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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We’ve learned why online businesses are attractive: they have low capital requirements, often have lucrative payoffs, and have the capacity to grow incredibly fast. It’s no wonder that most start-ups pursued by HBS students are online businesses. While unsurprisingly, Online Economy covered a wide range of business models that live entirely online, the business models I found most interesting were those that benefit services and interactions that occur offline too.

Having spent a summer working for Sephora’s Direct business, I was struck by the success that comes from retailers building a comprehensive omnichannel strategy rather than viewing each channel as an independent business to be maximized. Alex, Kathleen, Nadia, Daniel and Denisse already have addressed the struggles bricks-and-mortar retailers face from online competition. I believe that for many retailers, a robust online strategy married with an in-store digital presence is more effective than even the most successful one-channel retailers.

Consumers today generally do not pick a channel first when they think to purchase something new. They instead educate themselves about the relevant product characteristics, consider the options, and seek to purchase the simplest way possible. For product categories that are often purchased as replenishments, an easy-to-use online platform is superior. The popularity of Amazon Prime is likely a testament to the way consumers want to take care of such items. [2] Other categories that have hugely subjective aspects, such as apparel, footwear and cosmetics are easiest evaluated in person. The prevalence of posts on the online Ratings and Reviews platform for Online Economy proposing better reviews for apparel e-commerce players demonstrates the difficulties in choosing products with huge variations in customer satisfaction virtually.

However, products are often not so easily categorized as I’ve proposed above. Some women buy the same mascara every 6 months, and some men subscribe to businesses like Manpacks because they replenish their socks periodically. Because the same consumer can prefer to shop for the same product category in person one day and online another, I believe that businesses that do not silo themselves into a retail store strategy and an online strategy drive better sales and higher loyalty.

Retailers that find ways to engage customers in-store after an online experience and vice versa will help consumers mentally bridge those experiences, strengthening their brand perception. They become the expert in that category, rather than in that category in that channel. Sephora does this by sending emails a week or so after an in-store purchase, asking the customer to provide product reviews online, which has resulted in a robust ratings and reviews platform at Sephora.com and also drives further sales online. In-store, Sephora enables easy purchase history references, of both in-store and online purchases, with their iOS apps, accessible on a personal iPhone or on an in-store iPad.

Some of these features may seem somewhat obvious now that most of us think so little about what channels we use to purchase goods, but retailers with a bricks-and-mortar presence are far from best-in-class at bridging their two channels. Of 71 US retailers with physical locations, only 4 were deemed to have “baseline” scores by integrated technology and market services firm Sapient Nitro during their recent audit. [2] Retailers who recognize the value of an omnichannel strategy can leverage the great aspects of online businesses, low capital requirements, lucrative payoffs, and potential for high growth, to differentiate their retail store businesses and brand and also create a virtuous cycle that further drives their online business. Writing this on Black Friday looking ahead to Cyber Monday, it seems like a perfect time for retailers to get on board.

Sources:

[1] http://thenextweb.com/insider/2012/08/27/amazons-79-per-year-prime-shipping-now-offering-15m-items-popular-super-saver-delivery/?awesm=tnw.to_d3vD&utm_source=Twitter&utm_content=Amazon’s%20$79-per-year%20Prime%20shipping%20now%20offering%20than%2015m%20items,%20more%20popular%20than%20Super%20Saver%20delivery&utm_medium=Twitter%20Publisher&utm_campaign=social%20media

[2] http://www.sapient.com/insights/omnichannel-research.html


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 The Initial Disruption:

e-commerce has arguably been the most disruptive force in retail. Over the past 15 years, business models have evolved to the point where the fear of Amazon crushing traditional retail doesn’t seem too farfetched. Yet even with rampant internet penetration and snazzy ecommerce sites transforming the way we consume, approximately 90% of retail continues to remain offline (Table 1). What’s more interesting is that web-influenced purchases account for more than 50% of total sales (Table 2).[1]

Table 1

Table 2

These figures suggest that a majority of consumers are researching products online but purchasing instore. There is something inherently appealing about instore purchases – immediacy, socialization, payment options, service, and product engagement (e.g. trying clothes on, touching a flat screen TV etc). From a quantitative perspective compare the conversion rates of a physical retail outlet with an online store: For online, 2-6% is standard while in physical stores, conversion rates of 30 to 50% are considered the norm. [2] The resilience and even attractiveness of brick and mortar stores can be seen in recent trends: Online retail pioneer Net-a-Porter recently launched pop-up shops to complement its virtual experience. Warby Parker runs real-world showrooms in key cities. In April 2012, Bonobos, announced a partnership with Nordstrom, an “old school” department store. Clearly, a number of pioneering e-tailers, who once sold exclusively online, are now seeing the advantages of playing in the physical world. [4]

The Next Generation:

While the proliferation of e-commerce have indeed threatened the necessity and viability of particular categories (think books and music), the resilience of brick-and-mortar stores reveal that people still value in-person, instore purchases – or that e-commerce is still lacking to fully fulfill consumer needs.  Then perhaps the next generation of commerce is not a zero-sum takeover of e or even m-commerce but one that integrates the two seemingly incompatible worlds. What would emerge is simply “new” commerce – an omnichannel experience that leverages mobile technology, localized and targeted marketing as well as socialization to integrate offline and online shopping

Evidence of these trends already exist:

Mobile & Local: It’s no secret that mobile is hot, particularly its potential to dive into the “local” world. For example, eBay’s recent acquisition of RedLaser, a mobile start-up based on bar-code scanning allows users to price compare instore and online prices. Ostensibly, this move may cannibalize eBay’s online business by potentially pushing away customers to other sites or even brick and mortar stores. Similarly Milo, another recent acquisition by eBay searches for relevant products in the user’s local vicinity – a geo-fenced shopping tool that promotes offline transactions. Once again, Milo will potentially steal business away from the online space.  Yet this strategic play reveals that eBay wants a piece of the bigger pie; it hopes this will link eBay into the offline world.

Even on the the retail end, mobile is quite sexy. As Julie Bornstein, Sephora’s SVP of Digital, puts it “In the cosmetics business, the number one reason people buy a product is because they are sampling it. The physical presence of our store is a role that will never go away.” Nevertheless, Sephora is a pioneering innovating ways to integrate online and offline shopping – evident in their mobile apps that let you scan product barcodes in store for instant product information or in their iPad clad stores in New York that encourage comparison shopping and product engagement. [3]

Walmart recently launched “Site to Store” instore pick-up feature and “Pay with Cash” options allowing further blurring the line between on/offline shopping. Instore pick-up options skip shipping costs and lead-times while encouraging non-credit card holders to shop online. [5] Moreover, additional foot-traffic to brick-and-mortar stores is always beneficial given the aforementioned higher conversion rates for instore purchases.

Mobile payments are also revolutionizing commerce by bridging the two vertical channels. PayPal, Google and start-ups like Square will likely go beyond innovative payment options and dive into data usage. Mobile wallets have incredible potential to gather fragmented consumer data – data points that can be used by vendors as well as APP developers to offer targeted deals and advertisement that lead to both online purchases and offline venues. Point-of-sales data and consumer purchase intent data (i.e. not necessarily transactional data) will continue to drive mobile commerce which in turn will serve as bridging the two worlds.

Social: We’ve seen a true social frenzy in the past few years. Social has now moved into the world of commerce and people are realizing the potential of social commerce. After all, shopping has always had multiple social dimensions; sharing, showcasing, recommending, and gifting to name a few.

The first wave of visually stimulating social platforms like Pinterest identified a key insufficiency of previous platforms: window shopping is a critical element of shopping for many which was previously unavailable online. Pinterest has tried to replicate this experience online via inspirational visuals and sharing across social graphs – except it’s tough to figure out product details or how to purchase the shared item.  On the contrary, The Fancy, a social sharing site that allows artists, fashionists and trendsetters to share tantalizing visuals, fixes this problem. By controlling content generation by a select few, The Fancy provides direct purchase opportunities, translating social sharing into direct transactions. Take that, Facebook.

So what’s missing?           

Even with the likes of The Fancy, no one has quite cracked how to cleanly bring the offline socialization, online. In the future, I would want to use my mobile phone to share products I see in store with friends online with the ability of those friends to purchase that item via online. To make this possible, a mobile platform must combine location tagging, instant product and brand identification visible to the users’ social and interest graphs. Only then would socialization of offline shopping (again still 90% of retail) finally find its way into the virtual world.

Like many great things, the omnichannel isn’t easily attainable. Though retail stores and online start-ups are pushing forward, no one has quite cracked marrying the two verticals (But mobile app Snapette is getting close!). In the future, I imagine walking into a Nordstroms and swiping my mobile phone at a kiosk that 1) knows who I am 2) able to recommend products based on my previous browsing and shopping habits from both on and offline 3) able to curate and suggest products that my friends or those in my interest graph are interested in. In tandem, I’ll snap a photo of a cute pair of Jimmy Choo’s and blast it to my girlfriends – my app would auto-tag my location and product descriptions, allowing my friends to instantly buy that product with one click.

I don’t deny the imminent increase in e-commerce adoption or its disruptive power to guide and ultimately change consumer behavior. Rather, I hope to acknowledge the relative infancy of e-commerce and the short-comings of core elements still desired by many consumers. Offline retail is here to stay and the next generation of successful companies, brick-and-mortar and online companies alike, will be one that provides the best of both worlds.

Sources and References:

[1] Forester Research, Inc

[2] http://retail-revolution.interone.de/en/buying_habits_online_offline_interaction.html

[3] http://www.wired.com/business/2012/07/sephora-bornstein/

[4] http://www.businessoffashion.com/2012/06/online-fashion-retailers-tap-offline-opportunities.html

[5] http://www.walmart.com/cp/Site-to-Store/1087904

[6] http://blog.adility.com/2011/09/10/the-decade-of-online-to-offline-retail-commerce-disruption/

[7] http://www.thefancy.com/

 


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By now, all retailers know that digital marketing exists.  And by now, I would guess that a significant portion of them know that “digital” is more than just e-commerce, but rather social media and search with the goal of cultivating a brand, a loyal customer base and awareness. What is surprising is how slow luxury brands are to embrace this shift. Online ad network Martini Media revealed that luxury brands are spending only 31% of their overall ad budgets online (1).   The good news is that this is changing. Talk to any CMO or head of marketing at a luxury brand, and you will be hard-pressed to find one that does not reference “digital” as a key focus going forward.  What worries me is that many brands are not realizing that they have an entirely new consumer on their hands: the omnichannel consumer.  Nowhere is this more prevalent than in the luxury space, where aspirational loyalists and actual spenders help build up the brand mystique. Luxury brands need to cultivate a strong presence across channels to ensure that they grow their aspirational customers and strengthen their relationships with their existing consumers.

One aspect that luxury retailers need to optimize for is mobile. In 2011, 39 million Americans made at least one purchase via mobile phone (2).   We are seeing this trend in the luxury space as well; according to Aaron Shockey, the VP of Digital Marketing and Advertising at Neiman Marcus, mobile phones account for nearly 20% of their US sales, and 75% of their customers rely on digital channels when making a purchase decision.  Neiman Marcus is in fact embracing the omnichannel customer more than other department stores; while optimizing its online experience, it has created the NM Service App, which is being piloted in four stores, and is targeted to customers having information on their smart phones while in store. Another example of a pioneer in the omnichannel experience is digital wunderkind Sephora.  Heralded as a “Genius” by luxury think tank L2 when it comes to “Facebook IQ,” Sephora has also been able to channel the growth of their online platform to further develop their in-store experience and tie it all together.  According to Julie Bornstein, SVP of Digital at Sephora, the focus for Sephora digital now is looking at digital, in-store and e-commerce and looking at how they connect together.  This is immediately evident when you walk into some key Sephora stores (like the new Meatpacking location in New York), as iPads displaying interesting online features and allowing for comparison shopping are placed strategically around the store and iPhone check-out has become the norm (3)

 No luxury brand has generated such a buzz when it comes to marrying bricks with clicks than digital darling, Burberry.  Burberry has continually been ahead of the curve when it comes to embracing innovation in marketing and media compared with its luxury peers; whether it was launching on Instagram early or being a pioneer in an online sampling campaign on Facebook. The storied British brand took it up a notch when it recently opened its 44,000 square foot store in Regent Street in London developed as a physical expression of Burberry.com, fully immersing shoppers in a combined digital and physical experience (4).  From the tallest indoor retail screen in the world, to RDIF chips woven into apparel and accessories as well as triggers with bespoke multimedia content relevant to the products, Burberry is definitely setting the bar when it comes to servicing the omnichannel customer.

 To be sure, investing in the omnichannel customer takes a considerable amount of resources.  First, some luxury brands that have been afraid of diluting their brand by embracing digital marketing and e-commerce need to crawl out from underneath that rock.  Online is no longer a choice, it’s inevitable, and the brands that truly differentiate themselves will be the ones that elevate their customers via digital platforms such as social media and e-commerce.  Second, luxury brands that feel they are extremely successful when it comes to pure digital marketing and pure in-store experience are missing a key piece when they fail to examine how to integrate the two.  While this area may seem nascent now, consumers will respond very favorably to brands that spend the time and money unifying the experience across all channels. Countless leaders in the industry remind us that luxury is all about the experience, and there is no better way to enhance the experience than to innovate when it comes to the omnichannel shopper.

 

Sources

 (1) Mashable.com “What’s Next for Luxury Brands Online?”

(2) econsultancy.com “39m Americans made a purchase via mobile last year: stats”

(3) WWD, 9/26/2012, “A Look at What’s Pivotal in Digital”

(4) Luxury Daily, “Burberry unleashes tech expertise, heritage with most advanced brand flagship”

 

 


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