Problems of innovation in Ukrainian retailing

Problems of innovation in Ukrainian retailing

1-03-2019

There are countless examples of innovations that are increasingly appearing in the retail sector. Artificial Intelligence, robots, virtual and augmented reality, Internet of Things, cloud-based solutions for online shopping and business process optimization, face recognition technology, radio frequency identification (RFID), near field communication (NFC)... There are thousands of them on the Internet!

But if the innovation were as easy to implement as writing about its benefits, we all would have been shopping online any time we want instead of standing in line at the supermarket.

Проблемы внедрения инноваций в украинском ритейле

No money, no honey

Of course, modern retailers will not survive without innovations aimed at process automation and better Client Experience. Especially against the backdrop of increasingly fierce competition in developed markets and the constant outflow of audiences, which is facilitated by the rapid development of e-commerce.

Modern consumers buy not only in Ukraine, but more and more abroad. And they see the service and quality there. And every year their demands and expectations are growing. Now they are looking at:

+ individual approach and loyalty bonuses;

+ using their favorite applications and communication channels;

+ convenient payment method, comfortable delivery, and so on...

It's easier to demand than to do. Especially when almost the majority of market players are more concerned about their survival than growth, leadership positions, innovations, and so on, which can only be afforded mostly by large trading organizations and networks. After all, it is one thing when, together with the needs of the customer grows his purchasing power and quite another thing - when it drops so much that even some businesses have to reorient to products of lower price category.

According to research conducted by the Ustor team back in 2016 in the FMCG sector, distribution and construction, it was the simple tools for point of sale that were most in demand. That is, roughly speaking, the bulk of retailers bought and used the cheapest - printing. The cost of tools and equipment for the retail trade was the decisive factor - the quality and compliance with deadlines were a second thought.

Indeed, what should small players do if even a colossus like Amazon has to spend about $1,000,000 on automating one Amazon Go store alone? Implementing any innovation in any business requires a solid financial investment - first and foremost! And it must pay off, give maximum return. And for Ukrainian retailers, taking into account the economic and political situation in the country, "NO Money" is problem number 1.

Сколько тратят ритейлеры, чтобы внедрить инновации в магазины?

Where are the guarantees?

Retailer's staff costs, customer service, rentals are increasing every year, but the turnover is not very high. Even if there is a budget, the retailer has to choose between opening new outlets or promoting old ones, investing in core process automation or innovative technologies. And as a rule, innovations become the least priority item of expenditure. For example, the retail giant Walmart, having tested face recognition technology in its stores, decided to completely abandon it. Why? The return on investment from this technology was not satisfactory. Plus, customers were wary of it. And they have reason to be: doubts about the integrity of the use of such personal data, as well as the reliability of their storage and protection ...

Какие бренды отказываются от инноваций?

But for the premium Saks brand, technology has helped to reduce losses. Bakaley Budgens helped to avoid cases of alcohol sales to minors, and CaliBurger restaurant chain helped to reduce transaction time. But all these companies have different formats, different added value on transactions, turnover and other indicators. And all this affects whether this or that innovation will "shoot", whether it will pay off the invested money or not - it is hard to predict in advance. It is difficult to even say what will happen to the market itself in the next 5 years. So, the lack of real guarantees of efficiency, the payback at least in the medium term for each particular niche, business - this is another problem in the implementation of innovations in retail.

Among 700 top managers surveyed by Intel and Forbes Insights in 2018, less than 12% have already used IoT (Internet Things) technology in retail, and less than 7% are trying to implement it now. According to a Boston Retail Partners survey in the same year:

+ Only 4% of retailers found it effective to implement Digital Commerce technologies that allow online shopping.

+ Of that 25 % who offer sales through a mobile app, only 7% said it works.

+ Of 22% of retailers who offer apps and in-store search sites, 4% said the innovation was effective.

+ Out of 11% of those who use smartphone capabilities for situational real-time sales, only 4% said it works.

Из 700 топ-менеджеров меньше 12% уже применяли технологию IoT (интернет вещей) в ритейле, и менее 7% пытаются внедрить ее сейчас.

It's complicated

The third problem is the complexity of the process itself. To successfully implement an IT solution for business automation based on cloud technologies, it must meet a large number of modern requirements. It must be consistent, seamless for integration with information systems at different levels, take into account the complexity and variability of technologies, connectivity, applications; be understandable to staff and customer-friendly, scalable, consistent with the business model of the company ...

Or take, for example, the process of implementing RFID technology. What the retailer is going to face:

+ with the high purchase and implementation costs - you need a good customer flow and an equally good budget;

+ If you can't supply RFID chips to all categories of products, at least the foil packaging could be a hindrance;

+ with the need to have sufficient resource capacity to implement and return on innovation.

In general, the list of difficulties and requirements is large, the payback period and risks are even greater, and it is difficult to find qualified specialists who can solve such a problem with quality and without mistakes.

And here appears the problem №4 — the imperfection of the legal environment of Ukraine, where all these processes should take place. We simply do not have enough developed legal mechanisms of financing and regulation of innovative activity. How to protect your own innovative sales model or technology from competitors? If there is still no common system approach, no common methodology to define the very concept of "innovation in retail"? There are no tenders or exhibitions to promote innovations in retail, there is no sufficient information transparency, there is no consolidation of efforts and funds of investors... But there is a lack of qualified specialists.

Instead of a conclusion...

As we can see, the rapid implementation of innovations in the Ukrainian retail sector is hindered by many important factors. It both absence of necessary budgets, and absence of guarantees, and also the complexity of processes of introduction and imperfection of the environment in which they should occur. Anyway, the future belongs to innovations and the process of their implementation in the retail sector may be slow, but it is definitely inevitable.