Why Innovations in Retail Fail

The most popular lists among the professionals in the field seem to be those of once prominent retail chains that are now going into a nosedive.

More than 3,500 stores are expected to close this year; 90,000 of the employees in general merchandise stores have lost their jobs since the last October—these are the signs of the retail apocalypse. The reason for such meltdown amidst an economic recovery is very complex and very simple at the same time. What we see, in a nutshell, are the outcomes of the old model’s demise and the lack of innovations in retail.

So, how can retailers avoid the gloom fate? The answer seems obvious, not to say trivial: to survive, they must change their ways, adapt to the situation. In other words, “innovate or die.”

Innovate… and die

Unfortunately, even the businesses that were innovative as hell and even had been awarded for the creative implementation of new methods in their strategies aren’t immune to this new retail disease.

Among those now filing for Chapter 11 bankruptcy protection are companies renowned for their innovations in the previous years, such as Payless ShoeSource that was once listed by Fast Company among the most innovative businesses right after Microsoft.

The prominent example of a failed innovation is J.C. Penney — an American department store chain with more than 1000 locations and a century-old history. The company has been in decline since 2011, losing money and burning cash, which resulted in the closure of about 150 stores this year.

JCP’s troubles started when they’ve hired a new CEO — Ron Johnson, “the retail’s new radical the retail’s new radical”. The company’s board of directors was so excited about their new CEO they let him turn the company’s retail policy upside down. “In the U.S., the department store has a chance to regain its status as the leader in style, the leader in excitement. It will be a period of true innovation for this company,” — said Johnson on joining the firm.

17 months later, the company’s stock dropped to single digits and Johnson was fired.

A cautionary tale of Ron Johnson, or Quod licet Apple, non licet Penney

"The wizard from Apple”, the genius behind Apple Store’s success who invented innovations such as famous Genius Bar failed at one thing: having relied on his previous experience, he didn't succeed in understanding his new customers. He failed to grasp the psychology of the middle-aged women who were JCP’s primary client base.

Johnson tried to make JCP cool and modern with the help of wide aisles, fancy displays, all lit-up glass walls, boutiques, wi-fi, and juice bars — everything J.C. Penney’s long-term customers couldn’t care less about. On the other hand, he threw away everything they loved about JCP — coupons and weekly sales.

The customers’ reaction wasn’t long in coming — they just stopped buying from JCP. Having dashed the coupons and discounts, Johnson took away the thrill of bargain hunting from them. The coupons back then were the form of what we now call a “gamification”, something that makes shopping an exciting game of searching for the “best deals” and “special offers”, leaving the customers completely satisfied at a small price for businesses.

Johnson’s innovative policies repelled old customers and failed to gain the new ones. Why has it turned out like this? The reason is simple: extrapolating what has once worked with Apple to his new company, Johnson didn’t consider the context.

The good innovation is the appropriate one

You don't put 'wow' before 'how'. Which means, don't be fascinated by the glitter of your new brilliant invention. Think it through in terms of relevance. Eric Ries in his "Lean Startup" quotes Mark Cook from Kodak on this matter. Cook says that before implementing any innovation, he pushes his team to answer four questions: "1. Do consumers recognise that they have the problem you are trying to solve? 2. If there was a solution, would they buy it? 3. Would they buy it from us? 4. Can we build a solution for that problem?"

In the connected world we live in, you must innovate carefully considering your environment. You don't innovate in vain. You got to have — or build — an ecosystem. You have to innovate iteratively. Today's business world is adopting the methodology of scientific experiment. Which means you don't just innovate blindly heads over heels, but do it gradually, measuring your metrics and tweaking your innovations, heading to your carefully calculated success step by step, iteration by iteration.

Simply put, try not to get disrupted when implementing a disruptive innovation.

So, was it possible for JCP to innovate and succeed? Totally. JCP could've changed their approach to the coupons their customers loved so much, not eliminate them totally. That means they could have innovated in their existing and cherished ecosystem.

How? We, at ELEKS, have found a way to turn the traditional loyalty programs into a truly innovative omnichannel marketing vehicle. Instead of obsolete printed coupons that JCP was using back in 2011 and some retailers still use today, we can help you work out fraud-proof, engaging and totally game-changing solutions that will fit both your audience and your business.

Share with us what you are using in your shops and we can discuss how you can benefit from digital.