Why Retailers Are Investing in Tech Companies

Multi-location retailers are not necessarily the first kind of business that comes to mind when most people think of innovation. But these companies are making daring bets to defy those expectations.

Companies like Ulta Beauty and Home Depot are investing $20 million and $150 million, respectively, in tech companies to claim the cutting edge of retail innovation. Retail expert Rick Berger, President at NewStore, checked in with Street Fight to explain the trend.

Why are retailers like Ulta and Home Depot launching investment funds?

Innovation inside one’s own company is hard and becomes increasingly so as a company matures. Companies like Ulta and Home Depot consider investment funds to keep them closer to the bleeding edge of retail.

The cognitive freedom to explore new products and services within early-stage startups is virtually impossible to replicate inside these larger companies. Think innovator’s dilemma. Deciding to dedicate a team inside Ulta or Home Depot to speed up the checkout process is a much easier decision than exploring the viability of the metaverse for selling lipsticks or hammers.

Creating an investment fund frees these larger companies from having to choose between today’s problem and tomorrow’s opportunity.

What are the key technologies and trends retailers are funding?

One of the main priorities for corporate-backed funds is to invest in companies that one day may have the potential to move the needle for the overall brand. For both Home Depot and Ulta, this means looking at startups focusing on artificial intelligence, virtual reality, the metaverse, and other emerging technologies that tie back to their core business.

We’ve already seen this with Home Depot investing in Afero, an end-to-end IoT platform, and Ulta backing Haut.AI, an AI tool that helps brands analyze customers’ skin. 

What’s the significance of this trend for retailers and shoppers?

In a word, value. From a retailer’s perspective, access to early-stage ideas opens the path to capturing new elements of the value chain that would otherwise remain untapped. For consumers, value creation can happen along multiple dimensions, from driving prices down to finding new products from brands they already love to improvements in customer experience.

It’s also important to think about the significance of this trend for the startup community. Corporate VCs have upped their investment game at a time when traditional VC firms have slowed spending. Given the current macroeconomic environment, startups need to look elsewhere for cash infusions, and these funds provide welcome alternative sources of capital.