Special Feature: Innovation Revolution

Innovators grow by revolutionizing the shopping experience

Innovation drives
the retail industry, igniting growth and responding
to the demand for continuously improved consumer satisfaction. Retail innovators have affected our shopping lives in many ways in the past — and the future will bring changes we can't yet imagine. A number of notable innovators have revolutionized the retail landscape, and some have continued to innovate and thrive. Here's a look at the past, present and future of innovation in retail.

F.W. Woolworth recognized a need and forged new retail territory in the late 1800s when it opened the five-and-dime store — introducing Americans to the high volume/low-markup concept. The first to buy merchandise directly from the manufacturers, Woolworth was able to eliminate the need for haggling and offer fixed prices to consumers. Struggling to compete with big-box discounters and supermarkets offering greater product assortments, Woolworth closed its last U.S. store in 1998.

Other innovators have found ways to continue to compete and change the world as we know it. King Kullen introduced the self-service supermarket, 7-Eleven gave us the convenience store and Meijer developed the first super center. Technology advances also helped to create the magic that retailers needed to continue to thrive and compete. The cash register, bar code and point of sale (POS) system revolutionized retail in the past, as kiosks, contactless payment, VoIP and RFID are bringing about current and future innovation.

Innovation is simply defined but imminently more complicated to achieve. Creating a "new way of doing something or new device" requires truly bold and fearless leadership. In retail, it also requires a keen sense of consumer need and demand and the ability to change with the times. During the 1950s through 1970s, for example, strip-mall shopping centers and catalog showrooms sprung up in response to the emergence of suburbs and the middle class

The mystique of retail innovation
The same way today's children can't imagine life without the microwave, it's hard for most of us to relate to shopping without a cash register that uses bar code scanning. Although ubiquitous in today's world, these innovations are relatively recent in the long timeline of retail history. The first transaction using a UPC scanner occurred in a Marsh Supermarket in 1974. Today's POS systems, which use personal computer technology, were introduced in 1986.

Retail innovators have always been hard at work creating unique shopping experiences for consumers, based on economic conditions and resulting marketplace demands. F.W. Woolworth pioneered the five-and-dime in 1879; Sears, Roebuck & Company initiated mail-order in late 1885; J.C. Penney promoted high-quality merchandise and friendly customer service in 1902; 7-Eleven introduced the convenience store concept in 1927; S.S. Kresge initiated the low-cost "dollar" store concept in 1937 (later to change its name to Kmart); and Meijer began the super center era in 1962. Today retailers are creating more entertaining and interactive experiences to lure customers. Apple, for one, allows customers to use its computers and other electronics products while shopping.

Convenience being one of the primary driving factors over the years, it's no surprise that Internet shopping began to take hold as soon as CompuServe became the first to offer online retail products to customers in 1992. Amazon.com then revolutionized the Internet industry with a business model that focuses on offering the greatest product selection at the lowest possible prices while providing top-notch customer service.

2006 and beyond
Keeping a keen eye on technology advances helps retail innovators stay on top of their game. The industry's leading innovators — members of the RIS News Editorial Advisory Board — recently ranked retail innovations. In 2006 these retail executives will have a particularly keen focus on price/revenue optimization and workforce optimization.

Retailers across all categories are taking on price optimization programs. Giant Eagle, with annual sales of $5.2 billion, recently implemented a price optimization solution. for its 220 supermarkets and 80 fuel station/convenience stores. Women's clothing retailer and manufacturer Liz Claiborne also recently initiated price optimization in its 200 outlets across the U.S.

Gaining better control of workforce operations also is on the top of the list for many retailers. Hannaford Bros., for example, is in the process of implementing department-specific workforce management programs to bring greater efficiency and profits to each part of the store. The Maine-based supermarket retailer operates 146 stores.

Wal-Mart and RFID
Because technology is a fluid environment, constantly changing and improving, retail innovators also change. One in particular, though, stands out as a key innovator throughout current retail history: Wal-Mart. Most recently Wal-Mart has been the key retail player in the move towards RFID implementation. Wal-Mart issued a mandate to its 100 largest suppliers in June 2003 to begin implementation of RFID technology. Other retailers, such as Tesco, Target and
Best Buy, have jumped on the RFID bandwagon. So far, the Wal-Mart program appears to be successful. Researchers at the University of Arkansas found a 16 percent reduction in out-of-stocks at RFID test stores versus control stores.

Supply chain success
Today's most successful companies are those that are committed to a demand-driven supply network (DDSN) and the top innovator in the DDSN arena is Dell, recently named the number-one company on the AMR Research Top 25 Supply Chains list. Dell's focus on a "minimum-inventory, build-to-order, just-in-time network" has brought rewards to the company, which has more than doubled its revenues in the past five years.

Store of the future
A review of retail innovators would not be complete without a look at Metro Group's Future Store. Initiated in 2003, the Germany-based outlet is a testing ground for new technologies, with a particular focus on RFID technologies. Other innovative technologies that were in place at the opening of the Future Store included: personal shopping computers, digital advertising, self checkout systems, kiosk systems, electronic shelf price labels and self-service checkouts. Dozens of IT vendors partnered with Metro at the inception of the Future Store and many more have signed on in the two-plus years since.

Self-service soars
Several of the initiatives implemented at Metro's Future Store are now mainstays in retail. Self-service kiosks, for example, have become a key component of customer convenience initiatives throughout retail. Retailers have recently taken the kiosk segment by storm. In 2004 Wal-Mart deployed 7,000 human resources kiosks; in 2003 Home Depot installed 800 self-service checkouts and 7-Eleven placed financial services kiosks in 1,000 stores; and in 2001 Kmart rolled out more than 3,500 online kiosks in 1,100 stores.

Last month Giant Food Stores opened a 91,200 square-foot store that emphasizes self-service. The company's initiative, called "Shopping Solutions," features a multi-application kiosk system as well as a Personal Shopper System (PSS). The kiosk system is designed to allow customers access to any store application from any kiosk in the store.

Securing payment
Contactless payment began to make inroads in 1997 when Exxon/Mobil introduced Express Pay at its pumps. Since 2002, the three major credit card companies, MasterCard, Visa and American Express, have piloted contactless payment programs throughout the country. The initial financial investment of terminals installed with RFID chips has contributed to its slow introduction.

Another relatively new form of identification, using biometric technology, is beginning to impact retail more significantly, and key retail innovators in this arena are supermarket companies. In December of 2002, Kroger introduced biometric check cashing; Piggly Wiggly added biometric payment in 2004; and Lowe's incorporated biometric payment with check cashing in 2005.

multi-channel strategies
Technology and convenience become true partners when retailers successfully implement multi-channel strategies. A few key companies, including REI and Staples have received accolades for their ability to serve customers well in and out of the "box." In July of 2005, Staples relaunched its Web site after conducting extensive customer research. The new site identifies seven customer personas and responds to them accordingly with "easy to find," "easy to order" and "easy to check out" features. In 2004, the company reported $14.4 billion in sales out of 1,462 retail stores in the U.S. and Canada. Staples employs 65,000 associates and sells more than 7,000 office products.

REI also has achieved multi-channel success through innovation. In 1998 the company opened an online outlet and in 2003 the retailer initiated free in-store pickup from Web site purchases. Its online sales more than doubled from 1999 to 2000, up to $92 million from $41 million the previous year.
Whether they are focused on multi-channel strategies, self-service initiatives or RFID deployment, retail innovators have one thing in common: they take the lead in creating new markets, enhancing customer experiences and improving their overall businesses.