I’ve found the recent trend of online retailers opening up offline retail stores very intriguing, given that in the past few years, there has been a lot buzz around ecommerce and about how online stores were going to reduce and eventually obliterate the need for brick & mortar stores.

In a bid to not be left behind, big box retailers such as Macys, Walmart and Target had made a significant investment in increasing their ecommerce presence and capabilities. However, just recently, it was announced that Amazon, the world’s biggest ecommerce retailer had opened up an Amazon brick & mortar store. Some other players that started online have also expanded into offline stores such as Warby Parker, BirchBox, BaubleBar in recent years.

This to me shows that there is no one simple answer to the question of online vs. offline stores. The question should thus be: should a business be an online only store or be an offline only store or be in both retail channels. And if the plan is to be an omni-channel retailer, should the business start online and then expand to offline or start offline and then expand to online? And are there specific product categories that each of these strategies works better for?

To answer this question, I analyzed the pros and cons of having an ecommerce only company. The major benefit of starting a business online first vs. offline is the low upfront cost associated with building an online store. Websites like shopify and squarespace make it easy and cheap to start selling items online. This gives one an opportunity to prove the concept and to prove the demand for the product before investing significantly in it. Online stores also provide a broader reach and more national or global exposure than offline stores given that anyone can access the website from anywhere in the world and potentially make purchases from it. Being able to carry a diverse and unlimited inventory of products is also a benefit of an online store as there are no physical space limitations. On the negative side, online stores tend to have high logistics costs and a high return %.

There are also a lot of benefits to shopping offline, which is why approximately ninety-two percent of all purchases in the U.S still happen offline. The benefits include being an avenue for people to touch, feel, and try the product before purchasing, having a personalized in-store experience such as great customer service which can lead to brand loyalty, legitimizing the business for those who don’t know or are not yet trusting of the company, building the brand look and feel through the physical design and experience in the store. A physical store in a great location also serves as a form of marketing, because it will attract new customers to the store. These benefits all translate to an increase in repeat customers, a lower rate of returns, and potentially more sales as its easier for someone to buy multiple items when they see them in person than online. The cons of this approach are the pro of online stores such the high startup and overhead costs, the limited reach of customers, limited physical space etc.

In addition to the aforementioned benefits of both models, other benefits to the hybrid model of retail includes providing an avenue for one to buy online and to return to the store, where they can in turn find something else that suits them, thus ensuring the sale is completed. From a logistical standpoint as well, being able to fulfill orders from the store closest to the consumer as well leads to reduce shipping costs and shortened delivery times, both of which are of value to the consumer.

Some product categories such as beauty products, home and office make more sense to start online because for beauty products, online allows one prove out the concept and demand for the products first, and home and office will result in high rental costs initially so starting online is a way of getting maximum value at a lower overhead cost. However, most other categories such as fashion, electronics, mobile, games, tablets, computer, collectibles can be profitable if started online, offline or if a hybrid model is employed. I think it comes down to the personal preferences of the entrepreneur, the amount of funding secured, how quickly they are looking to build a brand presence and to grow, how sure they are of the demand for their products, how important the in-person experience is for the brand and what it represents and finally what kind of store do they the capabilities to build and manage as the needs for the two types of stores are very different.

By: Oare Avbuluimen

 


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Is image recognition technology poised to revolutionize omnichannel fashion retailing?

In the age of omnichannel retailing, the rapid adoption of new technologies has made it possible for retailers to deliver a consistent message and experience to every consumer, no matter how they choose to interact with a brand.  Consumers are no longer satisfied simply visiting a brick-and-mortar location and completing a purchase.  They want to follow companies on Twitter, check reviews of products online before going to the store (reportedly 80% of store shoppers checked prices online in 2013), comparison shop on their smartphones as they browse, and complete transactions with their iPad.  In this omnichannel environment, many retailers have appropriately responded by creating entire teams to manage social media accounts, build e-commerce sites, and optimize supply chains to serve consumers online and in-store.

Over the last few years, more and more retailers have been embracing a new technology to further deliver on these consumer expectations – image recognition and visual search.  Recognizing that consumers often want to look up product information while in-store or on the street, marketers began by leveraging barcode scanners and QR code readers to direct consumers to PDPs, sometimes even allowing them to purchase online.  For various reasons that would require a separate article to fully explain (QR app adoption rates, inconvenience of finding and scanning codes, lack of consumer education, etc.), these interventions rarely aligned with consumers’ desires and often fell short of forecasted conversion rates.  Instead, retailers have recently begun utilizing image recognition technology to skip the QR code and allow consumers to leverage a technology nearly everyone already has and is comfortable using – the cameras on their smartphones – to take pictures of products they are interested in and to immediately be directed to product detail pages.

Amazon was one of the first major retailers to leverage this technology for product discovery at scale.  First with its Flow app and now with the Firefly feature native to the Fire smartphone, Amazon has been at the forefront, pushing consumers to use this new technology to recognize products and purchase them within the company’s owned marketplace.  However, Amazon’s Firefly feature to date has been primarily focused on text recognition for its visual searches (it also has Shazam-like features to identify music and videos), and this limits the type of products the app can identify to products with clear labeling and packaging, such as video game covers and soup cans.  Given my years of experience in the footwear and apparel industry, I only became actively interested in the power of visual search and image recognition after seeing the technology applied to fashion.  Leveraging technology developed at universities such as the Imperial College London, early entrants into the space created applications like Snap Fashion, Style-Eyes, and Slice, which allowed users to snap a photo of a sweater or dress they liked and then receive recommendations from affiliated brands within the app’s network for similar products based on color, shape, and pattern.

Rather than search across an entire marketplace of disparate brands (as is the case with Amazon and early app’s like Snap Fashion), there has been a recent trend for individual brands or retailers (Adidas, Target, and Macy’s to name a few) to launch applications leveraging this technology to lead consumers to products within their own databases and enable mobile purchases.  Given these retailers’ desire to satisfy their consumers’ omnichannel needs, this investment makes perfect sense.  Leveraging third-party technology from visual search companies like Cortexica (among others), retailers can add image recognition features to their already existing mobile applications.  This has numerous direct benefits for the omnichannel consumer.  Image search features enable product discovery at the moment of inspiration, wherever a consumer has the chance to snap a photo.  This technology can be linked with the backend of e-commerce sites to enable immediate conversion and impulse purchases.  It can also provide valuable product information for consumers while they are in a retailer’s brick-and-mortar location, further blurring the lines between the physical and digital consumer experience.  Individual retailers gain an advantage by creating their own, proprietary database of searchable images, ensuring consumers are given recommendations for only their brand’s products, perhaps even pushing specific content depending on inventory and margin information.

We are still in the early stage of retailer adoption for this technology, and big questions remain around whether or not consumers will adjust their search and discovery habits to incorporate these types of features and whether an aggregator or a large set of customized app’s will dominate this space.  However, it is clear this technology has the potential to have a huge impact within the fashion world, and I am excited to see how this environment evolves.

Sources

http://marketingland.com/why-brands-should-go-omni-channel-in-2014-70970

http://www.mobilecommercedaily.com/macys-significant-omnichannel-push-includes-showroom-busting-image-search-app

http://techcrunch.com/2014/06/18/amazons-fire-phone-introduces-firefly-a-feature-that-lets-you-identify-and-buy-things-you-see-the-real-world/

http://www.mobilecommercedaily.com/target-fires-back-at-amazon-with-its-own-image-recognition-app

http://hypebeast.com/2011/8/adidas-originals-launches-iphone-app

http://www.snapfashion.co.uk/

http://www.cortexica.com/technology/


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The concept of ready to wear is fundamental to today’s fashion industry. Clothes can be produced half a world away, months in advance of the selling season and then available for a consumer to try on and complete a purchase in as little time as one has in a lunch break. Consumers have long benefited from lower prices and convenience from this system as compared to the time constraints and cost of having clothes made to order or of making clothes themselves.

Looking at the online landscape for fashion today, however, there is emerging demand for the use of technology to get closer to where fashion was a century ago, but better: custom clothes and accessories at (or close to) ready to wear prices. Examples of this trend are popping up in multiple categories: Indochino and Alton Lane for men’s clothing, Shoes of Prey and Milk & Honey for women’s shoes, Bow & Drape for women’s clothing, and others. Additionally, companies like Bonobos (men’s apparel) and ThirdLove (bras and intimate wear) are gaining traction by trying to solve for other fit problems that are remnants of standard sizing practices. These companies are using online channels to gain a following and distribution that would be considerably more expensive, if not impossible, in the offline world. Obviously, going online avoids the extensive costs of real estate and labor, but additionally, the online world represents an opportunity to communicate a unique value proposition to targeted consumers. The ability to reach a dispersed audience online increases the probability that these messages will reach a consumer who is willing to change his or her behavior and gives these companies the chance to develop a sustained customer base.

But does it make sense to use the virtual world to solve for one of the more complex conditions of the physical world: not only varying body shapes and types, but also varying personal preferences for a product category with a wide range of textures, colors and weights? Emerging players are using all types of technology to facilitate the flow of information between the separated parties. To get information about consumers, companies are utilizing everything from simple surveys, to web cams and iPhone apps to sophisticated body scanners. An ecommerce company is more cost effectively able to ship a consumer a free physical measuring kit and have the consumer input his or her information electronically than reach that consumer in person at scale. To provide better information to consumers, companies are employing better photography and rendering techniques as well as video and virtual try-on technology, among other advances.

Rather than seeing these technologies completely replace brick-and-mortar retail, however, some of the most successful of these ecommerce companies are using their scale to do things they never set out to do: build stores. Will the technology ever be enough to have mass market appeal or has the internet simply made bringing these value propositions to scale easier?


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The internet has disrupted the fashion value chain.  New companies can now source high quality materials from factories that many of the luxury brands use and sell them directly to consumers via the internet.  Online companies do not have the high start-up and overhead costs associated with retail companies.  Many online companies are passing this savings onto the consumer, offering high quality products at affordable prices.

While consumers are becoming more informed and learning the value of “cutting out the middle man,” I believe in the fashion industry consumers still want to pay for brands.  While these online companies have a clear value proposition I believe customers will generally not make a purchase unless there is a brand behind the product.  I think this can be seen when contrasting the success of Warby Parker versus similar online eyewear companies that have emerged in the last few years.  While the product offering appears identical (~$95 prescription eyewear), Warby Parker is by far the most successful which I believe is attributable to their brand.

The question is, when many fashion brands are built through expensive marketing campaigns and the in-store customer experience, how do online companies create a brand?  What sort of strategy should they use to build a brand without compromising their value proposition to customers? Online brands could rely on the pure quality of their product but they may run into the chicken/egg problem: customers can’t tell the quality unless they buy the product, but customers don’t want to buy a product from a brand they’ve never heard of.

There is no formulaic answer but I have observed a few tactics which two successful online brands, Warby Parker and BaubleBar, have used to build their brands.

  1. Collaborations – Both Warby Parker and BaubleBar have engaged in numerous designer collaborations which lend credibility to their brand. While consumers may have been reluctant to make their first BaubleBar purchase, a collaboration with a well know jewelry designer such as Erickson Beamon allowed several consumers to overcome the initial hesitation.  Typically these deals are done on a royalty basis which is much cheaper than hiring a well-known designer.
  2. Pop-up stores – Pop-up stores are a great way to build brand recognition, test a market and interact with customers without the high expenses of an actual store.  For example, Warby Parker outfitted a school bus and drove it cross country as a pop-up store.
  3. Press  – By providing an real value proposition to consumers Warby Parker and BaubleBar have been able to generate a lot of press.  Press features are a great way to raise awareness and lend credibility to a brand with consumers.  If approached the right way it comes off as more authentic and is less expensive than marketing.
  4. Free Shipping & free return is an important investment in order to reduce the barrier to trying a brand.

While creating a brand online is no easy feat it is essential to ensure your company will remain relevant with consumers for years to come.

 


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If I told you there is $1,500 hidden somewhere in your apartment, where would you look for that? In a safety box somewhere in your bedroom? Under your mattress? You probably wouldn’t look in your…closet! And that would be a major mistake! We all have disastrous clothing habits. We buy way too many clothes and wear only a fraction of what we own. We get bored easily with items and don’t give them the attention they deserve. What about this Armani jacket that you wore only once? Don’t you think there is a better place for it that in a dusty bag in your cellar?

Hopefully, this waste is shortly coming to an end. The rise of online clothing re-commerce businesses is about to change forever the way we dress. The stars are now aligned for these businesses to shine, supported by favourable tailwinds. The Y-Generation has realized that we don’t need to own everything. Younger crowds are seeing the benefits of spending more efficiently. You don’t need to own a $500 Herver Leger dress. You can rent it on Rent the Runway for $150 for that one week-end where you need it. You don’t need to own all the songs you listen to. You can just get Spotify for $10 a month and listen to more songs than you would have ever bought for the price of one album.

Collaborative consumption in the clothing space is on the rise. Three types of business models have emerged. On the one hand, companies like Poshmark, Threadflip and 99dresses have rolled out marketplaces. They connect buyers and sellers and charge a transaction fee. They have understood the pain points of Ebay and aim to recreate an “Ebay for fashion”. By focusing solely on this vertical, these startups can propose a unique experience to their customers and create a community. On the other hand, companies like Thredup have adopted a merchant business model. They acquire items from sellers and resell them online. By paying sellers upfront, they can attract those customers who value time and certainty over profit. The third model is a hybrid one. Companies like Vestiaire Collective or The Real Real offer concierge services. While these are still marketplaces, they curate collections very thoroughly. They also take care of photographing items and shipping.

Each model has its pros and cons. Marketplaces have attractive economics but need scale and they can get confusing. Merchant models are greedy in capital and raise logistical complexities, but sellers love them because they save time. Hybrid models do not solve for the uncertainty and target mostly high end luxury. It is not yet clear what model or what companies will win this space. But what is clear though is that whoever you are, there is somewhere an online company that can help you monetize your closet easily and efficiently. So what are you waiting for?

 


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