Retail is going through a period of true disruption. Technological advances and shifting consumer mindsets (to name a few influences) have left many businesses struggling to maintain their position in such a dynamic market. Businesses find themselves having to change their processes or create more effective processes, products or ideas in order to stay competitive and relevant. How are they doing this? Through innovation.

Innovation doesn’t mean solely inventing. It can also mean changing your business model and adapting to environmental changes in order to deliver stronger products or services. The reason why companies such as Nokia and Kodak lost their edge is because they never questioned their successful path to rethink their business model. They missed out on radical innovation because they were too busy servicing short-term business needs and serving current consumers, instead of identifying future opportunities within new product development.

Identifying future opportunities and innovating accordingly is a challenge many businesses face, asking us how they can incorporate innovation into their structure, whether it be sustaining or disruptive.

Best in class model for innovation

In our opinion, a best in class business innovation model is that of Walmart. By revenue, they’re the worlds largest retailer and have a diversified portfolio focused on competing against Amazon in the race to innovate. The reason we chose Walmart’s structure as our best in class example is because they’ve got three operational tiers that focus on different levels of innovation, allowing them to innovate yet maintain their core.

1. Walmart HO – Core
At their core, Walmart have their standard head office that focus on the ongoing operational excellence of the organisation. They tend to focus more on the short-term goals of the business striving for efficiency and productivity.

2. Walmart Labs – Adjacent
They also have Walmart Labs, a technology division responsible for their global e-commerce initiatives focusing on short-medium term operational efficiencies. They use Labs to address “near-term” customer experience needs. They focus on innovations around customer technology, supply chain technology, data & analytics etc. The key is that the labs are off-site so can maintain their strict focus on innovation.

3. Store No.8 – Transformational
Store No.8 was started by Walmart in 2017 and is Walmart’s experimental incubator focusing on radical innovations to the physical, digital and virtual retail experience.

Senior Vice President of Store No. 8, Lori Flees explains the reason for Store No.8’s creation:

“It came down to senior leadership team taking the view of being where retail is going over the next 20 years and which areas we need to lead in so we can disrupt rather than have others disrupt us.”

The purpose of the incubator is to shape the future of retail, addressing long term customer experience needs (typically a 5-10 year horizon). Why we love Store No.8 is because it is a separate limited liability company. They’ve structed their innovation accelerator this way so that they have the vantage point of the worlds largest retailer yet are not restricted by the operational whims of Walmart. Store No.8 invest similarly to that of VCs, with all start ups eventually being 100% owned by Walmart. They are focused on operational and strategic returns, not profitability so it’s high risk but also potentially very high reward. Their successes to date include their acquisition of Bonobos, Modcloth and the creation of Jetblack.

Jetblack is a concierge style shopping service that you text. It is powered through a mixture of automated bots and professional buyers. Members can text questions or specific shopping requests and the stock is fulfilled from Walmart stores, enabling them to feed back into their existing channels. It also includes free gift wrapping and if you’re not 100% satisfied with the product they will come and collect the goods from you for a free return. With this innovation Walmart is not addressing the current market need but paving the way for the future of retail.

Store No.8 is ensuring they lead the market in terms of innovation through attracting talent to the incubator. For example, they scouted Jenny Fliess the founder of Rent The Runway who eventually created Jetblack under Store No.8.

Walmart have established a structure that works for their business, addressing short to long term business needs. Their innovation structure covers core, adjacent and transformational business innovations enabling them to have a diversified portfolio. As exemplified through Walmart’s innovation model, strong innovation structures don’t focus on short term ROI, but on creating the future.