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Innovation critical to effectively competing in today’s retail market

Innovation critical to effectively competing in today’s retail market

The Retail Insights Report outlines the role of innovation in helping retailers prepare for ongoing market disruption

The retail industry today sits in stark contrast to the nature of the industry 10 years ago – advances in technology and a rapid maturing of the online retail sector has shaped vastly different consumer behaviours and seen the competitive landscape transform.

In the face of such dramatic change, the inherent resilience of retail businesses is abundantly clear but how do retailers position themselves for success over the next 10 years which promises even greater disruptive change?

We believe innovation is a critical factor for retailers to ensure sustainability and value creation. More specifically, innovation can assist to lay a strong foundation now to ensure continued adaption to changing market conditions.

In the latest Retail Insights Report – Innovation in Retail, we sought to understand the state of innovation within the retail sector today, quantify the value of innovation, and importantly, identify the pathways business can take to successfully innovate.

We found healthy levels of innovation activity in the Australian retail sector, with almost one in two retailers meeting the leading international standard for innovation - above the average for all industries. 

As well, we assessed 15 key drivers of innovation within retail businesses across management capability and entrepreneurial behaviour to produce the CommBank Innovation Index, and the retail sector scored a moderately higher index than most other industries.

While the retail sector continues to deliver some strong innovations, we have found that the return on investment in innovation through revenue and productivity gains was lower than for most other industries.

This is where the dynamics of the fiercely competitive operating environment inform a different, yet equally critical form of value – maintaining market share.

As Angus Harris, Co-CEO of fresh food and grocery retailer, Harris Farm aptly put it: “You have to work hard to stand still in our game, and if you do nothing then you won’t move forward. Retailers need to always be looking at ways to significantly improve their product and capturing market share where they can.“ 

The intense competitive landscape in the Australian retail industry continues to be a key driver of innovation in the sector, and with the ongoing entry of large international retail heavy-weights, this will become increasingly critical.

With Amazon’s planned arrival, we asked businesses about their views on the potential market impact and how they are preparing. We found that while 70 per cent of retails were aware of Amazon’s entry, of these, only 14 per cent had a plan in place, with most retailers still working on one. 

Retailers were also divided on the extent of the competitive threat Amazon poses to the local sector, with 11 per cent seeing this as significant and an equal number viewing Amazon’s entry as an opportunity.

While competing with Amazon will be challenging around areas where they have a demonstrated competitive advantage – such as delivery times and pricing on core products – retailers can look within their own businesses and seek to adapt to remain relevant to customers.

Our research identified common characteristics of successful innovators in the retail sector, including experimenting with new ideas, adapting products and services, looking at ways to benefit from change, and encouraging staff to take risks even if they fail.

Despite Amazon’s looming entry, the good news is that there is still time to take simple steps toward nurturing innovation within your business. I encourage you to read our latest research for further information on how to start innovating and build on this to maximise the value it can offer retailers in today’s evolving market.

Things you should know: This report is published solely for information purposes. As this report has been prepared without considering your objectives, financial situation or needs, you should before acting on the information in this report, consider its appropriateness to your circumstances and if necessary seek the appropriate professional advice. The information in this report is based on a survey of 2,195 business owners, decision makers and managers conducted on behalf of the Commonwealth Bank by DBM Consultants between August and September 2016; and an online survey of Australian retailers carried out by ACA Research on behalf of the Commonwealth Bank in January and February 2017. All analysis and views of future market conditions are solely those of the Commonwealth Bank. Any opinions, views of contributors, conclusions or recommendations are reasonably held or made, based on the information available at the time of this report’s compilation, but no representation or warranty, either expressed or implied, is made or provided as to the accuracy, reliability or completeness of any statement made in this report. Commonwealth Bank of Australia ABN 48 123 123 124.