Why are retailers turning to startups for innovation?

There has been a surge of interest by retailers in using startups, rather than established IT suppliers, to build their technology solutions.

Retailers are embracing digital to stand out from the crowd and attract more customers, but recently there has been a surge of interest in using startups, rather than established IT suppliers, to build their technology solutions.

As part of an omni-channel offering, retailers are looking at innovative technologies to bring into their stores, as well as for their online and mobile channels.

Retailers are interested in mobile offerings, how they can capture customer data to learn about shopping behaviour, and using solutions that engage shoppers throughout the customer journey.

Kash Ghedia, technologies manager at Dixons Retail, said: “More than 80% of customers use a combination of the internet and shops to make their purchase decision. So it’s vital we keep up with new innovations that improve the customer shopping experience, providing a truly connected experience from mobile to store.”

But many retailers are turning to startups over traditional IT players to build these technology solutions. John Lewis is one retailer that has, for some time, been open to working with smaller companies.

Sarah Venning, head of IT relationships at John Lewis, told Computer Weekly last year that she likes to work with startups because they are fresh-thinking and can work much more quickly than large suppliers.

“There is often a real can-do attitude,” she said. “They are prepared to tear down walls.”

Recently, the retailer has taken the can-do startup mentality even further by opening its own startup incubator, JLab.

John Lewis IT director Paul Coby said he needed a structured way of picking out the good from the bad when it comes to cold-call pitches from technology providers.

JLab currently has five startups that are experimenting with the internet of things (IoT), iBeacon indoor positioning technology, smart labelling and 3D room .

Coby hopes the startups will be able to help the retailer understand home automation technology, which is currently making waves in security, music and energy-efficiency.

The five startups each received initial funding of £12,500 plus access to John Lewis proprietary technology, including platforms, data and APIs. After a 12-week incubation period, the JLab mentors will select a winning company, which will receive up to £100,000 in further investment and the chance to trial its system in-store.

John Lewis is looking specifically for new technologies from startups that fit in with the retailer's customer values.

But Coby said that although startups know about technology, they don’t know about retail. “We are not expecting something fully formed and perfect,” he said. “That’s why we want to bring the bits together.”

Abundance of retail incubators

And John Lewis is not the only retail incubator – recently, retail has been a key theme among the scores of incubators and accelerators that have emerged from London’s Tech City.

Asos has teamed up with Microsoft’s Ventures startup programme, and even the FMCG brand Unilever has developed a platform, The Unilever Foundry, to find innovative startups.

Meanwhile, a six-month programme to support innovation in the retail and consumer sectors is under way in a dedicated space at London Victoria, where investment hub TrueStart has partnered with Accenture to encourage the of products and solutions for the retail industry.

And last month, a selection of the UK’s most innovative retail technology startups were given a platform to pitch their ideas to investors and retailers at a Retail 20:20 event organised by accelerator Eccomplished and digital investment hub Haatch.

One retailer attending that event was Tesco. Paul Wilkinson, head of technology research at Tesco Labs, said: “We are always looking for new and emerging technologies and how they can make life easier for customers and colleagues.”

Tesco serves 85 million customers around the world every week and Wilkinson said the retailer has always had a culture of innovation. “And that’s more so now, when the change in the industry is accelerating rapidly,” he said.

Tesco wants to learn lessons from how startups work to make its internal culture more entrepreneurial, said Wilkinson.

“We are trying new ways of working through our regular Hackathon and TJam events,” he added. “Of course, not all of them will work, but that’s the challenge with innovation – you’ve got to be confident enough to take a risk, and give it time.”  

Competition from online

Fred Soneya, who co-founded Haatch with Kiddicare.com founder Scott Weavers-Wright, thinks it is competition from companies such as Amazon and Walmart in the US with their huge R&D budgets that has made retailers sit up and take notice.

“Retailers have to turn to startups that innovate quickly to keep pace,” he said. “Customers' use of technology at home and on the go means they now expect a seamless shopping experience.”

Soneya said the line between online and in-store is blurring and retailers need agile technologies to create a single view of the customer to improve the sales process and customer experience. “Without it, they’re behind,” he said.

Stephen Millard, CEO at retail accelerator Eccomplished, said startups are challenging the status quo because they are agile, responsive and lean, compared to large existing suppliers.

“Retailers know they need to innovate – across online, mobile and in-store – to keep up with the pace of change driven by their customers,” he said. “While many have relationships with larger, established technology providers, they know too that while providing excellent foundations and platforms, their larger partners cannot match the pace of innovation they need if they are to maintain or gain a competitive advantage.”

Startups more flexible

Dixons' Ghedia said that he finds startups agile, cost-effective and more flexible than larger IT suppliers. The retailer has used startups for the trial of its “reserve and collect” mobile in-store application, as well as the electronic visual merchandising it has implemented in some of its newly refreshed stores.

“We work with all companies in a similar way, but startups tend to have fewer people, so the owners are also the day-to-day project team, leading to a faster briefing process and quicker cut-though in the decision-making,” he said.

Ghedia said he is even finding that larger tech companies are trying to replicate the startup mentality by becoming more agile themselves. “But our experience is that they tend to have longer roadmaps, which can sometimes be less flexible,” he added.

Compared with large IT companies, startups are more willing to be flexible with their technologies. Millard suggested that one of the key benefits for retailers wanting to partner companies while they are still at an early stage, would be so they can shape the technology for their own needs. And having a selection of bespoke technologies could give retailers an edge in their quest to engage shoppers.

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