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Online fashion

Artificial Intelligence is Zalando’s perfect match

Computer, do our bums look big in these? Source: Reuters

Source: image

Not long from now, if you buy a pair of shoes at the German online retailer Zalando, expect to be offered a matching pair of trousers. Or a hat. Or some socks. And the personalized service won’t stop there: You’ll be able to chat with a virtual sales assistant to guide you around a web store filled with items that suit your needs and tastes.

The days of endless clicking and scrolling to find a shopping item you want are coming to an end thanks to artificial intelligence, software that uses data to make predictions. And Zalando, Germany’s third biggest online fashion retailer after Amazon and the Otto group, plans to fully exploit the trend.

Curated shopping is one of the firm’s most important projects for the next 12 to 18 months, said CEO Rubin Ritter. “A team of 600 colleagues is working exclusively on it, many of them are software and data engineers,” he said.

Mr. Ritter, 35 who joined Zalando from consultancy McKinsey, wants to make sure that the company’s 22 million active customers don’t get bewildered by the 300,000 new products Zalando offers each year. “That can only succeed in future if everyone gets their own Zalando,” he said.

Amazon is investing gigantic sums in its fashion business in order to offer tailor-made solutions to its customers.

Beate Hölters
Tailorit

Analyzing shopping and search trends provides a wealth of information about a customer’s preferences. If they’re into sports, Zalando will provide relevant imagery to inspire them. A pregnant woman will be taken straight to special sizes. And instead of anonymous models, Zalando will have its fashion styles presented by so-called influencers, people who have large and loyal followings on social media.

Analysts said Mr. Ritter is on the right track. Alexander Inderst, an analyst at investment bank Macquarie, said personalization was one of the megatrends in fashion retailing and that Zalando was well positioned in that regard. “Zalando isn’t really a fashion retailer. Zalando is a tech company that sells fashion,” he said.

Some 1,900 of Zalando’s 14,000-strong workforce focuses on technology. Most of them are based in Berlin, but Zalando also has hubs in Helsinki, Dublin and Lisbon. This helps it to attract the best talent as artificial intelligence experts are in demand in almost every industry right now. Their job is to help draw logical and above all profitable conclusions from the vast amounts of data companies are gathering in their online operations.

Zalando doesn’t want its customers to be passive sources of information. It wants to interact with them by getting them to answer questions like: “Ah, so you’re looking for something for a party? How about a bit more glitz?” On the website, that dialogue will take the form of typed chats. But in the Zalando app, the plan is to communicate via voice-activated personal assistants.

Zalando’s software won’t just work out what the customers might want; its fashion experts will also make recommendations. The firm employs 600 stylists via its Zalon service who can suggest clothing. This type of curated shopping is catching on fast. In Germany, Outfittery and Modomoto already offer it. And US company Stitch Fix, founded in 2011 as an online shopping assistant and clothing subscription service for busy hipsters in Silicon Valley, last year raked in revenue of $730 million (€617 million).

Zalando, which has about a 1 percent share of the European fashion market, is projected to generate €4.5 billion in revenue this year and wants to double that by 2020. But Amazon and Otto are also looking to grow with new personalized products.

“Amazon is investing gigantic sums in its fashion business in order to offer tailor-made solutions to its customers in future,” said Beate Hölters of Düsseldorf-based consultancy Tailorit. These include the new service Echo Look — a camera and style assistant that lets customers photograph themselves and build what Amazon calls a “personal lookbook.”

Meanwhile, Otto has founded a start-up called About You, a sort of online magazine in which celebrities wear fashion that customers can buy. It allows personalization, with customers encouraged to state their interests and style. The start-up still has modest revenue which amounted to €135 million in the fiscal year to February. But Otto is confident that it can increase that to €1 billion by 2022 and is planning the next financing round with Goldman Sachs.

British online retailer Asos is a strong competitor. Founded in 1999, it increased its revenue by 27 percent last year to €2.2 billion. In addition to using algorithms, it has developed a new service that allows customers to quickly find what they want.

If they see someone wearing, for example, a jacket they like, whether on the street, in a magazine or on social media, they can upload a photo of it and receive suggestions of similar-looking garments available for sale on the Asos site.

Alexander Graf, the founder of software company Spryker, said Otto’s About You service currently had the technological edge in terms of personalization. He added that Amazon, despite its strength in artificial intelligence, was unlikely to keep up with the fashion retail specialists in terms of expertise.

That should suit Mr. Ritter perfectly.

 

Miriam Schröder covers Berlin’s start-up scene. Georg Weishaupt covers the luxury and fashion industry. To contact the authors: m.schroeder@handelsblatt.com, weishaupt@handelsblatt.com