FIXING FASHION: Can automation delight shoppers and reverse declining conversion?

A report researched & written by IMRG, supported by Apptus

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AUTOMATED MERCHANDISING – THE TIME IS NOW

Andrew Fowler UK country manager, Apptus

It’s an uncomfortable truth, but for online fashion retailers with large product ranges, the inability to create experiences that delight every customer is costing time, money and sales.

Conversion is falling, loyalty is on the wane, more and more baskets are being abandoned – and the tried and trusted, manual approach to merchandising is the problem, not the solution.

Quite simply, it cannot cope with the volumes of people, products and data involved. What’s more, manual processes do not cope well with the unexpected – socially-driven micro trends to name but one. Rules and strategies must be manually tweaked – a time-consuming process that ensures the wave has long gone before the trend-surfing retailer is even in the water.

So, despite the best intentions, the end experience simply does not delight customers – the proof is in the metrics.

At Apptus, we believe that reversing this trend requires a radical new approach: an approach that is already proven in solving the same problems in other markets.

Predictive machine-learning is being used, successfully, in financial markets, and marketing automation is moving over to using predictive machine-learning. These are trends driven by the same issues facing retailers – masses of information and not enough people or time to act intelligently on it instantly.

This paper explores these trends in more detail and asks: “Is now the time for retailers to stop struggling with rules-based personalisation and move to the next phase of online merchandising – predictive machine-learning or automated merchandising?”

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GROWING PRESSURES IN ONLINE FASHION RETAIL

In a congested, competitive and fast-moving sector, fashion retailers exist in challenging times. Brand loyalty is on the wane, trends are more often measured in hours than seasons, and a failure to delight online shoppers with outstanding, relevant experiences – particularly with the migration of shoppers to smartphone devices – has seen conversion rates fall. Meanwhile, an increased focus on price competition is cutting margins, so the pressure to drive performance while cutting costs has never been so intense.

22% - average customer retention rate in Q3 2016 for fashion retailersTaking all these factors in the round, it’s hard to escape the conclusion that fashion retailers, at least online, are facing new and increasing pressures – which the tools and processes they have traditionally relied upon are perhaps not best suited to overcoming.

And the proof is in the figures.

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Fashion retailers are not delighting their customers online. Customer loyalty lags well behind the wider retail sector – having shown a brief flicker of recovery in 2015/16 – and has flat-lined since. A key influencing factor here is likely to be around the sheer scale of competition in fashion, with strong use of celebrity endorsements to generate buzz and capture attention.

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13/14 14/15 14/15 14/15 14/15 15/16 15/16 15/16 15/16 16/17 16/17 16/17

Active Customer Retention Rate

Total Market Clothing

Customers are walking away from unsatisfactory experiences. Basket abandonment rates have risen – from 28% in 2014 to 31% in 2016 (year-to-date, covers Q1-Q3 2016) – as shoppers simply go elsewhere, even mid-purchase, for a variety of reasons.

Shoppers are browsing more, but committing less. Overall, there is still solid growth available for online fashion – most recently with sales up in this sector by +18% in 20161 – but conversion rates have been in decline, generally speaking. As the chart below illustrates, online fashion conversion rates have fallen by -28% since 2010 – from 5.4% to 3.9%.

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0%2010 2011 2012 2013 2014 2015 2016

1 IMRG Capgemini Sales Index, January 2017

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What is going on?

These numbers tell us that things are changing. They do not, of course tell us in detail what is driving that change or – crucially – give us any real clue as to how the core issues can be put right.

We ran a snapshot benchmark2 of decision-makers in online retail to investigate. The results point to a core issue – not of UX or design, marketing or merchandising, but of capacity.

For instance, we asked how quickly merchandising teams can adapt product exposure to respond to emerging trends – fewer than a third claimed a ‘real time’ capability. Meanwhile, 63% said it would take hours or days and 5% can’t do it at all.

0%In real time Hours Days They can’t do

it all

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Q. How quickly can your online merchandising team adapt on-site product exposure, product assortments and product promotion in order to respond to an emerging trend?

In the online world, where social drives trends – and therefore traffic and, potentially, sales spikes – that come and go in the blink of an eye, an inability to identify and jump on putative trends in real time can put retailers at a disadvantage.

That fact is not lost on respondents to our benchmark survey – who gave their merchandising capability a rating of around 6.5 out of ten when it comes to keeping up with the pace of modern fashion retail. In a world where first is first, and second is nowhere – and where it’s vital to delight, not just serve customers, there is clearly room for improvement.

2 Benchmark ran December 2016 / January 2017, 33 participants

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Customer service Merchandising Warehouseoperations

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Q. How would you rate your teams’ current ability to keep up with the pace of modern retail? (score each 1-10, 1 low 10 high)

At this stage, it would be very easy to conclude that the core issue is an inability to respond quickly enough to shopper trends – at both a micro and macro level. But, while that is clearly an issue, it is symptomatic of a wider malaise.

It’s simple in principle. In essence, retailers need to understand what shoppers want and then make it easy for them to find and buy – but they need to do it for individual shoppers, and they increasingly need to do it in real time.

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THE CORE CHALLENGE

The core merchandising challenge, then, can be encapsulated thus: screen real estate is limited and online shoppers are impatient. So how do you provide every visitor with an instant, relevant and satisfying experience – exposing to them in real time exactly the right assortment of products, drawn from thousands, according to their context and their buyer intent?

This is what customers expect – but it is easier said than done.

And here’s the rub: delivering what customers want using the processes and practices many online retailers currently rely on – the manual collection of data and, based on that data, along with instinct – manually merchandising their product collection to a handful of blunt instrument, segmented customer types carries with it certain inherent limitations.

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HUMAN ERROR

The key word here is manual. A limitation that may come to hold online fashion retail back as we move forward into an increasingly digital future is decidedly human – it is the reliance on approaches that work perfectly well in-store, but which are painfully unsuited to online, where the customer sets the agenda, not the merchandiser.

Looking back at historical sales data, for instance to promote best-sellers, clearly works in-store. It has its place online too but, here, the historical best-seller can be eclipsed in an instant by a dress of questionable colour (is it blue or gold?3).

Any retailer relying on manual merchandising and product exposure processes is likely to miss riding these profitable, socially-driven trends – not once, but twice. That is, they will miss the first wave, only to end up – hours or days later – promoting a (by now) irrelevant product, possibly in place of a reliable best-seller. Sales hurt not once, but twice.

Not just the crowd

But again, it’s not just about trends. The above example is symptomatic of an inability to track and respond to shopper behaviour – a cipher for context and intent – in real time. Responding first to an emerging trend is about understanding the wisdom of the crowd, seeing that lots of people are searching for, or buying a specific product or type of product – then making said product(s) easy to find and for the right period of time.

That’s well and good, but the Holy Grail here is to do the same for every individual shopper. To gather and understand data about their behaviour – use that data to understand their context and shopping intent and then adapt the products they see accordingly, in real time.

In shopper language this is simply “making it easy to find what I want, when I want it”.

But multiply those shoppers and product assortments by the tens or even hundreds of thousands, and it’s easy to see why such a simple demand is impossible to deliver manually. By extension, it’s easy to see why shoppers are not delighted from a merchandising perspective, and therefore why this may be contributing to falling conversion rates and loyalty.

3 See Independent, White and gold or blue and black? The dress has confused the internet but science has the answer, 27 February 2015

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FIXING FASHION: HOW TO DELIGHT SHOPPERS

It’s fair to say that most people working in online fashion retail are all too aware of issues like rising basket abandonment, the challenges around customer loyalty and, of course, falling conversion rates.

The fundamental merchandising issue that sits behind them is less well understood or accepted, and that can be illustrated by two broad approaches to finding a solution.

The same, but moreThe obvious solution to those declining metrics is to throw more resource at the problem, to bolster over-stretched teams with more headcount. On the face of it, this is a perfectly reasonable solution – if our current headcount delivers revenue X, then an investment in more people will deliver proportionately more revenue. And, in theory, it probably will.

There are a few issues with this approach, however. The first is in finding those skills – an issue for more than 90% of our benchmark sample.

Q. Which of the following merchandising skills do you find it hard to secure when recruiting to your online merchandising team?

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Analytics Onlinemarketingspecialist

Categoryspecialists

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to recruit

We do NOTfind it hardto recruit

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It is instructive to note that the skills retailers find hardest to secure are those related to understanding customers (analytics) and then responding to that insight by delivering an outstanding customer experience (online marketing and UX).

Second, it’s expensive. Hiring and training people carries obvious expense – and the gains are likely to be marginal in this context. How does this chime with a need to drive step-change revenue growth, while keeping costs under control?

Finally, and most importantly, this manual approach is currently not arresting the general falling conversion and customer loyalty rates – at present there is little evidence to suggest that doing more of it is the answer.

Investment in automation Perhaps with these issues in mind, some retailers are investing in automation and artificial intelligence-based solutions that take over the heavy lifting associated with delivering the experience that customers increasingly expect.

Indeed, according to our benchmark survey, the adoption of automated, artificial intelligence-driven merchandising solutions is gathering pace. More than half of the participating retailers expect to adopt some kind of automated solution in the next 12 months, and a further 19% will do so in the following 12 months. Less than a third currently have no plans to invest in merchandising automation.

Q. What, if any, timescale are you looking at to invest in AI-enabled technologies and solutions within your business in merchandising?

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AUTOMATION IN ACTION: ADLIBRIS

Swedish bookseller Adlibris offers an example of using merchandising automation to improve performance, in particular in its ability to capitalise on trends. Malala Yousafzai’s recognition with a Nobel Prize, and the subsequent spike in interest around her autobiography, I Am Malala, offers a case in point.

Automated merchandising ensured Adlbris did not miss out on the trend, drawing on data around site searches, product page traffic, sales and even off-site search arrivals.

It then adjusted the book’s on-site exposure in real time – categorisations were scaled back to ensure the book was prominently displayed across several categories, like biography & memoir and psychology & education. Meanwhile, the book title was boosted to the top of search autocomplete – simply typing ‘I a’ would instantly suggest ‘I Am Malala’.

These simple changes, carried out automatically and in real time, delivered a better customer experience – for instance, the need for user search refinements fell by 41%. Meanwhile, riding the wave delivered a revenue increase of 6.4%.

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AN AUTOMATED FUTURE?

The burning question is ‘why automate?’ Can a computer really match the nuances of human intuition, and can it really deliver the kind of customer experience that will reverse those declining metrics?

As with any emerging technology – even more so a radical new approach to old problems – the proof of the pudding will be in the eating. In theory, however, the benefits could include:

The ability to delight through an optimised customer experience. Intelligent automation – using machine learning and big data analytics to understand every customer interaction in real time and adjust product exposure accordingly – could help deliver individually-relevant shopping experiences.

Reversing the decline in conversion rates. Capturing more customer behavioural data and using predictive analysis to work out their shopping intent could help meet that key customer demand: “make what I want easily available, when I want it”.

Free up people to focus where human input is important. Automation does not replace human input. It is about automating repetitive and time-sensitive aspects of online merchandising. That could free merchandising specialists to focus on strategic and creative activities. Meanwhile, there is no longer any need to overspend to find skills.

And all that means more margin. It’s an obvious one, but more revenue from happy, loyal customers plus lower costs delivers where it matters most – on the bottom line.

So much for the theory

The potential benefits may be compelling, but realising those benefits will not be a plug and play experience.

Rather, an automated future for fashion retail – any retail sector for that matter – will depend on more than investment in technology. Automation may be a key component of course, and it is within reach, but the culture and mindset change required to maximise the benefits are less certain.

Can retailers really let go of the old approaches to embrace a new, unfamiliar way? Automation removes the illusory comfort blanket of control, and demands that trust be placed in solutions that afford space only for high level human input. Meanwhile, merchandisers will have to see beyond potential threat to recognise the benefits – a freedom from spreadsheets and minute detail, and an ability to focus on something far more rewarding – high level strategy.

One thing seems certain – some kind of automated future is coming, not just in retail but every industry. Those that embrace it in the right areas to suit their proposition and back it with appropriate organisational change – to deliver experiences that delight customers, while selling more, could be the big winners.

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ABOUT APPTUS

Apptus has been at the cutting edge of high performance computing, search and navigation technologies, recommendation engines and online behavioural analytics since its launch in 2000.

Today, its ground-breaking, AI-powered ecommerce optimisation software – Apptus eSales – is redefining online merchandising and enabling some of the world’s leading retailers to dramatically improve sales performance, reduce cost, and drive organisational efficiency.

A single, unified solution for intelligent product exposure, Apptus eSales draws on big data and machine learning to constantly tune exposure strategies aligned to wider conversion, revenue and profit driven goals.

It transforms previously reactive, manual and rule-based merchandising-enabling automated, predictive merchandising that works with even the biggest product ranges to display the right products in the right context at the right time.

With a rapidly-growing client base across the Nordics, United Kingdom, Germany and the US, Apptus is headquartered in Lund, Sweden with offices in London and Münich.

For more information please visit www.apptus.com

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ABOUT IMRG

For over 20 years, IMRG (Interactive Media in Retail Group) has been the voice of e-retail in the UK. We are a membership community comprising businesses of all sizes – multichannel and pureplay, SME and multinational, and solution providers to industry.

We support our members through a range of activities – including market tracking and insight, benchmarking and best practice sharing. Our indexes provide in-depth intelligence on online sales, mobile sales, delivery trends and over 40 additional KPIs.

Our goal is to ensure our members have the information and resources they need to succeed in rapidly-evolving markets – both domestically and internationally.

For more information please visit www.imrg.org

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T +44(0) 203 696 0980 | E info@imrg.orgPublished February 2017

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