“If you’re not innovating, you’re standing still and that is the most dangerous place to be in retail.  Perpetual disruption requires perpetual innovation. The most successful today are those that reject the status quo. They foster a culture of innovation and fail fast.  Everything they do begins and ends with the customer.  They understand that they have to keep moving, constantly evolving their proposition, and experimenting with new innovation, driven through technologies, in order to stay relevant in this digital era.”

Natalie Berg, Retail Analyst and Founder of NBK Retail

Innovators build for the future

One of the great ironies of the retail industry is that while the market in which it operates in undergoes constant and rapid change, many retailers are slow to adapt. Evidence of this is widespread, especially in recent business failures.  From Wilko’s recent collapse to the demise of Debenhams, Topshop/Arcadia Group, Made.com and Joules, to name a few.

The market is now in a more or less permanent state of flux and retailers unable to adapt in terms of their culture, staff roles and contracts and investment in technology will go out of business.  And it is our prediction that the market will see some more major failures in the next couple of years.

“Those [retail] businesses that are around now have a runway for the next 3-5years, but if they stand still and fail to innovate, they won’t have a runway past 3-5years.”

Paul Martin, RTT co-chair and UK Head of Retail at KPMG 

Smart retailers don’t just think about today and tomorrow, but about three or even five years hence.  This is true innovation that, while it does not lose sight of fixing immediate problems, thinks deeply about what the retail business needs to look like in the years ahead.  Regardless of resistance from those that are fixated on short-term gains, often a flaw in the public company business model, these retailers will take the tough decisions, even in the face of resistance, to build for the future.

An innovation state of mind

Innovation is a state of mind that should be instilled within the culture of an organisation from the very top but with more involvement from the bottom.  Retailers need a culture that encourages everyone in the business to challenge the status quo and engage, not just the management, but not many businesses operate like this.  Some retailers encourage participation from employees at every level, and invite feedback straight into the CEO.  But, as retail consultant Maureen Hinton points out, that being said “culture alone is not enough without the funds to invest and test.”

“Innovation is a state of mind that should be infused in organisational culture from the very top.  However, there are plenty of retailers that talk about the need for innovation but then fail to see it through to actual implementation. The reasons are manifold – politics, siloed thinking and management, and a lack of investment in people and tech.

Gary Whittemore, RTT co-chair and Head of Sales, EMEA & APAC at RetailNext 

Skills and tech drive innovation

To avoid potential innovation pitfalls, specifically, retailers need to innovate in the skills and technology that will enable them to understand their customers better in terms of how they shop across multiple channels – and even more so when in tough times, multichannel retailers tend to fare better than pureplay or single channel retail formats.

Innovation now has a new champion in the guise of massive computing power, which can provide the data and insight needed to plan, execute and measure activity.  Data is becoming even more essential to success given the unpredictability of consumer behaviour and its rate of change in the face of health, geopolitical and cost-of-living crisis. Despite a retail recovery after the Covid restrictions were eased and a return of footfall to stores, retail sales are currently under pressure from the effects of inflation. The Office for National Statistics released figures on October 20, 2023 to show that UK retail sales volumes had fallen 0.9% month-on-month in Great Britain in September. This came after a 0.4% rise in August and is worse than the 0.2% decline predicted by analysts.

One of retailers’ greatest concerns now is to gain a better understanding of who is actually in the store, how they behave and what they might want.  Innovation will be key to equipping them with the right technologies but there are barriers to enabling this to happen.  Retailers want to monitor, gather and analyse data relating to footfall, but also traffic movements, dwell times, behaviour and shrink patterns.

This implies that the hype surrounding Generative AI (Gen AI) is justified for retailers able to benefit from it because of how they are prepared to change their structure, attitudes and culture to embrace it.  Many have commented that AI (artificial intelligence) will be the most disruptive trend in 2023 and it is already embedded in many retailer technologies from personalisation and product recommendation online and in-store, predictive stock ordering pre-season and in-season replenishment.  It is also leveraged in image recognition for behavioural analytics, stock replenishment and loss prevention, to productivity improvements and task management for sales staff using mobile devices.

While AI can simulate, forecast and predict pricing, promotions, shopping journeys, fulfilment and returns and so on, Gen AI automates the generation of insight from this analysis, surfacing it as actionable intelligence. Crucially, this speed of deployment means that retailers can ‘test and learn’ and then ‘test and adjust’ very swiftly and in ways that are responsive to customers.

For instance, retailers looking to increase gross margins can use AI to dynamically adjust product prices based on billions of interconnected, live data points. Gen AI will then enable them to monitor performance, adjust continuously and automatically, and look for new opportunities.  When combined with HII (Human Imagination & Intuition) this approach will improve full price sales and return rates.

Data and the tools to deploy it therefore go beyond optimising staff scheduling and allocation for footfall, to store design, layouts, merchandising, and individual functions around selling, returns, gaming, social media and so on.

Success can only be measured through the customer

While customer experience is often trumped by price in grocery, in fashion, beauty and specialty, experience is more important than ever.

Experience has always been a watchword in retail.  But one that may have been forgotten by those retailers that have spent the last few years dealing with the impact of the pandemic and latterly the cost-of-living crisis, a crisis that remains with us, as 100,000 households a month have to refix their mortgages to the new higher rates while renters also face rapid rises in rental fees.

Experience is hard to define because consumers now divide into so many different cohorts and because they operate across so many different channels, making it hard for retailers to reach, track, sell to and retain them.

Those retailers that offer the best experiences can boast the most unified culture, the deepest data sets, the best operational and analytical tools, the most collaborative partners, and the most fearless approach to the innovation that they need to transform all of these capabilities.

Each retailer has a secret to what enables them to do this.  Conversely, those that cannot generally have a significant flaw that prevents them from keeping pace, never mind looking ahead. There is therefore no single formula.  However, there are several known and definable elements that retailers need to include as part of their own modus operandi..

How do retailers successfully innovate?

While all companies accept the need to innovate, their approaches to adopting it differ dramatically.  The CEO of a retailer that has consistently outperformed over the last 10 or more years, Next’s Lord Wolfson, has explained how the company encourages change, not restricting it to any one department.  “Change is everyone’s job… Change and transformation are part of all of our work; we all take on new projects; there is no ‘business as usual’ because our business constantly changes.”

“Necessity is said to be the mother of invention,” according to retail consultant, Nick Bubb, but “often some of the greatest innovations over the years have come from challenging conventional wisdom.”  Certainly, Next and others do challenge conventional wisdom, but to get it right they always do it through the lens of the customer – what does the customer want?  For example, some successful retailers have enabled their customers to join a community where everyone participates and whose contribution is valued and visible.  Others refresh their offer continuously and often, certainly at a much higher rate than is usual, helping them to stand out and generate traffic in-store and online.

“Ultimately successful innovation is about pivoting to address a latent consumer ‘need’ – and doing so ahead of current or future competition. For more established retail businesses, successful innovation is about focus.  Focus on the key areas that made the business a success in the first place, but with an eye on the future to ensure new trends and consumer behaviours are fully embraced and accounted for in the product or service offering.”

Jonathan De Mello, Founder & CEO, JDM Retail

Technology is not a panacea

It is thought that omnichannel retailers should be spending between 4-8% of their revenue on technology per annum.  However, currently most only spend between 1.5-3%, leaving an estimated best-case of a 5% investment gap based on annual turnover. 

However, innovation does not stand alone and is part of a broader strategy; “innovation using new technology is one of the big enablers but is not the end game in itself,” as Mike Watkins, Head of Retailer and Business Insight UK, NIQ, points out.

“Innovation is too often conflated with the introduction and adoption of new technology.  Just because a technology may be new, it does not necessarily mean it enables innovation.  By definition, only the application, use case or solution that the technology solves can be described as innovative.  Retailers have been particularly bad in ignoring this fact.  Simply throwing technology at a problem does not necessarily mean the solution will be innovative.”

Miya Knights, Retail Technology Magazine Publisher and consultant

Instead, as Knights points out technology should be used to introduce ‘net new’ capabilities, services or products.  “Take Gen AI for instance.  The adoption of such technology will certainly help retailers do more with less, more effectively, efficiently and productively. But, automatically generating and superimposing clothing sample images onto models, for example, is not in and of itself innovative.  The ability to reduce time to market is.  More specifically, the innovation comes from the ability Gen AI offers to streamline product onboarding costs and timeframes, so fashion retailers can sell more clothes, more quickly.  The development of tangibly innovative use cases should start with the problem and reverse engineer a solution that looks at people, process and technology solutions in that order. This is perhaps why we have seen so much customer-facing innovation, using digital and mobile to enhance the customer experience, both in-store and online.  At the end of the day, it’s what you do with technology that will ultimately determine if it’s used in an innovative way.  Retailers would do well to remember this when investing in tech.”

“The utopian dream of algorithms and intelligent fridges placing orders and robot delivery is, frankly, a fantasy.  Humans are analogue, so companies trying to over-digitise the human life journey must take care in predicting how much of our lives we want to spend engaging with technology. Investment and management time should focus on two key areas of innovation – first, tackling ever-intensifying pressure on costs and margins and second, technology which enhances the emotional engagement with brands.”

James Sawley, Head of Retail & Leisure, HSBC UK

Moving from business as usual to innovation and usual

The challenges to becoming innovative are significant.  How can retailers adjust to a world that will not return to what it was for two or more years and longer term the chance that there will less disposable income?  How can stores play a better game in an omnichannel world?  How can they meet the needs of consumers whose needs always run far ahead of the retailer’s ability to deliver?

There is, as once predicted, no new normal.  The consumer markets remain in flux; once predictable behaviours are now in play and fragmenting in ways to defy traditional demographics.

It is clear therefore that retailers will have to not simply adapt to what is in front of them but re-invent themselves for the long term as the way consumers live, work, shop and consume continue to change.

While inflation is falling and set to fall further, it will remain high for at least another year and may not return to the Bank of England 2% target even then.

Right now, the challenge facing retailers is an unwelcome trinity of higher costs, lower demand and squeezed margin, made worse for some by years of underinvestment where they may now never catch up.

Most consumers are now choosing to buy essential goods and are looking for the best value for money.  Secondly and looking further ahead, the population is getting older, the size of households is reducing and the attitudes, expectations and preferences of Gen Z are very, very different.  These factors will all impact the distribution system, store formats and range and basket size.

At this level and in the face of these weighty challenges, only a handful of retailers can really claim to have innovated in ways that will support their three-to-five-year visions.

Or, as is common, they may be innovating in a vacuum.  Individual channels to market will have their own investment schedule based largely on optimisation for their own ends whilst not fully recognising how the whole customer journey across them all needs to be considered.  AI holds great promise in helping to solve this problem but if the various channels are not collaborating or no one has oversight of them all, then planning will be difficult.

The cost of innovating

For many retailers, the desire to innovate runs way ahead of their funds.  Executing well in all the above functions is impossible because it is completely unaffordable, particularly if they are now competing with emerging retail models such as second-hand retail or investing heavily in ESG.

The cost to borrow has risen and therefore both lenders and their borrowers will be looking for more guaranteed returns, an area where technology has failed woefully. Taking a chance and failing fast is a relevant tactic for some but is generally less welcome in retail. Investments in technology must focus on the brand, proposition and value.

However, while it is understandable that innovation took a back seat as retailers struggled just to deliver business as usual during the pandemic and then the cost-of-living crisis, the call to action now goes out again to retailers to recognise the competitive advantage of differentiating on product and service.

While there is a cost to making this investment, this is about the profits of the future.  While it takes a brave retailer to explain all this to its shareholders or the city looking for gains right now, the current relatively benign environment on some of the high-cost areas such as freight is an opportunity to make this leap.

In fact, the panel has been calling for a doubling of tech investment from the current 1-3% of turnover to ensure long-term value creation and business transformation.

Key areas for investment

Accepting that each retailer has its own operational model, each will also prioritise innovative investments in different ways.  Here is what the panel is seeing.

  • Supply chain

More responsive operations and supply chain to improve availability both online and in-store.  It is predicted that new warehouses three times the size of current mega sites are being planned, particularly in grocery where it has been shown that getting availability to 80% or over will lead to higher market share for the retailer that can achieve it.

  •  People

People and property are a retailer’s two most important assets. But it is impossible to optimise their efficiency and productivity without sufficient operational visibility. They must balance their deployment with automation to maximise availability and empower service.

Rethink colleague roles because they lack the flexibility needed to run a store with multiple roles – service, pick for online orders, running back of store warehouses as mini fulfilment centres, or even switching from the store to the DC.  Current contracts and training regimes may simply be too restrictive.

Store associates are a retailer’s most valuable asset.  Equipping them with the right digital tools means that they can quickly address any customer pain points and cut friction from the in-store experience (i.e. help a shopper to find an item on the shelf, reorder an item that is out of stock, or check a customer out on the spot with a mobile POS device).  And, with greater transparency around a customer’s shopping habits across both physical and digital channels, it also enables staff to offer a more deeply customised experience.  This is only going to improve as retailers look to AI to power those more personalised recommendations.  The tech has been available for some years now but adoption has tended to be piecemeal.

  • Customer

The ultimate user of so much technology as retailers drive forward for greater efficiency to improve productivity and cut costs can be the customer, so often an analogue creature in a digital world. And while they are quick to embrace tech that makes their life simpler and more convenient, they will baulk at having to manage more and more elements in their journey to purchase.

So, while the focus on product returns of late has been on the growing number of retailers that are starting to charge a fee, there has been less focus on making the process easier for the customer.  And yet, there is no shortage of tech that can do this.

The customer also expects the right product, in the right place at the right time and while this should be a given in retail, there still a lot of work to be done by many retailers.

  • The store

Despite the billions spent on trying to drive consumers online, it is widely accepted that online will never take more than a third of retail spend, probably less in some retail sectors. 

The store therefore deserves more attention, but not in ways that simply automate to direct the customer to a self-checkout when they really want to interact with a member of staff, or adding lots of digital signage as a replacement for real people.  And yet other consumers want more digital in-store if it enhances speed and convenience, through to information and inspiration.

Before the pandemic, the media was crowded with content about the future of the store, backed up with a host of innovation around design, layout, smart changing rooms, livestreaming, showrooming, staffless checkouts and just walk out capabilities. This is a call to get back to thinking big about what might come and how an innovative frame of mind might shape it.

  • Online

Rising costs of trading online have clearly worked in favour of multi-channel retailers, as they can spread their risk, rather than pureplayers, even allowing for the economies of scale, security and control afforded by first party data.

Innovation for both types of retailer is focused on bridging the many gaps between the store and online, rather than simply optimising functions that are restricted to a single channel.  For example, Augmented Reality (AR), especially in beauty, luxury, footwear and home, virtual shopping consultations connecting online shoppers with in-store staff, and Liveshopping are turning the discoverable into the transactional.  People used to find products; today products find people.

  •  Partnerships

Innovative thinking inevitably leads retailers to recognise that they cannot do everything themselves, an insight that has led to a revival, for example, in outsourcing.  According to MarketWatch: “the global outsourcing market is expected to rise at a considerable rate between 2022 and 2026, spurred on by the uncertainties caused by the pandemic.”

Whilst the largest retailers have the experience, resources and money to make their own way on innovation, smaller ones do not, but even here there has been innovation, with large retailers offering to manage those smaller retailers’ logistics and store systems.

Some retailers are prepared to think the once unthinkable.  Well-known High Street brands running in-store cafes, shop in shop dual branding.  These are not all new ideas but we are seeing them being embraced more widely now.


Ultimately, the topic of Innovation should be considered as part of any transformation/change agenda. In depth research by KPMG has demonstrated that 8 key building blocks need to be considered when embarking on a transformation journey and even if the focus is on a specific business function broader cross-organisational interdependencies should be considered. These 8 building blocks are described in KPMG’s Connected Enterprise framework.

This report is based on extensive research among retailers, analysts, journalists, tech industry leaders and economists, all roles that are represented on the Retail Think Tank (RTT) panel.  The clear conclusion the RTT came to is that innovation is both a state of mind that should imbue the whole company culture, but also a practical set of actions that need to be taken and now, with more urgency than at any time in the past.

As the industry starts to look ahead after the distractions of the Covid pandemic and its fallout, we can see that the landscape is uneven and the view unclear.  And so, the strategies that retailers must now build must only be prescriptive to the extent that this will help to get things done.  At the same time, these strategies must be flexible enough to accommodate unforeseen events and trends that we are certain to see over the next 3-5 years.