Legacy retailers lack the structural conditions for innovation

Aug 16, 2018

After another stalwart of the British high street, House of Fraser, went into administration last week, we contend that physical retailers must be brave enough to innovate.

GDR Creative Intelligence CEO Kate Ancketill believes legacy structures and pressure to meet short-term targets have stopped failing retailers like House of Fraser from innovating and making necessary changes.

Speaking to Krishnan Guru-Murthy on Channel 4 News on the day that House of Fraser went into administration, Kate stated that retailers knew what was coming, but that they lacked the permission and the flexibility to act.

“They do know what’s happening and they do know what needs to be done, they are very sophisticated characters. Retail today is rocket science, believe me,” she says. “However, they have legacy businesses, which are built in silos. Digital is often separate from marketing, which is separate from physical retail etc, and that all needs to go. You don’t have that in Amazon, for example.

“They have quarterly results that they’re having to meet and they can’t put money aside for pure innovation. They are often not allowed by their shareholders to make any mistakes, or to throw anything at the wall and see if it works. And so they don’t really have the structural conditions for innovation in the same way that tech companies like Google, Amazon, Alibaba and Tencent do. They are tech companies that have moved into retail and for them the world is their oyster. They can just do anything they want. They are allowed to fail and they are allowed to not make money while they try out these new models.”

 

Unique selling point

Kate does retain a positive outlook for the future of physical stores, but thinks that it’s crucial for retailers to have a very clear and unique proposition that aligns with genuine customer needs.

“I am overall optimistic even though retail is at an inflection point, both here and across the West,” she says. “I do think that anything that is undifferentiated, that represents the retail of the 20th century, rather than the 21st century – particularly in terms of its omnichannel offer – if it’s not data-optimised, if it’s not using artificial intelligence, it is in trouble. If it’s not absolutely brilliant as retail, like Apple, it is in trouble.”

 

Harrods of the high street

House of Fraser’s new owner Mike Ashley has promised to make the department store the “Harrods of the high street”.

Kate warns that the retailer must first figure out who they are serving, and then build their proposition around that.

“Even Harrods doesn’t do Harrods very well all of the time. Harrods hasn’t always made a lot of profit. Doing a Harrods is actually incredibly difficult, it is incredibly expensive. Harrods and Selfridges and many of the other high end department stores do well because they appeal to the rich and to the international tourism trade. People who have a lot of money have retained their money and are growing their wealth.

“People in the middle have shrunk and they have less money to spend. The people at the bottom are a growing group. As a retailer you do well at the top and well at the bottom, but House of Fraser is stuck in the middle.”

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