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Insight/ General Management

The Necessary Risks Of Retail Innovation

by Matthew Witt
VP, Director Of Digital Integration

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Article Highlights:

  • Continual change for retail is essential.
  • The sobering truth for retail is that the Internet took much of the fun out of brick and mortar stores.
  • Retail brands must find a way to leverage the wave of crowdsourced production.

Innovation experts champion the idea of failure. However, the reality for most businesses, especially large, publicly traded corporations, is that failure is perceived as a toxin. The possibility of short-term failure and missed quarterly goals always trumps the vision of long-term success.

Nowhere is this pressure greater than for retail brands. A perfect example of a failed attempt at innovation is the odyssey of J.C. Penney and its recently ousted CEO, Ron Johnson. The looming threat from that debacle isn’t the depressed stock price but the perception that the situation is an utter condemnation of innovation at retail as a whole.

Continual change for retail is essential. It wasn’t the Winchester rifle that won the West—it was the general store and Richard Sears with a mail-order catalog that was the Amazon of its era. Yet in this environment of constant evolution, countless brands have struggled. So for every J.C. Penney that stumbled in its pursuit of innovation, there are the Montgomery Ward, Borders and Circuit City stores that didn’t even keep pace with the market.

Adapting successfully involves risk—necessary risk that can help mold and strengthen a company. Retailers can embrace that opportunity by knowing your customer, understanding the trends occurring right now and the reality of their mobile, social, and digitally driven lives.

People Love To Discover
The sobering truth for retail is that the Internet took much of the fun out of brick and mortar stores. As people once browsed for new products and deals, there was a journey of discovery inherent in shopping. Now people leverage digital tools to research products and prices ahead of time, and when they visit a store, it’s typically more utilitarian. What retailers must understand is that what they are truly selling is an experience. The challenge is to make that experience interactive and memorable, and empower customers to engage with their brand via discovery.

Birchbox, a company that procures niche health and beauty products and mails collections to customers on a subscription basis, is leveraging this insight. They have established a new model where they deliver discovery directly to the customer. More retailers should be following Birchbox’s lead by giving customers the tools to promote individual discovery.

Interestingly, these tools may already be in customers’ hands. At present, reports that more than 165 million U.S. consumers have smartphones with more computing power than the entire Apollo space mission. Yet retailers are resistant to the changes these devices continue to bring, such as the trend of virtual showrooming, in which more than half of smartphone users routinely engage. Though despised by most retailers, it’s an established consumer behavior and part of the discovery process. If retailers, online and off, can leverage smartphones to promote discovery, they can find ways to make showrooming advantageous for both customers and stores.

Your Customers Are Your Supply Chain.
Just like many brands have adapted to the risks of advertising in an age of social media, retail brands must find a way to leverage the wave of crowdsourced production.

Lately, there has been considerable hype with the advent of 3D printing. Most retailers still see the devices as tools for hobbyists, but companies like Quirky have embraced this technology and see it as a fundamental shift in the dynamics of retail. Quirky turns to its customers to design, test and market its wares. Virtual distribution of goods is only going to accelerate, and Quirky has found a way to leverage, even encourage, the collective imagination of the crowd to create a virtual ecosystem of manufacturing and distribution.

At the moment, 3D printing is in its infancy, but this technology is advancing at a breakneck pace. Within a few years’ time, organic 3D printers may be able to create replacement organs. Soon a new generation of nanotechnology-assisted printers could craft fully assembled products for consumers. By the end of this decade, the idea of what a supply chain is—or even a store, for that matter—will be radically changed.

There is a world of invention and ingenuity to be unleashed. Retail brands should be eager to harness the power of their customers and reinvent how they serve them.

People Want To Be Guided
These days, it seems that information is everywhere and nowhere. Marketers are working to capture and analyze data at a feverish rate in order to develop sophisticated targeting algorithms, all in an effort to guide the customer in a more comprehensive way.

Despite the ability to hunt down the cheapest price in seconds, customers still want retailers to provide their expertise. In fact, the CMO Council states that the majority of customers will consider ending their relationship with a retailer if they don’t receive personalized suggestions. Crafting the knowledge necessary to provide custom guidance for each customer will require retailers to think of the retail experience holistically. The future of that experience will not only be driven by the data they gather but by the systemic way in which it is shared.

“Smart” refrigerators are already equipped with Wi-Fi and Internet apps. They will also soon talk to grocery stores and keep track of what food needs to be replenished. Clothing will communicate with dry cleaners, homes with the local hardware store. And people will interact with this entire network in a seamless way, without ever giving it a conscious thought.

It may sound absurd, but look at Google Glass. No matter how much of a novelty it may seem, the notion of wearable computing and the practice of sensors and algorithms computing a seamless transition between man and machine is happening right now. Retailers must mine information and glean insights to build an entirely new solution to enhance the customer journey.

When Johnson first took that ill-fated J.C. Penney post in 2011, he wrote a Harvard Business Review article in which he contended, “You have to create a store that’s more than a store to people,” and he was right, despite his stumbles as head of that company.

A store cannot be just a store, and dynamic retail innovation is vital. These three trends are less futuristic and far more real than they may first appear: They are the next wave in retail evolution.