U.S. Retail - Innovation Abounds but Fundamentals Remain Essential

Fitch Ratings-New York-26 April 2023: The U.S. retail industry is rife with innovation opportunities born from advances in technology and supply chain infrastructure that can affect nearly every element of the shopping experience, according to Fitch Ratings. Retailers with good scale and cash flow are best poised to take advantage of these opportunities.

Fitch has long believed retailers must consider their unique brand promise when pursuing innovation, and market participants appear to increasingly accept this view. Successful retailers are those that focus on the fundamentals of understanding their target market, their intended relationship with customers and the key points that differentiate their business from the competition.

As demonstrated at the recent Shoptalk conference, Fitch believes a renewed industry focus on these basic retail tenets, with emerging ideas and technologies deployed to serve customers in brand-appropriate ways, could improve the impact of investments in innovation. In particular, retailers with the ability to execute effective strategies to capitalize on innovation should benefit.

Most innovation opportunities support retailers’ existing business models through capabilities around enhancing product sales or operating margins. However, several newer business lines have emerged. Retail media networks allow retailers to use their websites and even stores to generate advertising revenue from third parties, particularly through brands sold at the retailer.

Marketplaces allow retailers to add brands and products to their digital selling platforms without inventory ownership, expanding assortments and permitting trials with limited working capital risk. Logistics offerings allow retailers to leverage their supply chain assets by offering other businesses services such as last-mile delivery.