engine predicts demand and allocates inventory accordingly so retailers have just enough stock to meet sales with minimal leftovers. Meanwhile our inventory redistribution algorithm optimizes inventory distribution among stores in real time to ensure that every possible piece of inventory gets sold.
Product innovation is still just as relevant to retail today as it ever was. This refers to new types of products, materials or packaging that boost sales or margins.
Uniqlo, for example, now has 1,300 stores in 15 countries across Asia, Europe and US mostly thanks to product innovation. Its HeatTech underwear line has been a particularly strong seller. HeatTech is a fabric that turns moisture into heat and has air pockets in the fabric to retain that heat.
Target’s famous red pill bottles were a great example of packaging innovation (before CVS replaced them with normal amber bottles). These triangle-shaped bottles had a flat surface to make directions easier to read and printed relevant information like the medicine name and directions first. This seemingly simple redesign made Target pharmacies popular overnight.
Innovate or die
The rapid evolution of tech means that retailers have to innovate quickly to keep up with competitors. Retailers that don’t take advantage of big data, AI and machine learning to optimize data segmentation, pricing and supply chain performance will get trounced by the competition.
The good news is that, as new technologies proliferate, so do software companies aimed at helping retailers exploit new opportunities in tech. A host of new companies, including our own, provide innovation-as-a-service so retailers don’t have to go it alone.
About the author
Will Freeman is a content expert at Evo.
He is a former economic journalist and part-time entrepreneur.
His interests include economic development, China, India, cryptocurrency and blockchain, and financial technology in general.