$ 730 million on fashion tips: how technology develops the market for shopping consultants
For several years, clothes and shoes remain the largest category in Russian e-commerce. Are online clothing buyers willing to pay for personal wardrobe selection services?
In 2017, the "seller of the American Dream" Ralph Lauren closed his flagship store on Fifth Avenue and announced the reduction of more than 1,000 employees. He is not the only representative of traditional fashion retail who has shown steady growth for many years, but is now experiencing difficulties: clothing costs are declining every year around the world, and consumer preferences are changing. In modern realities, one has to look for new approaches to the buyer and one of them is consultations on choosing a wardrobe.
Profitable but not scalable business
In London, a shopping consultant costs an average of about £ 1,000 a day . In addition, specialists receive a commission from sales, and a month can wrap up several hundred thousand pounds. In the UK's Selfridges department store, shopping consultants generate 25% of women's fashion sales. 60% of service users are British business women who do not know what to go to work. The remaining 40% are wealthy foreigners from developing regions. The flagship of online fashion trading Net-a-Porter (net profit of € 1.8 million in 2016) also holds a team of 20 consultants who communicate with customers on WhatsApp, dismantle their wardrobe, accompany them to fashion shows, and so on.
Shopping consulting is a profitable business for both stylists and retailers, but the industry has a weak point - scalability. The customer base of one of the top Annabell Hunter stylists has about 1,000 customers, which is comparable to the customer base of a small online store. But even such a volume of clients for most stylists is very difficult to service, 2 clients per stylist per day is the maximum.
Silicon Valley Stylists
In the United States, a breakthrough has been made in the fashion consulting industry. In 2014, 28,000 American stylists, according to IBISWorld research, earned $ 762 million by providing private services. The personal shopping service Stitch Fix from San Francisco in 2016 wrapped almost the same amount ( $ 730 million ) with only 3,400 outsourced stylists.
For 6 years of existence, Stitch Fix raised $ 42million investment in four rounds. In 2016, the startup planned to grow by 50% from the mark of $ 250 million, but it exceeded its own expectations by 4 times - the actual growth was 192%. The company has already filed for an IPO, and unlike other Silicon Valley investment projects, it’s not only growth dynamics that will become its trump card. Stitch Fix generates profit for the third year in a row. Founder of the service Katrina Lake, a graduate of Harvard Business School, says that unlike other online clothing sellers who consider themselves technology companies, Stitch Fix is primarily retail. The company embodies the dream of millions of women - the opportunity to have a personal stylist. The service costs only $ 20 and solves an important problem that even online stores cannot solve - this is the problem of confidence in the right choice. Stitch Fix relieves customers not only from shopping, but also from the endless scrolling of online catalogs, and at the same time promises a flawless appearance. True, there is always the risk that things will not fit in size - but Stitch Fix encourages customers to buy the whole package, offering a 25% discount.
Stitch Fix is not the only service of its kind in the United States. In 2009, Trunk Club men's service was launched, which Nordstrom bought for $ 350 million in 2014. In 2016, the Trunk Club score fell almost twice , due to the fact that the growth rate of the service does not live up to expectations. One of the reasons for the unsuccessful development of Trunk Club is the focus on the male segment and the integration of the service with the Nordstrom offline infrastructure. One way or another, before the takeover in 2014, the project was profitable according to the managers of both Trunk Club and Nordstrom.
Amazon also launched the style recommendations service in March 2017. Tuning «Outfit Compare» is part of a paid program Amazon Prime loyalty and helps customers decide what they wear. Distributing trendy tips, Amazon collects data about user preferences, which are then used in the retailer’s recommendation system.
Also in April, Amazon announced an Echo Look with a camera function that allows you to take selfies and upload them to the StyleCheck app. Amazon StyleCheck helps you determine which of your clothes looks best on you and matches trends. According to the company, StyleCheck is a hybrid of machine learning technologies and live stylists.
Artificial Intelligence Shopping
The e-commerce interface certainly helps to attract and process more customer requests than consultation in a meeting or by phone. But the use of human resources for upper-level communication, information analysis, and search for solutions has limits. In addition, during the course of customer service, a huge array of data is accumulated about their preferences, requests, the history of their purchases and returns, and so on.
In addition to stylists, the Stitch Fix team has 80 data-science experts , 49 of whom have doctorates. The team is led by Eric Colson, a former vice president of data-science at Netflix. The Stitch Fix algorithm calculates with what probability the buyer will buy back the things offered by the service. For this, a whole range of data is used: from zip code and type of activity to stylistic preferences and purchase history. Then the stylist analyzes the information received and selects the most relevant products. “We do not compete for the lowest prices or the fastest delivery. We offer maximum relevance, ”is the position of the Colson service.
The maximum relevance is also offered by the Epytom chat bot , a project of Anastasia Sartan, the founder of the Russian online store TrendsBrands. But while the bot more likely resembles sending beautiful photos than real work with style, which includes the analysis of the wardrobe, the selection of clothes according to the figure and for certain tasks.
Russian Stitch Fix - Utopia or Opportunity?
In Moscow, you can find a shopping consultant at a cost of 1,500 rubles per hour. On average, an hour of consultation costs from 3,000 rubles, and it takes 4-6 hours to select several images. That is, on serving one client, you can earn 12-18 000 rubles. In the luxury segment, rates may be several times higher, but this is a much less capacious market.
Federal TV shows, such as Fashion Sentence, have brought the profession of stylist to the masses. 35 million viewers, 5 days a week, observe the work of professionals who can dress or dye you better than you do it yourself.
About 350 thousand search queries related to stylist services are recorded monthly in Yandex. During 2016, their number increased by 80%. A narrower category of inquiries “shopper” (the so-called wardrobe selection specialists) has grown 3 times over the year.
Despite the crisis, “clothes and shoes” for several years in a row remains the largest category in Russian e-commerce - both for domestic and cross-border purchases. Its share is about 40% of all online sales, and the leader in the top-100 ranking of online retailers is the Wildberries clothing store . Wildberries customer portrait is a woman aged 30 with a monthly income of about 33,000 rubles, who follows trends in online magazines., Instagram and Youtube, and then searches for your favorite clothes at the best price. 70% of shoppers are interested in how a thing will look on ordinary people, rather than on a model, and returning goods remains the main problem of retailers in the segment. If you extrapolate online shopping to normal life - lack of confidence that a thing will fit in shape, color, size, style has always been one of the main reasons for refusing to buy or return. To increase confidence in the right choice, women invite friends or husbands to shop, and more recently, shoppers.
Is the audience of online buyers of clothes and shoes ready to sign a “fashion sentence” and pay for a personal wardrobe selection service? In my opinion, “Russian Stitch Fix” is possible and capable of becoming a strong business companion to the growing market for online clothing retail. For this, Russia already has: a demand for offline services, schools for styling shoppers, a multimillion-dollar audience of online clothing buyers, and AI-technology specialists who can put a “wardrobe selection” on the conveyor. The question is, who will take the niche first?