The Case for Setting Up an Incubator, Foot Locker & LVMH Have Done it, Should You?

Foot Locker

By Tricia McKinnon

Retailers looking to gain an edge and stay ahead of the trends are establishing incubators.  They realize that innovating in house can be a difficult task with the focus of their business often driven by short term earnings cycles.  Instead incubators can allow a retailer focus on the future while still delivering on short term expectations.  Many of the companies establishing these incubators, not surprisingly, are retailers that have been around for a while. They realize that it is difficult to move fast and innovate while in the confines of a large organization.  

From Foot Locker to LVMH to Walmart these retailers are betting on incubators to generate the next set of killer brands. Take LVMH’s successful Kendo incubator which worked with Rihanna to launch Fenty Beauty.  Incubators like that prove that the concept can work instead of simply producing a lot of big ideas that do not have staying power.  In addition to LVMH see what Foot Locker and Walmart’s incubators are working on and maybe they will inspire you to set up one too.

1. Last year Foot Locker started building an incubator called Greenhouse.  According to Foot Locker’s CMO Jed Berger, the initiative is: “a development platform to build and cultivate new relationships [with designers], new initiatives, new brands and new ideas, all while looking at what they could be in the future as opposed to what they are today.” The incubator will be a place to help aspiring designers build new brands with financial backing provided by Foot Locker. The program is multifaceted and it includes Tokyo Showroom an initiative focused on introducing Japanese brands into the United States.  There is a mentorship program that matches talented new designers with an established mentor. Some of the talent within the incubator is also playing the role of design consultant to other brands which will create a new stream of revenue for Foot Locker. 

Another reason for establishing the incubator is so that Foot Locker can become less dependent on big brands for its success. When Nike had a difficult second quarter in 2017, Foot Locker’s performance was negatively impacted since approximately 70% of Foot Locker’s sales come from selling Nike merchandise. 

Foot Locker is planning to launch an app later this year called Greenhouse to sell sneakers, clothing and even art created in the incubator.  Merchandise will be sold through the app instead of within the more than 3,000 Foot Locker stores.  The app should help to test the viability of the brands created in the incubator.  

2. Back in 2017 Walmart launched Store No. 8 an incubator founded on the premise of testing bold new ideas. Located in Silicon Valley Walmart’s incubator focuses on new technologies such as artificial intelligence, augmented reality and robotics all in an attempt to keep Walmart from having to play catch up which is something it has done within its e Commerce business until recently.  Store No. 8 is a collection of businesses all owned by Walmart, but each one is run independently with its own CEO.  CEOs of businesses within the incubator spend approximately 12 months researching ideas as well as planning and then ideas are pitched to Walmart to secure resources. Speaking about the initiative, Marc Lore, Walmart E-Commerce USA President and CEO said: “it’s ring-fenced from the organization so they can just run fast.”

One of the start-ups launched from Store No. 8 is Walmart’s Jetblack personal shopping service that customers access via text message.  The service’s tagline is: “Need It. Text It. Get It. Jetblack is the easiest way for busy parents to shop”.  The service costs $50 per month and all a customer needs to do is send a text with a shopping request.  The service can fulfill almost any shopping request as long as it doesn’t involve food, alcohol or prescription drugs.  Although the service is not profitable yet and currently only available in New York the “big vision” for the service is to create a personal shopping service that is available to everyone (instead of just the small segment of customers the service is available to today). According to a Wall Street Journal report, a Walmart executive said: “it's the first thing the company's tried that can separate the customer from Prime.” "The early indication is that [Jetblack] has legs."

3. What you may not know is that Fenty Beauty was created in collaboration with LVMH’s Kendo Beauty division.  Kendo is an “innovative beauty brand incubator” and the name is a play on the words “can do”.  It was created in 2008 as an incubator for LVMH as a way to create brands that could be sold in LVMH owned Sephora. Kendo has a significant amount of autonomy and the people working there often have start-up experience creating a risk profile among employees that is different than most companies. This strategy has been successful for LVMH as evidenced by other popular brands owned by Kendo such as Kat Von D, Marc Jacobs Beauty and Bite Beauty. Landing such a coveted partnership allowed Rihanna to pair her product development and marketing savvy with deep talent in the beauty industry. Additionally, partnering with LVMH gave Fenty Beauty marquee distribution through Sephora.  

 

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