Opinion

Are retail labs really the path to innovation?

Can in-house innovation labs at major retailers flourish as a worthwhile investment or will they always be held back by the bureaucracy of big business, asks Matthew Chapman.

Tesco led the way when it formalised its various innovation teams under the Tesco Labs umbrella in 2014. Since then, Argos and Boots are among the retailers to have followed suit with their own twist on the in-house innovation lab idea.

John Lewis has taken a different tack by setting up an accelerator programme called JLAB, which has, arguably, eclipsed rivals’ in-house labs when it comes to the amount of press coverage it has received since launch.

You have to bring people with you on some of these journeys, because it is very difficult to articulate exactly what a project outcome might be

"I’m not a big fan of labs run internally," says Stuart Marks, the tech entrepreneur who founded JLAB in collaboration with John Lewis. "Even though you’re told you can ‘go fast and break things’, it is still part of a corporate."

Nonetheless, innovation consultant and former Tesco Labs boss Nick Lansley argues that such in-house operations are the best option. In fact, he believes that an accelerator often results in innovation that is at odds with the retailer’s aims.

"I don’t know whether retailers should be doing accelerators," says Lansley. "We discussed the idea ourselves [at Tesco], but we concluded what you may get out of it may have nothing to do with Tesco for all the effort you put in."

On the same page

Tesco also considered running Tesco Labs as a separate business, in a similar manner to its ownership of customer-insight company dunnhumby and VOD service Blinkbox, but this was also ruled out due to fears that it could result in innovation being siloed.

"You have to bring people with you on some of these journeys, because it is very difficult to articulate exactly what a project outcome might be," says Lansley.

Boots recently established a lab in London, far from the company’s head office in Nottingham.

"The location introduces a challenger mentality, as well as helping us attract the best talent," says Boots omnichannel and development director Robin Phillips, who oversees the Boots BetaLab. He insists that BetaLab is fully integrated with the main business, despite its location.

"It is definitely not an ivory tower, and there is a lot of communication with Nottingham teams," says Phillips. 

Playtime

Criticisms of in-house labs include the idea that staff sit around playing in a corner with 3D printers, reminiscent of school science projects featuring papier mâché volcanoes – as one ex-retail-lab worker described it.

Some ‘heavy-lifting’ innovations at Tesco Labs would suggest this is an overly harsh assessment. One of its key developments was identifying a dataset in the mainframe computer, which was built into an app to allow anyone in the company to identify the exact location of any product in all stores.

Although Tesco had a turnover of £69.7bn in the last financial year, Tesco Labs was given only a six-figure sum to spend on its innovation projects throughout a year.

The small budget was nevertheless unencumbered by any need to prove a commercial return, and was treated as a head-office cost, which gave Tesco Labs the flexibility to "move quickly" on projects that lasted just one or two months.

I have seen no evidence during my travels among the top 1000 retailers that an internal lab is making any significant progress

The budgets of innovation labs at UK retailers are put into perspective when compared with Amazon, which has multiple labs taking a share of an R&D budget in the region of $10bn.

Scott Weavers-Wright, the former Kiddicare boss and co-founder of accelerator Haatch, believes in-house labs are simply "lip service". He has little faith in their output.

"I have seen no evidence during my travels among the top 1000 retailers that an internal lab is making any significant progress," he adds. "They are dying on their legs trying to compete with Amazon, and are head-down, trying to survive – internal labs will be a cost, they will fail and they will go."

He believes the best way for retailers to compete with the R&D budgets of Amazon is to strike commercial relationships with external labs.

External red tape

Lansley disagrees. He contends that an external entity "can get bogged down in bureaucracy" because it needs to make money, and therefore swathes of documents are required to prove ROI.

"There is a real danger when you need to break even or make a profit to justify their existence," he warns.

There is, perhaps, a risk that retailers can get too wrapped up in high-blown innovations that are best left to the tech specialists.

"Google has to innovate to survive," says Lansley. "You could argue the supermarkets do not have to innovate to survive because the food supply chain is a mature system."

Whatever route a retailer chooses, they should ensure any innovation does not lose sight of the customer. Otherwise, any lab – internal or external – runs the risk of ending up as nothing more than a marketing stunt.