Imposing Innovation or Exposing it
Lowe's at the Conference
We were fortunate to have a team from Lowe's (home improvement not grocery) speak at our conference. This was the second year that a team from Lowe's provided us with insights on the opportunities and challenges of doing innovation in a large, distributed retail environment. I liked the fact that the Lowe's team talked a lot about customer experience, starting their innovation activities with the customer's needs and jobs in mind, and framing everything based on experience. In the discussion and Q&A afterwards, it became clear that a lot of Lowe's focus on innovation is cultural, embedded in the culture. In fact one of our employees who worked at Lowe's while in college mentioned the discussion and how true it was for him - that Lowe's culture hadn't changed in 20 years and that it empowered people and encouraged them to make change and to innovate.
Retail at the crossroads
There's a lot to think about in the retail space, as news stories remind us that we have far more retail space than we need, and even ground-breaking shopping destinations like the leading malls are going underwater as people turn to online shopping. Destination malls are suffering, and even retail strip centers are experiencing a drop-off in foot traffic. Look at any strip center near a residential area and you'll see what was once a collection of shops, retail, clothing, food and hardware is now a collection of services businesses (dry cleaning and doc in a box) and restaurants. Gone are the corner drug store, the corner hardware store, the small clothing boutique. Whether we are talking about large malls or smaller shopping centers, retail is changing rapidly, thanks to Amazon, Wal-Mart and others.
What happens to Target?
Target, which was once one of the most interesting and unique large department stores, seems caught in a cross-fire. It was able, years ago, to compete with Wal-Mart because it had better design and more interesting store brands. It didn't necessarily compete on price but on value and style. Those days are over. Further, Target and other big box stores are feeling the squeeze as people are really busy and don't want to drive all over town, when they can order good like dish washing soap and have it delivered. If you can't compete on quality and design, and certainly can't compete on price (versus Amazon and Wal-Mart) and people don't want the hassle of driving to your stores, what's left?
Target just announced today that its senior innovation leader is leaving so that Target can focus on "core business". Mark today (April 24, 2017) on your calendar. This could be the beginning of the end for Target. It must either 1) improve its product lines and product value (innovation, but they are moving away from that) or 2) get closer to customers (who have already made it clear that they are happy online and don't want to visit stores) or 3) cut costs. How do you cut costs and compete with Amazon and Wal-Mart? Target is making a big mistake - it should be moving up market, creating new versions of stores and innovating its in-house brands, bringing value and style back. Instead we're likely to get a Wal-Mart copy cat and/or a Amazon copy cat online from Target.
Target is removing its innovation capability and focus at the moment it needs it most. In many companies, innovation is what CEOs reach for when everything else has failed. In Target's case, either the existing innovation wasn't working, or the CEO didn't see value in the outcomes, but in either case the CEO is working against industry and societal norms. You can win as a brick and mortar store, but you've got to innovate in order to do so.
Lowe's and Target
Strange that two companies that actually compete in some segments see the world so differently. Both are "big box" stores that typically stand apart, aren't in a mall but may be in a strip center. Both are destination locations. Both have significant and comparable competitors (Wal-Mart/Kohl's/etc) and Home Depot. Both are taking radically different approaches. Target lost its way years ago when it shifted its focus away from differentiated products, and the removal of the innovation officer only confirms this. Lowe's is doubling down on innovation, with a focus on customer experience. I think Lowe's is tapping into a core cultural phenomenon, while Target was finishing trying to impose innovation from the top. While I'm not a Wall Street analyst, I have to believe that the investment by Lowe's in innovation will provide value, while Target will founder.