- A new report by BCG and World Retail Congress reveals that top retailers have struggled to retain their position over the past 30 years, with many being too slow to innovate in the face of fast-evolving customer needs.
- 60% of retail innovation leaders are prioritizing investments in e-commerce—with the top three areas of investment being retail media, marketplaces, and social commerce.
- Innovation leaders take a bold approach: they invest in multiple innovation initiatives simultaneously, collaborate with partners on innovation, and steer consumer preferences versus react to trends.
PARIS, April 16, 2024 /PRNewswire/ — Over the course of the past three decades, the composition of the top global retailers has seen significant churn, with few managing to maintain a lead position. Established players have been usurped by creative newcomers that have prioritized innovation, staying ahead of the curve in terms of technological advancements and changing consumer preferences. A new study by Boston Consulting Group (BCG) and World Retail Congress (WRC), launched at World Retail Congress 2024 this week, detailed how retailers can successfully ignite their innovation engines.
Retailers leading the way in innovation are investing an average of 13% of annual revenue in innovation initiatives and seeing a 21% ROI for their efforts, according to the report, Investing in the Future: How Retailers Use Innovation to Gain an Edge. By contrast, retail laggards invest an average of only 3% of revenue in innovation and get a 9% ROI. As a result, laggards often fall into a vicious cycle where lower investment in innovation pilots is insufficient to drive a step change in performance and results in lower ROI, which in turn leads to further reductions in funding for innovation.
The report, which surveyed more than 400 senior leaders across 11 retail sectors, also revealed that innovation leaders are prioritizing investments in three areas: operational improvements (71%); e-commerce (60%); and big data, AI, and analytics (58%). What’s more, the report found that leaders aren’t afraid to be bold in their approach to innovation: they invest in multiple innovation projects at once, partner with third parties on innovation initiatives, and seek to shape consumer preferences rather than simply react to trends.
Nate Shenck, BCG’s global head of retail, said, “Even in a year of uncertainty with many focused on delivering on the basics, continual innovation remains crucial for retailers to maintain competitive advantage. You have to fight on a weekly, daily, and hourly basis to maintain it.”
Innovation Leaders’ Top Three Priorities for E-Commerce Spending
Within e-commerce, innovation leaders are investing in three primary areas: marketplaces, retail media, and social commerce.
Consumer demand for convenience has driven the rapid growth of marketplaces, which offer a wide selection of products under one roof. In fact, marketplaces now account for 67% of global e-commerce sales. Thus, to respond to customer needs and defend against digital pure-play models, 42% of innovation leaders in retail have invested in marketplaces, which offer retailers the ability to quickly scale their product offering with very low incremental investment and limited operational complexity.
Retail media has emerged as a game-changer, providing those who have embraced it with a new high-margin revenue stream. More than four in ten (44%) innovation leaders surveyed said they have invested in retail media—and opportunities for retail media networks are expected to keep growing in the next three to five years. Looking to leverage retailers’ rich customer data, three-quarters of brands and suppliers already invest at least part of their marketing budgets in retail media offerings, and two-thirds expect to expand those investments in the near term.
Social commerce is already prevalent among retailers in the East. In China, for example, social commerce accounts for one in five e-commerce purchases. Now, social commerce is also gaining momentum in the West, with platforms like Instagram and TikTok introducing commerce features to enhance engagement. Of the innovation leaders surveyed, 39% have made investing in social commerce a top three priority in recent years.
Key Success Factors to Drive Innovation Engine
The report concludes that the most successful innovators in retail, classified as “leaders,” share six key success factors:
- Technology and Data. Leaders understand how to address the technology challenges that often stand in the way of innovation. They invest in modern modular technology infrastructure and use big data and analytics to help determine which initiatives to pursue.
- Strategic Goal Alignment. Leaders’ innovation initiatives are tightly aligned with their broader corporate strategies and have senior executives who champion innovation initiatives.
- Organization and Operating Model. Leaders dedicate specific teams to innovation and enhance their operational models to deploy resources across innovation initiatives in an agile manner. They also allow employees time to pursue passion projects and bring in external partners to augment their existing innovation capabilities.
- Culture. Leaders instill a culture that promotes fast failure, incentivize grassroots innovation, and invest in multiple innovation projects rather than a few large ones.
- Governance and Budget. Leaders establish governance structures and flexible/agile budgeting processes to promote, sustain, and boost the scope for experimentation, while also establishing clear innovation-related KPIs.
- Risk Management. Leaders adopt a comprehensive approach to risk management that balances risk with potential rewards, allowing for experimentation with higher-risk innovation ventures.
Ian McGarrigle, Chairman of World Retail Congress, added, “This report clearly shows that the rules of engagement of have changed irrevocably. Unless retailers are willing to embrace their role as media owners, content providers, and trendsetters, they cannot hope to compete in a world in which traditional consumer loyalty has all but evaporated.”
Download a copy of the publication here:
https://www.bcg.com/publications/2024/innovation-edge-for-retail-leaders
Media Contacts:
BCG: Kendall Kosten; [email protected]
WRC: Simon Stretch; [email protected]
About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.
About World Retail Congress
Founded in 2007, World Retail Congress provides an unrivalled high-level forum for senior retailers to learn, share insight, form powerful connections, and shape the future of global retail. World Retail Congress is a global platform that connects the retail sector’s leaders, stakeholders, advisors, and influencers to connect, create solutions and drive progress within the industry. World Retail Congress is owned by William Reed, the global media and events business with over 150 years of experience providing marketing-leading analysis, intelligence and events to the food, drinks and hospitality industries.
SOURCE Boston Consulting Group (BCG)
