Innovation in Retail
While the concept of retail has been in existence for hundreds of years, there has been little innovation within the industry. The basic elements of how a customer shops has not drastically changed since 1850. Innovation in retail has been slow to progress and limited to specific sectors within the retail vertical. There is much opportunity within the field of retail to create innovating shopping experiences that drive their businesses forward. In this article, I will discuss an analysis of retail innovation, have a discussion on the existing theories within retail innovation, and comment on where future research my take the field of retail innovation.
Analysis of Retail Innovation
The business of retail has been around for centuries. The classic brand, Brooks Brothers, has been doing business for almost 200 years; founded in 1818, the brand is known as the oldest men’s apparel retailer in the United States (Brooks Brothers, 2017). Their focus has been on creating men’s apparel that is timeless in American fashion and offers high quality, wide variety and exceptional value (Schneider, 2013). Throughout their history, Brooks Brothers has made few innovative changes to the customer experience. Using the iconic brand of Brooks Brothers as an example of innovation, it becomes evident that the retail industry has not made many advancements relating to innovation. In this section, I will discuss a brief history of retail, issues in the current retail environment, and gaps that require further research.
History of Retail
Throughout the nineteenth century, retail was the local general store. There was no focus on frills or experience, the retail stores within this era simply accommodated the basic needs of the local customer by selling a few staples such as milk, bread, and a few household goods. These general stores sold the necessities; there was no focus on luxury items. In 1886, Sears & Roebuck Co. opened a catalog business that spawned innovation in retail (Sears, 2017). They began creating a catalog that customer could purchase goods from and have them delivered to their home. They offered merchandise that included apparel, kitchen appliances, machinery, and manufactured homes. The goal of the retailer was to make quality goods available to the masses. It wasn’t until the mid-1900s that the department store began to emerge. Within these department stores, the store’s square footage was divided into various sections selling items that ranged from apparel to home appliances. Sears participated in the department store phenomenon by opening its first brick-and-mortar retail store front in Chicago in 1923 (Sears, 2017).
With the advent of the department stores in the mid-1900s, the concept of a shopping mall began to emerge (Feinberg & Meoli, 1991). Fueled by the affordability of the automobile and the shift into the suburban life, malls and shopping centers began to emerge in most major cities. These malls became destinations for consumers to not only purchase goods but to socialize and enjoy entertainment. Building on that framework, the concept of value chains and club stores began to emerge in the 1970s. These stores were less focused on experience but rather convenience and low prices. For these types of stores, they were focused on selling commodity merchandise in a convenience one-stop location.
Moving into the late 1990s, we see the emergence of e-commerce businesses. In 1994, the first ecommerce transaction was recorded; a man named Phil Brandenberger purchased a Sting album via his computer (Lewis, 1994). The following year, both Amazon.com and ebay.com opened their virtual doors and began selling merchandise via the internet. Those businesses, as well as others, began to grow quickly by tapping into a marketplace that had almost no saturation. As the cost of creating e-commerce businesses has declined, almost every brick-and-mortar retailer has established an online presence; in addition to those brick-and-mortar retailers, many new, online-only retailers have emerged and began to take market share.
This history points to the small amounts of innovation coming from the retail industry. While there have been moments of innovation, the basic elements of retail have not fundamentally changed during the history of retail. Understanding the history of retail, I will now turn my attention to a discussion of the issues that retailers are facing in the current landscape.
Issues facing retail
While retail has evolved and shown resilience since its origins (Rao and Summers, 2016), there have been few fundamental changes in the retail environment. E-commerce aside, little has changed in the brick-and-mortar shopping arena regarding innovation; customers browse an assortment offered by the retailer and make the buying decision based upon value, need, and purchasing power. There has been little to no innovation offered by the retailer to further entice the customer to purchase the merchandise in the store. As foot traffic to brick-and-mortar retail stores continues to decline at the pace of approximately 7% annually (RetailNext, 2017), retailers must face the reality that the in-store experience must change and find innovative ways to attract and engage customers. In addition to the decline in foot traffic for brick-and-mortar retailers, they are also experiencing a similar decline in revenue (RetailNext, 2017). The issue that retailers are facing is the lack of strategies that create compelling and entertaining in-store experiences that differentiate themselves from their brick-and-mortar competitors and their online counterparts.
Gaps requiring future research
A potential area of research for the retail industry is how to build strategies that create meaningful and entertaining in-store retail experiences for customers. Despite the shift toward online in some customers’ shopping behavior, there are few studies that address the how brick-and-mortar retailers can create strategies that engage and attract customers to shop at their physical stores. There is much literature written regarding retail brand experiences (Gentile, Spiller, & Noci, 2007; Brakus, Schmitt, & Zarantonello, 2009; Schmitt, 2010; Schmitt, Brakus, & Zarantonello, 2015; Verleye, 2015; Bhandari, 2016), but there is little research that addresses how retail brands can create in-store experiences that impact the financial results of the brick-and-mortar store. Sachdeva and Goel (2015) are some of the few researchers that have studied the in-store experience, and they indicate that some retailers have experienced positive financial results by enhancing a customers’ in-store experiences.
In this section, I will build on my analysis of retail innovation by discussing a history of the problem, the existing theories relating to retail innovation, and discuss the impacts that retail innovation could have on the retail industry.
Background of Problem
At the onset of 2017, 83.7% of the US population had access to the internet, and that trend is projected to continue to grow over the next five years (eMarketer, 2017). With the proliferation of connected devices, more consumers are turning to online channels to purchase merchandise; 8.5% of all retail sales were conducted online at the end of 2016 (U.S. Census Bureau, 2017). In addition to the shift in revenue to the online channels, foot traffic has declined by more than 7% for August 2017 and has been on a similar declining trend for the past 2-years (RetailNext, 2017). This phenomenon has led to a decline in revenue at brick-and-mortar store locations. The decline in revenue at physical store locations has left retail store managers with costly real estate investments that are declining in revenue. Without innovative strategies to drive foot traffic and create compelling and entertaining in-store experiences, customers will continue to turn to alternative shopping means as a method for fulfilling their needs.
Much literature has been written regarding the concept of creating rich in-store experiences for customers. For those brick-and-mortar retailers that have failed to evolve and innovate, there are innovative solutions that can help overcome the issue of detailing foot traffic that they are facing today. Innovation in retail is one of the most critical elements for competing successfully and that innovation consists of new experiences for the customer (Pantano, 2014). Within the literature, there are several key elements that emerge, indicating how retailers can innovate in a highly competitive market. The three innovative trends that I will discuss are a sensory experience, store design, and social shopping.
The concept of appealing to the senses is an innovative way to stand out in a retail environment. Triggering the various sensory elements of a customer while shopping can have an effect on the judgments, perceptions, and the behavior of the customer (Krishna, 2013). Consider the experience at the national home goods retailer Pier 1 Imports. When you walk into that store, the customer is greeted by many sensory stimulating elements. The customer can visually see an array of product that is showcased in a multitude of colors and textures that cause a customer’s imagination to run free. The customer is also met with a pleasant aroma that is tantalizing and stimulates the sense of smell.
Store design is another important characteristic of the in-store experience. The layout of a store can drive the customer to shop the various merchandise with a higher level of intent. In a study conducted by Hill, Fombelle, and Sirianni (2016), the researchers found that curiosity and engagement with product can create a positive outcome for the retailer. A good example of this is a grocery store. There are key consumables that almost every customer will buy during their shopping trip to the grocery store; these items are typically placed at the back of the store. While this may seem somewhat inconvenient for the customer, the retailer understands that the customer will have to walk past several isles of merchandise before arriving at the section of the store that they intend to buy from. This strategy creates additional points of engagement and curiosity with other products that the customer did not intend to purchase.
The third innovative trend I found in the literature is the concept of social engagement and entertainment. Social experience involves a customer within a given social context or relationship with another person (Ferguson, Paulin, & Bergeron, 2010). A good example of this concept is when a customer visits a high-end luxury store simply to be seen by other customers; this is a form of social validation. As retailers begin to better understand this phenomenon, they can create aspirational brands that appeal to this social concept.
Impacts of Retail Innovation
Innovation in the retail sector has the potential to positively impact a business. In a study conducted by Karmeni, Hamadi, Mesri, and Slim Ben Mimoun (2017), the researchers indicate that the level of innovation within the retail sector has an impact on the store manager’s job satisfaction level. As brick-and-mortar retailers implement innovative strategies, those retail store managers have a higher level of job satisfaction. The key to this concept is that the innovative strategy doesn’t necessarily have to be successful, but rather the retailer was willing to explore a new strategy to drive the business forward. Innovation in the brick-and-mortar retail experience has the potential to create positive financial results (Sachdeva & Goel, 2015).
Future Direction for Research
Despite this shift in some customers’ shopping behavior, there are few studies that address the need for retail store managers to have strategies that engage and attract customers to shop at their brick-and-mortar retail stores. There is much to be learned from understanding what experiential elements of the in-store experience aid in driving the desired financial outcomes for the retailer. There is much opportunity to research how store managers are creating engaging in-store experiences across the various retail verticals and the understanding of how those rich experiences attract and engage customers. In addition to the experiential elements within a store, there is still much to be learned regarding how technology plays a role in the customer’s path to purchase. There is much opportunity for additional research within the realm of how online elements impact the store visit.
As the in-store experience changes and as technology continues to mature, the topic of retail innovation will evolve. Customers will be well informed regarding product and services before they physically visit a retailer. The in-store experience as defined today will likely evolve and become more intertwined with virtual shopping elements fueled by augmented reality and virtual reality. These unknown shifts in the way a customer purchases goods or services will drastically change how this research topic would look in the future.
The implications for positive social change include the potential to enhance the economic vitality and development in the surrounding community by creating additional jobs, and by generating additional money that could be spent in the local economy. By understanding and creating engaging in-store experiences, retailers will benefit financially (Sachdeva & Goel, 2015). The financial benefit received by these retailers will enhance the economics within the local community.
Throughout this article, I have discussed an analysis of retail innovation, the existing theories within retail innovation, and the future where future research my take the field of retail innovation. While retail has evolved and changed overtime, there has been little innovation driving the industry forward, specifically within the brick-and-mortar elements of retail. There is a great opportunity within retail to create innovating shopping experiences that will engage the customer in a manner that fuels the businesses forward. In this article, I established a baseline for where retail innovation is today and defined the future of where retail innovation could be going forward.
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