Does Retail Need a Diet? Applying Lean Principles to the Retail Industry

by Xing Wang

In Rent the Runway, we saw an example of how a startup created a new concept within retail and successfully applied lean methodologies to learn and become a successful business. As someone who is not going into a startup post graduation, I’ve been thinking a lot about how to apply some of the concepts we have learned throughout our class to more traditional corporations. More specifically, while I think lean methodology has diffused somewhat into big technology companies (i.e Google), they have not yet been applied as often as they should in the more traditional retailing industry. I think a lot of the concepts of a lean startup are relevant, particularly as retailers face the ever-increasing threat of competition from online channels.

A startup is many times required to operate on lean principles because they lack the resources available to larger companies. Although retailers often have the ability to throw massive amounts of money or manpower to launch a new product or enter new markets, it’s often not the most efficient way to go about it. By adopting the mindset of lean – emphasis on hypotheses testing with minimally viable products, learning, and pivoting as needed, retailers can become speedier and better achieve product-market fit.

Some examples of how retailers could adapt lean principles include:

  • Product Testing. Traditionally, fashion companies test new product lines through product concept tests (aka focus groups) AFTER the product is completed. At that point, changing the product is both timely and costly. Determining product-market fit at an earlier stage through the use of MVPs would be a more efficient manner to approach this problem

  • Going too big too fast. When retailers look to take a major initiative, i.e. entering a new international market or extending a product line into baby or men’s products, they will often do a lot of up front research on the feasibility of success, size of the market potential, etc. Once they make a decision, they allocate a budget to it and enter the market with a major move. Switching to a mindset of developing key hypotheses to validate, and finding the most minimal way possible to test those hypotheses might be a better approach. For example, instead of opening up a large store in Japan after analyzing the potential of the opportunity, think instead of how to use smoke tests online or perhaps staging a pop-up store instead to test if the hypotheses on what is needed to make the venture succeed are correct. 

The main problem with applying lean principles to retailers are the processes that govern retailers. Retailers often have entrenched process for how to “get things done’ within the company that have been “the way” for years. For example, the expectation in retailers is often to have annual goals laid out for a division with a budget and targets assigned to that particular department. Adopting a lean mindset within that framework means bringing in a level of uncertainty towards the future that is not supported by the current structure. In another example, the IT systems in retailers are often very complex and rigid. With lean principles in place, the IT systems need to be able to quickly create small tests and capture results – i.e., ability to create a quick smoke test on an e-commerce page’s homepage or ability to quickly change a page to do A/B tests. The IT organization needs to be able to adapt to this change in their role and adapt whatever process of interaction there is between the product group and itself.

To switch to the lean mindset requires a change in cultural norms within the organization, starting with support from the top. Another thing to think about might be separating out an internal group that focuses on applying lean methodologies and allowing them to run on their own independent from the rules governing the rest of the retailer.