The coronavirus pandemic as an accelerator for innovation in retail

How brick-and-mortar retail can reinvent itself has been a hot topic for a long time, with discussions focussing on how to revive inner cities and set them up as spaces for experiences, in contrast to the booming online retail sector. Then along came corona. The pandemic put a whole industry into a state of emergency in one fell swoop. 

But need makes people resourceful. The lockdown created major challenges for owner-operated, small and medium-sized retail companies in particular, forcing them to rethink their traditional offering. There are manifold examples of how these retailers tried out new options for sales and customer interaction. The aim was to obtain an overview of these approaches and to find out how innovation can emerge and be implemented even with limited means. With this in mind, the Fraunhofer Institute for Integrated Circuits IIS carried out a study into regional retail trade which investigates these retail experiments over a period of seven months and analyses which of the innovations might be here to stay.

Service innovations in brick-and-mortar retail 

The spectrum is wide. A total of 21 different service innovations could be identified in the study in the areas of advice, product presentation and delivery. Traditional in-store advice was remodelled into advice by telephone, video chat, email and messenger services such as WhatsApp. This allowed owner-operated retailers in particular to maintain one of their value propositions – comprehensive advice – partly from a distance. However, this proposition needs to be made visible to customers too. The internet became a shop window for retailers, while social media proved to be a powerful instrument for important product showcases. Products were presented via Facebook, Instagram, WhatsApp & co, either as photos, or in very imaginative ways with self-produced videos, webinars or online readings, depending on the product group. One retailer went even further with a virtual tour of her store. Similar to Google Street View, customers are now able to get an overview of the range through a 360 degree tour. Ultimately, customers also need to be able to receive the products and, to deal with this, retailers were very quick to set up delivery services and coordinate delivery networks with neighbouring businesses. They were also quick off the mark in setting up new collection points, for example, at local bakeries or greengrocers.

What can retail learn for its own innovation processes?

The pandemic led plenty of retailers towards something that has already long been an ingredient in the success of many online giants: active experimentation. One example of classic experimentation in online retail is so-called A/B testing. In an A/B test, two different situations are depicted. Generally, A is the normal situation and B is the modification that aims to improve something. The situations are played out with different users and important metrics are measured and compared. While this experimentation might sound complicated at first, there is a simple process behind it: identify the idea, implement it, measure the effect and decide whether to continue with it.

Finding ideas as a team

Identification is often the most difficult phase. What is the modification that can improve something? Or, applied to the lockdown, how can I reach my customers even though my shop is closed? In the majority of the cases observed, the retailer's own employees were the drivers of creativity and idea generation, since these were the ones who know the customers and their needs. At the same time, retail employees can also evaluate the core of the business and the organisational capabilities. For example, an online shop requires different skills, and has different customers, compared with providing advice on the shop floor. The retailer's own staff can help to gauge which ideas offer added value and are worth the investment. One positive side effect of this is that many retailers report this experience as having a team-building effect that has allowed them to come out of the crisis even stronger.

Courage to simply implement

The first prototype doesn't need much. In the study, it was possible to see ideas being implemented surprisingly quickly, even with limited resources. Given the constraints in place, retailers tried out alternatives, one example being delivery by bicycle for customers in the district. Here, one retailer quickly hired an e-bike and was able to get started with deliveries. Another retailer started creating YouTube videos to increase attention for his business and the team, with a little help from friends and acquaintances to record and edit the videos. What is important here is not to be shy or to believe that every online appearance and every video has to be perfect. Indeed, it's quite the opposite. Home-made content shows authenticity, something that customers treasure in owner-operated retail. Being active, showing your presence and "simply trying things out" were recurring comments amongst the retailers surveyed.

Measuring through metrics and gut feeling

What worked? What was disappointing? The results paint a mixed picture. Retailers who were already using online and social media channels continued, quite naturally, to use classic metrics such as reach and traffic during the pandemic. For many experiments, especially during direct exchange and consultations with customers, it was often gut feeling and also direct customer feedback that was decisive in telling whether an experiment should be evaluated as successful, and either continued, improved or put to rest. There is one thing, however, that it is important to understand: innovation is not a linear process. Even the less successful experiments can be really valuable because they lead to new insights, ideas and opportunities.

What is here to stay after the crisis?

The experiments and service innovations observed in the study are based on the strengths of owner-operated brick-and-mortar retail, i.e. authentic personality, expert advice and proximity to the customer. Time will tell which of the innovations will also be maintained after the coronavirus pandemic. Active experimentation is, however, something that owner-operated retail should adopt into its business processes because often it is not the really big ideas that result in progress, it is rather the implementation of many small improvements that makes the difference. 

About the author:

Maximilian Perez Mengual is an expert for innovation at the Fraunhofer Institute for Integrated Circuits IIS. His work as a project manager and researcher focuses on spaces for innovation and interactive value creation, with a special emphasis on brick and mortar retail.

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