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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As Christmas gets closer, retailers are getting ready for their best sales season of the year by building up their stocks, hiring extra personnel and working extra-hours. For example, Wal-Mart’s sales during this season normally account for around 40% of their overall yearly sales [1]. Nevertheless, retailers are also getting ready for a great market share war, a war that has become fiercer year after year.

Brick-and-mortar retailers such as Target, Wal-Mart and Best Buy are implementing on a trial basis new strategies, along with old ones, in order to attract customers back to stores. For example, they will try to match in-store prices (Target, Best Buy) to those offered by strong online competitors. Additionally, they will increase the offer of different kinds of coupons: in-store and location-based mobile discounts (deals that customers can only get while in the store by for example scanning an in-store code), after being tired of customers using stores as showrooms for online retailers and using their cell phones to compare prices [2].

Furthermore, some are experimenting with new strategies for their store websites such as one-day-shipping or same-day-shipping for a fixed fee (Wal-Mart) and free shipping if the store is out of stock (Best Buy) [3]. All of these strategies seem to be targeted to compete with the almightiest of all competitors: Amazon.

For online stores, the key strategy is getting the product faster to its customers to try to produce a similar gratification feeling as getting the product at a store. This strategy is not new to Amazon, but recently it has started to be implemented by another online giant: EBay. EBay is teaming up with FedEx in order to have merchants print the labels from home and use the service at a discount [4].

Given the fact that brick-and-mortar retailers are trying to provide its customers with the benefits of online shopping in their stores and online retailers vice versa, one can’t help but wonder who will customers ultimately chose? There is one key aspect to each side that the other cannot replicate: seeing up-close and trying the products, and the comfort of not leaving home and making a purchase in a couple of minutes.

Another distinguishing factor is that on one side, there are competitors like Wal-Mart and Best Buy that play both in-store and online, and on the other, there are competitors such as Amazon and EBay who only play online. In the scenario where online retail prevails, will stores like Wal-Mart and Best Buy have to redefine their companies’ strategies? Will they have to allocate more resources to their online portals?

What if customers, given that all companies offer the same price, prefer the in-store shopping experience? What other strategies could online retailers implement to offer its customers a value-added experience?

Shipping strategies present a great business opportunity and challenge for carriers such as FedEx and UPS, but its ultimate success will be defined by “if” and “how much” customers are willing to pay for same-day and one-day shipping services [5].

I believe that the strategies being implemented are going to allow in-store retailers to capture some of Amazon’s and Ebay’s market share. Nevertheless, I don’t see how they can be economically sustainable if implemented over prolonged periods of time. Online retailers can afford the low prices they offer by not having to incur in the high costs of running a store, in addition to sales tax strategies.

Additionally, customers’ willingness to pay for short-time shipping may be very low, making this strategy not very effective. Amazon has achieved to have customers’ pay for its Amazon Prime subscription that offers shipping benefits by offering other valuable products with the subscription. For example, some of Amazon Prime’s benefits are: free two-day shipping and USD 3.99/item one-day shipping or same-day shipping in some cities, free lending of Kindle books and free instant streaming of selected videos [6]. Customers may not see flat-fees per purchase as valuable as Amazon Prime’s deal.

I believe that brick-and-mortar retailers’ price and shipping strategies can be very effective in order to win customers but they will hurt their margins, thus they might only be economically sustainable if implemented seasonally or during limited periods of time. Online retailers still have the bigger price advantage. Nevertheless, it seems that it is going to be a very happy Christmas for both customers and carriers.

 Sources and references

[1] http://noesisstar.com/target-to-match-online-prices-in-the-holiday-season-835

[2] http://www.latimes.com/business/money/la-fi-mo-amazon-target-price-match-20121017,0,5546399.story

[3] http://bottomline.nbcnews.com/_news/2012/10/19/14538755-amazon-retailers-do-combat-shoppers-caught-in-the-middle

[4] http://www.businessweek.com/news/2012-10-23/ebay-joins-with-fedex-on-shipping-to-compete-with-amazon

[5] http://www.businessweek.com/news/2012-10-18/same-day-shopping-lures-fedex-as-premium-business-wanes

[6] http://www.amazon.com/gp/help/customer/display.html/ref=hp_primeland_overview_2day?nodeId=200444160#free_2day


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This fall, for the first time in the brand’s history, Missoni, a luxury Italian fashion house known for its brightly colored knitwear, collaborated with a mass retailer. The brand joined forces with retail giant Target to create a diffusion collection showcasing its signature zigzag prints, splashed across categories as far reaching as travel accessories, paper goods, and baby clothes.

Limited partnerships between high-end designers and mass-retailers have become increasingly popular in recent years. Target, Macy’s, and H&M have all embraced this format, collaborating with designers such as Jimmy Choo, Karl Lagerfeld, Matthew Williamson, Rodarte and Lanvin. These partnerships are theoretically beneficial for both parties; designers enjoy free marketing and the opportunity to reach a lower-end consumer who might one day purchase the full priced line, while retailers enjoy increased sales from impulse purchasing and the chance to attract customers who might not otherwise shop at their stores.

Following a lengthy PR campaign including social media efforts on Twitter and Facebook, ads on TV, a lengthy spread in Vogue, and multiple launch parties, Target released the collection on Tuesday, September 13 at 6:00am EST on its website, with stores opening a few hours later. What followed can only be described as complete mayhem. Stores were inundated with the usual flow of crazed customers scrambling for goods, and most in-store items sold out within a few hours. Target’s website crashed within minutes of the 6:00am launch and was intermittently down for almost an entire day, coming back online after 11:00pm.

Target’s decision to launch the Missoni collection online as well as in stores was an interesting one. On the one hand, the online platform clearly presented the opportunity to reach a much larger audience for the Missoni collection, which, with over 400 unique items, was Target’s largest diffusion collection to date. The theoretical availability of the collection to all consumers in the US certainly generated more buzz (and, free marketing for Missoni) than an in-store launch would have. But, many of the issues Target ultimately faced are potential reasons why most other mass-retailers such as H&M choose to launch limited-edition collections only in-store.

As I’ve mentioned, Target’s website crashed almost immediately following the launch of the collection, and the company attributed the crash to “unprecedented demand and excitement”. While I may be cynical, it’s hard for me to understand how Target couldn’t foresee this demand after such a widespread advertising effort that had already clearly paid off in the form of buzz, press, and editorial fashion coverage. As a consumer, I was prepared to log onto the website and see that items had already sold out, but logging onto the website to be greeted by a landing page that said “Woof! We are suddenly extremely popular. You may not be able to access our site momentarily due to unusually high traffic. Please stay here and we’ll try to get you in as soon as we can!” was fairly infuriating. Such a significant technological fumble by a trusted retail giant like Target incited a large consumer backlash, with would-be customers taking to Twitter and Facebook to bash the store and its unpreparedness.

In addition, because of technological issues associated with the online launch, Target’s order management systems completely failed and many consumers who placed orders ultimately had them cancelled, inciting further consumer rage about the launch. I personally had the unfortunate experience of ordering a bikini (top and bottom sold separately), receiving the bottom, and subsequently receiving an email from Target notifying me that the top would never arrive. As you can imagine, after seeing how cute the bottom was, I was particularly disappointed.

Marketing experts seem to think that consumers’ negative experiences shopping the Missoni collection online will likely not have a long-lasting impact on Target’s brand. But it was certainly an embarrassing misstep for a brand that had only three weeks earlier switched from an online system run on the back-end by Amazon to its own platform. Also, I would argue that many consumers will be less likely to attempt to shop these limited-edition collections online after being faced with such a frustrating shopping experience.

Target’s online launch of the Missoni collection also highlighted one of the perils associated with online retailing: reselling. Reselling is particularly relevant to limited-edition collections whose availability is scarce, and by choosing to release the collection online, Target made it significantly easier for consumers to resell the goods on platforms like eBay and Craigslist. Selling only in stores creates a barrier to reselling because procuring the goods takes a degree of effort that many would-be resellers don’t find worth it. But ease of access to the Missoni collection meant that within days over 21,000 items were listed on eBay alone, with many items marked up by as much as 5x the original price.

Some might argue that it doesn’t matter to Target whether its products are resold at a markup, but if the point of a limited edition collection is to deliver high fashion to consumers at lower prices, reselling inhibits this. eBay consumers frequently paid for a Target item a price equivalent to that of a comparable item from Missoni’s mid-priced line M Missoni. Buying a lower quality item for a similar price is certainly an example of irrational consumer behavior, but nonetheless also detracts from Target’s stated goal. In addition, active reselling means that consumers’ willingness to pay is higher and that Target isn’t capturing as much value as it theoretically could.

The challenge with limited edition online retailing and the reselling that results is that Target seemingly has few options to combat the problem. Target could raise base prices for the line, reducing profits for resellers. But, higher prices potentially eliminate the point of a diffusion line for both brands: Missoni no longer creates the low-priced line it envisions, and higher prices aren’t aligned with Target’s brand as a low-price retailer. Other retailers such as Saks have experimented with limiting the number of each item a consumer is permitted to purchase. This strategy might work for Target, but only with a line significantly smaller than 400 pieces.

While Missoni continues to ride the wave of publicity generated by the collaboration, with orders for the company’s spring 2012 line coming in stronger than expected, Target on the other hand must consider how to improve its online retail offering so consumers aren’t disappointed in the future. With an upcoming limited-edition collaboration with Jason Wu on the calendar for early next year, it will be interesting to see whether Target can resolve the technological issues that so plagued its efforts with Missoni.

 


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