During economic downturns, businesses tend to cut costs to survive, often reducing investments in innovation and relying on past successes.
But according to Rich Mason, head of enterprise EMEA at commerce platform provider Shopify, this “innovation debt” is a dangerous position. His view, initially expressed during a FT ‘Future of Retail’ event in September 2023, is that it’s crucial to continue investing in innovation to adapt to drastic changes brought on by a difficult economy.
Scaling back on innovation during challenging times, he argues, can lead to missed opportunities and hinder a company’s ability to keep up with evolving market demands – or worse, spiral into trouble, or lose market position, as the likes of Kodak and Blockbuster have found out to the cost of their entire businesses in recent times.
Mason calls innovation debt the product of not prioritising innovation – be that in product, embracing new technologies or responding to new customer trends. Essentially, by standing still, retailers can fall behind.
This theory was put to multiple retail guests at a Retail Gazette roundtable on 9 November, held at London’s Haymarket Hotel. The roundtable breakfast – run in association with Shopify – was attended by representatives from AllSaints, Asos, The Cambium Group, Everything5Pounds, Fenwick, GuitarGuitar, John Lewis Partnership, Merrell, Morleys, New Era, and Ted Baker.
Five key talking points that were raised in response.
Retailers slow to react
There was agreement that retailers harbour innovation debt.
One speciality retailer says: “Retailers rest on their laurels all too often thinking people will always just come and shop.
“With that attitude there is often a lack of investment which can catch up with them in time. There’s a real need for retailers to invest today and innovate wherever possible to differentiate in a crowded and hugely competitive market.”
Another specialty retailer adds: “Retail CEOs are obsessed with return on investment, and that can stem innovation, and slow down retailers’ ability to change direction quickly when markets or consumer demand change.”
Doing it ‘the way things have always been done’
Part of the issue with retailers finding themselves in so-called innovation debt is because many retailers haven’t evolved the way they run their businesses despite the new requirements on these organisations in a digital age.
“Retail trade meetings haven’t changed in decades,” explains one department store retailer.
“It’s a terrible pattern we as an industry are in. We go through the numbers in the same way we’ve always done, we are trapped in a cycle of discounting that is no good for anyone, and it means many in the industry are trapped and can’t look into the horizon.”
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A clothing retailer agrees, saying: “It’s the same in marketing where it’s all about getting eyes on the brand, when it should really be about conversion and retention – and repeat custom.”
Another fashion retailer says innovation is required in evolving retailers’ propositions and how they set targets for growth.
“If you’re just chasing numbers every month or quarter, you’re just surviving – you’re not innovating or moving forward,” they explain.
Purse strings are tied
Retailers around the table discussed how investment for innovation is not easy to come by.
One fashion retailer says digital pureplays emerging in the retail space in the last 20 years have “moved the goalposts” for traditional retailers.
“Amazon has a lot to answer for,” he argues.
“The profit needed to keep up with companies like that is simply not there in most retail businesses.”
One online retailer says: “The way forward and a method to ensure a business doesn’t stand still even when economic challenges persist is to adopt a policy of incremental change.
“Keep testing and learning and A/B testing new ideas and the change will come – and it will be achieved without having to receive too much senior leader buy-in.”
Risk-hungry businesses for the win
The idea of innovating in challenging times is not new in retail.
JD Sports was born in England’s North-west in the recessionary environment of the 1980s and is now one of the UK’s biggest retail players on the international stage – and a market leader.
Poundland emerged in similar difficult economic times in the early 1990s, and 30 years later is one of UK retail’s consistent performers and continues to open stores and attract more shoppers through its doors.
One speciality retailer comments: “Risk-hungry retailers can move fast.
“Traditionally, smaller businesses in retail have been able to move quicker than the big players, but the latter need to take some tips from the former in terms of testing out new digital offerings and being willing to fail and try again.”
Marks & Spencer’s recent turnaround, exemplified by smashing 2023 first-half profit forecasts, an improvement in its clothing proposition and roll-out of more sophisticated digital and loyalty offerings, was cited as a positive example.
“M&S has become a modern-day beacon for modernisation, turnaround, and developing a new compelling proposition for customers,” notes one fashion retailer.
Reset and refocus
Several retailers around the table bemoaned the legacy systems they have that make it difficult to innovate. When asked what they would focus on if they were able to rip up their tech infrastructure and digital proposition and start again, there were some intriguing responses.
“Utilise the power of social,” says one fashion retailer, who adds that the focus would all be on TikTok and Instagram.
Another retailer adds: “We’d double down on Generation Z, knowing they are our future and shape everything around them. That’s where the focus would be.”
One fashion retailer reflects on the growth in peer-to-peer selling in the last decade: “We’d be seriously exploring in more detail how to make sure we’re taking the sales that are currently being taken by consumers shopping between themselves.”
Deann Evans, managing director EMEA for Shopify, says: “The reality is that retailers big and small can’t afford to sit on the sidelines.
“Complacency will kill your business. It’s important to do something now because consumers are ever more discerning with their spend and their loyalty. They’re harder to reach and are spread across so many more surfaces, and retailers have to work overtime to cultivate audiences which means they have to keep innovating and investing in tech.”
She adds: “At Shopify, in 2022 alone we invested about $1.5bn in research and development with one goal – to make commerce better for everyone. We innovate so you can innovate, and we have a strong track record in putting retailers on the right side of change including supporting British businesses such as Gymshark, Ooni, and Huel.
“We also make it easy for large retailers to innovate while maintaining an undisrupted daily business. Retailers looking to kickstart their digital commerce should come and speak to us.”
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