Retail’s venture adventure

In its most recent funding round, Uber was valued at $62bn. One of the many amazing things about the company is that its investors, who have so far put in $21.7bn, believe that its fundamental model is hurtling toward obsolescence. We are of course not talking about the app, which has gathered reams of invaluable consumer data, but cars themselves, or, more specifically, cars driven by people. It seems to be a fact of the modern world that businesses must plan for their future irrelevance not in decades but in years. The question then, for all consumer-facing companies, is what exactly will the future look like, and how do we ensure that we have a place in it?

We’ve already heard a few possible answers – retail, for instance, is supposed to be authentic, customer focused and seamless, built around smart technology, augmented intelligence and virtual reality and populated by brands that speak to the consumer online and off. But what does any of this actually mean? And, more importantly, what exactly is it going to look like?

To answer these questions, the giants of the retail and consumer industries have launched a range of initiatives designed to create, access and drive innovation in their markets. It makes sense – in an era of change and transformation, where the choice for many businesses seems to be being disrupted or disrupting yourself, why wouldn’t you choose the latter? As Jackie Wharton, director of business development at JLP Ventures has said, “all businesses are trying to think about how retail is changing and to embrace technology. It’s not only small startups that have the good ideas, big businesses want to disrupt the industry they’re in too.”

Indeed, it can at times feel like everyone and their mother has a venture fund or an innovation lab or a startup incubator on the go these days, from JLabs and JLP Ventures at John Lewis to Tesco Labs or Distill Ventures (founded and funded by Diageo). Even the ‘disrupters’ are looking over their shoulders, with Farfetch launching its own startup incubator Dream Assembly to encourage the growth of the next generation of retail companies.

In my conversations with R&D specialists and business development directors working in the field, the term that came up again and again was ‘cultural lag’. The idea is, essentially, that technology is now evolving so fast that society is playing catch up. The next technology to change the world already exists – it just hasn’t changed the world yet. The space created by this lag means that those that move first and decisively can play a role not just in adapting to a rapidly changing consumer environment but in actively shaping it. Like having a representative of the customer of the future on the board, innovation schemes aren’t just a way to connect to the next generation of consumers – they’re a way to define them.

Belsazar Vermouth

These innovation efforts can broadly be divided into three main groups. First, there are the consumer-backed venture and private equity funds such as Distill Ventures and Unilever Ventures. Diageo in fact recently made its first acquisition of a Distill-backed business, buying Belsazar Vermouth in March.

Second, we have we have consumer goods and retail-backed startup accelerators and incubators. To name just a few, John Lewis has JLabs, Walmart has Store No. 8, Kraft Heinz has Springboard and PepsiCo has Nutrition Greenhouse. Just last month JLabs announced that it was growing, expanding to three schemes per year from one with John Lewis futurologist John Vary stating “JLab’s relentless accessibility to talent and ideas should be beyond 12 weeks.”

Third, there are innovation labs and almost every major grocery retailer in the UK, from The Co-op to Sainsbury’s, now has one. Though still in a relatively nascent stage, some labs have begun to drive genuine change. At M&S for instance, its lab created Tuesday – an app that uses an internal M&S stylist to regularly advise users on clothing based on their body shape and the season. The service ultimately drove a significant rise in incremental spend.

According to the head of M&S Venture Labs Hemal Kuntawala, it has led to a ‘reappraisal of the M&S brand among younger shoppers who wouldn’t usually shop with us.’

These initiatives raise several linked questions, not least of which is how these operations should fit into the wider business. Nordstrom, in fact, closed its lab and reintegrated the team back into the wider company stating “rather than just a team focused on innovation, it’s now everyone’s job.”

M&S Tuesday

At root, it’s a question of culture. Innovation efforts are in some senses DNA transplants – they’re attempts to echo the dynamism of the startup scene within larger, more process-oriented companies. The challenge is in creating a working environment that encourages creativity while also ensuring that it’s knit into the larger business enough to drive through change when needed.

One approach is that of Distill Ventures, which operates independently from Diageo. It gives Diageo the chance to invest in exciting challenger brands while also providing those same brands the space they need to preserve the cultural DNA and innovative style that made them special in the first place. This works for a venture fund, but clearly, for an innovation lab, the relationship will be slightly different. Tesco Labs threads the needle by emphasising building a culture of innovation across the company as a whole, encouraging every business unit to become a catalyst for change.  

When done right good ideas are given the space to grow quickly. John Lewis drove through its app redesign in three weeks rather than three months, leading to a five-star rating on the App store and a rise in average order value. Consumers weaned on the pacy, iterative development style of technology giants such as Facebook and Google have come to expect the best and expect it quickly. Fast turnaround times from the whiteboard to the shop floor aren’t a plus, they’re a requirement.

We focus on getting people what they want in the easiest possible way . . . We are a 153-year-old company, and we have to keep up with super-fast, young online players. In order to keep things fast, we have to make things fast. Sienne Veit, director of online product at John Lewis in conversation with Drapers

Retailers are being tested from all sides, from challenger brands willing to go direct to the consumer to subscription startups cutting out the hassle of shopping to the ecommerce giants offering just as much choice from the comfort of your own home. Retailers have become very good at achieving what they set out to do – selling products customers want at prices they’re willing to pay in places they’re willing to go to. The problem is that this has become the baseline of consumer expectation, the bare minimum.

Innovation labs and their siblings offer an opportunity for some of the most storied companies in the consumer industries to transform from being reactive to proactive. They’re a chance to get some mojo back, and retail sorely needs it. The future is now, it’s just a case of making it happen. | @MoiraBenigson | @TheMBSGroup