Department Store Innovation Labs: A Deep Dive

Innovation labs have become a mainstay in the retail scene.  Seven of the ten US department stores by revenue set up a lab from 2012-2013. Why? Retailers need to change the way they do business and meet the needs of shoppers. Retailers who are boxed in by conventional retail wisdom and dated processes will quickly find themselves becoming the retailers of yesteryear.

In our research of the top ten US department stores, a key finding was that the most responsive department stores consistently exhibit exceptional digital competence and have leaders with a technological background. Such organizations are in the best position to discover, test and implement new things quickly that will add business value.

Effective labs are a force for cultural change. Externally, they work to deliver new and better experiences to customers. Internally, they drive cultural and behavioral change. They can serve as a powerful way to prioritize the innovation initiatives that too often get canned due to competing short term priorities. Macy’s image search, Neiman Marcus' MemoMi mirror and Sears’ connected store are all direct outputs of innovation lab teams. Yet since their inception, some department store labs flailed around aimlessly, and have since disbanded, while others have a string of successful initiatives to their name and are a key part of the corporate strategy.
Placing a hand-picked selection of brilliant individuals won’t guarantee success. Indeed, setting up an innovation lab that drives business value and external and internal impact is no feat. They are, by nature hard to sustain and grow. Some of the most common challenges when setting them up are:

• Focused on ‘novelty’ or ‘gimmicky’ initiatives that don’t bring real business results
• The innovation lab team has a sub-culture that doesn’t mix with the organization’s main culture
• Failure to scale. There is often no integration plan or viable future pathway for the lab to grow.
• Talent and culture struggles. The expertise needed to power an innovation lab is difficult and expensive to retain.
• To maximize the success of innovation labs and overcome key barriers, we suggest a balanced strategy that encompasses technology, design, branding and culture.

Explore the slides below for our deep dive into innovation labs in a department store context. We analyzed the structure and processes of seven of the top US department stores to gain insight into what constitutes a successful innovation lab that drives cultural change and business value.