In an attempt to be closer to one of the global centers of technology innovation, a growing number of retailers are investing in Silicon Valley. Couple examples from the more than a half dozen retail companies making the IT move to California and the innovation gold they are trying to mine:
- In February, Walmart opened its second technology center in Silicon Valley. "These centers are tasked with app development and digital coupon projects as well as creating seamless shopping experiences for consumers using online, mobile, social and stores."
- In May 2013, Target opened a tech lab in San Francisco. In this center, Target is focusing on mobile apps, online search and social media development, all as foundation to ecommerce expansion.
The growing trend of retailers shaping their own technology development journey is not limited to California:
- For some time, Kroger has had in place an advanced R&D lab that develops both IT hardware and software solutions. The company has 14 technology patents with multiple others pending. 2013 technology focus was on-shelf availability solutions utilizing highly precise video cameras.
- Marks & Spencer created a digital lab to fast prototype new in-store technologies, e-commerce solutions, and digital marketing platforms for employees to use within the company.
- In January, Tesco opened a new innovation lab in London. The technology center will be the "central point for innovation teams from across head office, learning from new ideas, products, and services of start-ups and SMEs."
Why Are Retailers Directly Investing in Technology Labs?
- Retail is currently in its 4th transformation megatrend. The Internet and mobile technologies are transferring the retail buying power to the consumer. As an industry, retail is a laggard in adopting new technologies. Direct technology investments are the latest attempt to accelerate the response to the appreciable markets shifts.
- Retailers investing in home grown technology want to get closer to the latest "online" innovations, faster than the competition. The modern offices they are opening are designed to "compete for top talent to replicate creativity, culture, and nimbleness of online startups."
- Technology focus is on the consumer. Sample outputs from @Walmartlabs include a smartphone self-shopping app being piloted in hundreds of stores, social apps like Shopycat on Facebook, a crowdsourcing project called Get on the Shelf (GOTS), and a Social Genome project that collects data from social networks.
Retail Labs and Traditional IT Solutions Providers
Responding to capricious consumer demands and achieving differentiation in a crowded physical store marketplace requires faster innovation. Direct investments in technology are an indicator that traditional IT solution providers are not keeping up to the differentiation required to compete for the growing shopping choices available to consumers.
Technology Startup Models Require Less Investment
Recall the "Cambrian Moment" discussed in a recent blog on timing a technology startup. New cheap and readily available building blocks for digital products and services have caused an explosion in technology startups. The Economist compared the new technology landscape to the "Cambrian Explosion" 540 million years ago when life forms began to multiply.
The consumer is an early adopter and the primary target for a substantial number of new technologies. This includes an explosion of mobile apps, wearable technologies, smart home sensors, shopping aids, and social media platforms.
It's an Omnichannel World After All
Future retail success requires shopping capabilities across physical and virtual sales channels. Amazon and EBay continuously invest in technologies to disrupt traditional retail channels. Joining the technology frenzy is Alibaba, the Chinese online retail company, which to date has invested over $750 million in four Silicon Valley companies.
Both physical and virtual sales channels have the consumer as the target. Properly directed technology investments can deliver the personalized shopping experience that will differentiate the brand. The future of retail requires positive onmichannel shopping experiences.