What are you going

to learn?

01
The Impact Of AI On Online Fashion Retail

02
The Most Widely Used AI Use Cases

03
Proven Use Case: Product Recommendations

04
Product Recommendations In Exponea

05
Why Are SaaS Companies Leaders In AI Development
The Impact
of Artificial
Intelligence
on Online
Fashion Retail

Marketers working in online fashion retail are

excited about the prospects that are brought
upon by plugging in artificial intelligence to their
e-commerce sites.
When you offer someone the capability of managing processes faster, better and cheaper,
you can instantly see their eyes glimmering with glee.

Is it actually the case with AI, which fashion retailers use today, or is that a promise of an
uncertain future?

AI Today

Nowadays, AI is often being communicated as a black box – you feed it data and you get
great results, fast. Although it may be the case for certain AI use cases, we are still far from
such instant successes. The reality is that commercial AI is still in its infancy and are we on
the frontier of its development and application in the real world.

Most current AI algorithms are making predictions and choices not unlike humans. They
learn from historical data, and as we will be able to provide AI with higher quality training
data, its precision could dramatically improve.

That being said, even now AI supported by big data already ignited the so called 4th
industrial revolution. Two years ago, industry magazine Business of Fashion proclaimed that
no area of life or business will be insulated from AI and today these technologies, as well as
easy access to their utilization, are disturbing every aspect of any industry, not just fashion,
like never before.

Companies Stumble to Find Ways to Apply AI

Even though the media is buzzing with AI and big data, we are still scratching the surface of
what’s currently possible as marketers and e-commerce managers are actively looking for
ways to best apply the benefits that AI promises.

According to a study by IMRG & Hive, Three quarters of fashion retailers will invest in AI
over the next 24 months and e-commerce giant, heavily involved in fashion retail, Alibaba,
already invested $15bn in R&D labs in a push to become the AI leader.

Still, with the great potential of AI, sometimes it just doesn’t work out. Let’s take Original
Stitch as the example.

This startup, which sells custom dress shirts, promised their customers that after sending
them the picture of their shirt, their AI armed with visual recognition will extract customers’
sizes out of photos of shirts which they already own as a basis for a custom tailored shirt.

Sadly, this didn’t work out and outcomes were underwhelming, leading the company to pull
its AI until they work out the issues.
The Impact of AI on Online Fashion Retail

The ever increasing scale and granularity of personalization in online fashion retail is
impossible to manage without the assistance of AI and related automated processes. Gartner
predicts that by 2020, customers will manage 85% of their relationships with an enterprise
without interacting with a human.

A growing number of companies who have adopted these new technologies are raising the
bar on service and personalization, which customers have learned to expect.
Currently, 44% of UK
fashion retailers are
facing bankruptcy
and AI could be one
of the many factors
that attributed to it
as companies who
didn’t find a way to
properly implement
it, are struggling to be
competitive with the
ones that did.
McKinsey says that the top 20 percent of fashion businesses generated 144 % of the
industry economic profit and unless you become one of these top performing companies,
you are highly unlikely to make any profit. That’s why finding ways to implement AI is crucial
as it helps companies streamline their costs and provide a better customer experience. This
helps in becoming competitive and being placed among the TOP 20 percent of fashion
businesses which actually turn a profit.

How Are Customers Interacting With AI

Generation Z is highly accepting of AI, and most notably, personalization that comes with
it, but older generations still tend to be unsure of AI’s impact on their lives and are wary.

The distrust may be in part because companies utilizing AI still didn’t find a way to best
communicate the positive impact of artificial intelligence on the user experience and that
increasing sales are just a product of a seamless customer journey.

Today’s customers expect from their ideal online store that it won’t “waste their time”, that
they will find the products that fit them, in stock and in a large variety to choose from. With
that in mind, customers yearn for a personalized experience, which is exactly what AI can
help them achieve, using deep content personalization and thus, AI is slowly, yet steadily
transforming the way customers shop for fashion online.

What Are The Realistic Expectations For The Future?

Undoubtedly, the complexity, speed, and precision of tasks which AI will be able to expertly
execute, will grow. Artificial intelligence will become embedded in our daily lives and it will
enhance our professional performance which will create an ever-increasing divide between
businesses which will find a way to utilize AI and those who would be too late.
One example of AI’s evolutionary path is being implemented by Tommy Hilfiger. This highly
recognized fashion brand would like to use AI to kickstart their creative process. To do
that, they announced a partnership with two major players: IBM & Fashion Institute of
Technology.

The goal of this initiative is to monitor real-time trends in the fashion industry and customer
sentiment centered around individual products or runway images and extract themes in
patterns, silhouettes, colors, and styles.

Avery Baker, Tommy Hilfiger’s chief brand officer said that “the goal was to equip the next
generation of retail leaders with new skills and bring informed inspiration to their designs
with the help of AI.” He continued by saying that “AI can identify upcoming trends faster
than industry insiders to enhance the design process.”

Companies armed with such a powerful utilization of AI will be able to produce new apparel
faster than their competitors and with a higher probability of matching market needs with
their collections, becoming more profitable than their competitors.
The Most
Widely Used
AI Use Cases

Some AI use cases could be highly niche, such as

Shephora’s virtual artist, which lets customers
try out makeup online.
Yet others are already being widely implemented with a varying degree of success due to utilizing
different algorithms, on which they are basing their data.

Visual Recognition

One of the most obvious AI use cases in online fashion retail is visual recognition. These
algorithms can recommend similarly looking apparel to customers and are most often used on
detail pages of online stores ensuring that customers will always find the right product.

Visual recognition can also help online retailers recommend appropriate tags when adding
new products to the store, saving time. Or, using visual similarity with past products to help
purchasing departments better understand the volume of how much they should be purchasing
to minimize overstock.

Customer Purchase Prediction

Leveraging aggregated data from all of the customers, AI algorithms could be used to predict
whether certain customers are showing signs of making a purchase, such as visits of a certain
number of product pages or increasing frequency of newsletter opens.

These insights are then being leveraged to ensure the purchase and create a positive customer
experience.

Trend Prediction

By monitoring social media and other data sources, AI could be utilized to predict trends
according to similar behavior in the past and its results.

These insights could be used to inform the purchasing department to stock certain types of
products or marketing to prepare specific communication campaigns.
Purchasing Recommendation

One of the worst problems that fashion retailers are facing is overstock issues.

AI is being utilized to predict which products should be purchased to meet the upcoming trends
and in what volume. This is being based on the purchasing power of customers and even current
stock in hopes to reduce overstock.

Some algorithms could also be used to predict supplier price changes and recommending the
ideal purchasing windows to lower the purchasing costs.

Inventory Management

Fashion retailers tend to have significant capital tied up in inventory and artificial intelligence
is being utilized to help them increase the turnover of stock by taking into consideration the
“need” to sell older stock as soon as possible.

This is a crucial AI use case that helps fashion retailers increase their profitability, since the
longer you have inventory in stock, the chances to sell it decrease.

Ideal Price Point Recommendation

Using freely available data, AI can be used to monitor competitor product prices and recommend
ideal price points to maximize revenue.

These changes could be automatically applied using a broad strategy, such as keeping the
lowest prices, but retaining at least a minimal margin or to maximize profitability even by slightly
increasing the price.
Chatbots

Chatbots, such as those found on social media messenger applications, give online retailers
the ability to offer 24/7 customer support to visitors, while collecting data such as tracking
behavior and immediately providing customized recommendations of products. By having an
effective automated chatbot, online retailers can further increase conversion rates by offering
personalized customer experience with minimal effort.

Chatbots can be used through major messaging applications to act as customer service agents
without needing a human. Making it quick and easy for customers to reach retail businesses.
Proven Use
Case: Product
Recommendations

Personalized content is currently expected by the

majority of e-commerce customers.
All the most recognized brand marketers are utilizing recommendation engines to engage their
customers with content that is relevant and valuable.

Suggests movies and shows based on the content you’ve

previously watched.

Recommends songs based on your listening habits.

Personalized recommendations on the website and via email.

Reducing the exposure to information overload can bring your business a competitive advantage,
increase the loyalty of your customers and help them make better purchasing decisions.
Personalization is using only customer relevant information and behavioral data to find and
suggest the best possible fit.

The personalization efforts that e-commerce companies are investing into are paying off.
Amazon attributes 35 percent of all their purchases to recommendations and Netflix estimates
that 75 percent of what people watch is driven by these algorithms.

Although recommendation algorithms are not something you would like to read about before
going to sleep, it is good to have a basic understanding of how these systems work so you can
understand the forces hidden behind.

Today, there are three main models which are fueling most recommendations.
Content-based

Recommendations are based on the similarity between items (e.g. Similar Items).
Products are recommended using visual or contextual similarities.

For example, if you are browsing green winter jackets, this algorithm will suggest other jackets
sharing the same properties (e.g. category: winter jacket, color: green). The advanced technology
of Natural Language Understanding can be used to recommend products sharing similarities in
description (unstructured text).

Lastly, Convolutional Neural Networks (CNNs) can extract various visual features, such as
shapes, colours, or textures from images and use this representation for finding similar looking
clothes.
Collaborative filtering

Recommendations are based on the similarity between users, taking into consideration their
view/purchase history (e.g. Customers who bought this item also bought).

For example, if user A viewed items 1, 2, 3 and user B viewed items 1,2, this model will
recommend item 3 to user B.

Homepage Recommendations on Zoot.cz – collaborative filtering suggests items specifically selected just for you

Neural Networks

The convolutional neural network makes the applications of recommendations in e-commerce

feasible by learning to recognize image representation and find similar images. Based on
this ability to learn images and search for similar products, the CNN can make applicable
recommendations. It is an algorithm that was inspired by the complexities of the animal visual
cortex. It is comprised of several modules whose sole purpose are to identify and analyze visual
imagery.
If the network is designed to work within facial recognition, then some modules may be
activated when they spot various facial features (ear, nose, etc.). Convolutional Neural Networks
are viewed as being among the most modern advances when working with pixels. To get a better
idea, go to Google and type “blue jeans” into the search field and click “images”. From the results
that you see you should have a pretty good idea of what CNN is capable of doing.

How this helps e-commerce give the ultimate customer experience?

Blue jeans will continue to be the subject matter to better help create an understanding of what
the customer will experience while shopping or simply browsing online fashion.

So, you are browsing your favorite online fashion retailer as you are in need of a new pair of blue
jeans that you can wear for casual engagements as well as informal business events. You see a
nice pair of blue jeans but they are just not the exact item that you need. Well, now imagine if
someone was able to offer you blue jeans that are similar but had some small differences that
may better suit you. With AI, more specifically CNN, it is absolutely possible.

Convolutional Neural Network identified similar blue jeans

One could ask if it would be better to just take a random pair of jeans from the same category.
To elaborate further, say that you also desire having the same color or tint of the original jeans
viewed. Take a look at how the algorithm would perform in this case.

Convolutional Neural Network identified similar blue jeans

You can see that the first row is comprised of random images from the blue jeans category.
Meanwhile, the second row was restricted to the color blue. This illustrates that the imperfections
in data labelling, based on rules, can disrupt algorithms. No algorithm is without faults but those
built on rule based recommendations are not as strong as those designed around CNN based AI.

Picking The Ideal Recommendation Model

There are many recommender solutions which are helping businesses to immediately engage
their customers with personalized content. The downside of these solutions is that without
a proper analysis, it is difficult to establish which recommendation engine is the best for your
business.

The other thing is that even if you have the right recommendation model, its performance may
change over time. Without proper surveillance, you may experience a deterioration in engine
efficiency, which will negatively impact your revenue and customer loyalty.

So the question is, how can you utilize recommendations to their full potential? The first step
is the right mindset. A personalized experience is not something which is built overnight. It
is a continuous effort of your business to create a solid relationship between your brand and
your customers. Such a relationship should not only be established but also nurtured so it can
continuously improve.

Are you wondering where to start or how to approach this quest? Here are a few hints that will
set you on the right track,

• seek advice from experts on which model is the best for your business,
• pick the most suitable recommendation provider,
• constantly check the performance of the selected model to maximize profits and
customer loyalty.
Where To Go From Here?

To sum it up, a recommendation system without additional services is a good strategy to achieve
your short-term goals. If you prefer a solution enabling you to constantly improve the customer
experience, you will need a complex package of additional services.

Now you are probably aware of the direction this discussion is heading, but maybe you are
curious what the differentiating factor is that Exponea can bring to your business.

The first one is that Exponea can help you regardless of your decision. The second one dwells in
the way in which we deliver Recommendations. In Exponea, you will not get a one-size-fits-all
recommendation system but rather a personalized solution which can be used either directly on
your web or via email.

Businesses are different, and what works in the fashion industry may not work in travel,
therefore, our data scientists will consult with your team in order to understand your business
and design a customized recommendation engine tailored to your needs.

After the deployment, the engine is continuously monitored to ensure the best possible
performance. This is ensured by using our self-improving algorithm enabling us to constantly
alter the model settings to create the best user experience.

To explain this “self-improving” algorithm; except for the deployed recommendation model,
some customers are served different versions of the model.This allows us to continuously test
the performance of several models at once and always direct the majority of the traffic to that
which is performing best.

All these operations require a lot of computational power, therefore, we use the Google Cloud
Platform to ensure our recommendation engines are fast, scalable and secure.
Exponea Recommendations will keep your business growing, enabling you to sell, up-sell and
cross-sell your customers.

Convolutional Neural Network identified similar blue jeans

Once any item is added to the shopping cart, Exponea will use the collaborative filtering model to
recommend items which other users browsing the same item are additionally viewing/browsing.

This enables you to upsell your customers just before they finish their purchase journey.

Growth in your revenue is one side of the coin, the other side is that by delivering only the most
relevant content you will keep your customers engaged, loyal and happy by saving their time and
acting as a trusted advisor throughout the purchase process.
Exponea
Recommendations
will keep your
business growing,
enabling you to
sell, up-sell and
cross-sell your
customers.
Product
Recommendations
In Exponea

The prerequisites to launch product

recommendations in Exponea are very simple,
at the bare minimum you only need to have
imported product catalog that identifies items
by item_id which is the same as in front-end
tracking.
Exponea’s recommendations models
Exponea currently offers you 9 recommendations presets, although not all of them are driven
by AI.

Homepage

Creates personalized recommendations that are optimized for the homepage and should deliver
the best performance for pages such as homepage or category page.

Recommendation models using Homepage presets should ideally be deployed only on your
website to deliver the highest business value.

Product detail

Creates a recommendation model specifically tailored for personalized recommendations on a

product detail page. This preset delivers recommendations which are the most relevant alterna-
tives to the product on the detail page.

Although, it is possible to use these recommendations in an email if you want to tailor them to a
specific product that you are promoting, they are the best fit for a product detail page.

Customer recent interactions

Creates a personalized recommendation tailored to the customer according to items the cus-
tomer has recently purchased or viewed. These can be easily used in both emails and on the
web.
Popular right now

Creates a simple business rule recommendation model based on a specific metric.

This metric is calculated project-wide and is not personalized. Therefore, if you want to look at
best-selling items, you will see the best-selling items for the whole project, not for a specific
customer.

This model delivers high value for both email and web recommendations.

Similar items

Creates a recommendation model of similar items based on catalog attributes. Therefore this
model considers similarity in text description of items. Although it could be used in an email to
show similar products to the one you are promoting, it’s used best on the product detail page.

A good use-case for this model would be to just recommend items from the same brand, where
you would only have one required attribute - brand. This way you could upsell complementary
products of the same brand.

Customers who bought this item also bought

Creates a sophisticated model, that recommends other items that were bought together with
this item.

It is ideal for a product detail page, but again could also be used in an email when promoting a
specific product.
Customers who viewed this item also viewed

Is essentially the same model as the one above, but instead of a purchased product, it takes in
consideration viewed products.

It’s also ideal for the detail page or email when you would like to promote a specific product.

Personalized recommendations for you

Creates the most complex recommendations out there.

This uses collaborative filtering to identify similar users and show you products that you would
like. While it might be OK for emails, it is best fed from front-end events and is ideal for web
deployment.

Custom recommendation models

Sometimes presets won’t do the necessary work for you. Especially in emails, you cannot guar-
antee that all customers will receive meaningful results with just one recommendation model.
That’s why we offer a way to combine various recommendations presets into a single model
based on specified combination strategy.
Examples of custom recommendation
models

Email recommendation

This recommendation model can be used for a weekly newsletter emailing campaign. It
displays the products the customer has been browsing through over the last week. If this cus-
tomer hasn’t browsed in the last week, it displays the following:

1. The most-sold items in the last week and if for any reason there should be a problem
with this model, we have also selected.
2. manual selection of products, just in case all else would fails.
Showing the products this customer has purchased the most

For clients who have a small selection of products or for those who work on a quasi-subscription
model, it is a good idea to keep showing the products the customer loves the most -> the ones
they buy the most often.

From razors to performance pills, customers likely want to continuously order the same product
they have been using for years. Here’s how you’d do it:
Why Are SaaS
Companies
Leaders in AI
Development

Proprietary algorithms developed by sole

fashion retailers could have a lasting impact on
their businesses and are providing them with a
competitive advantage. But, their development
isn’t contributing to the evolution of AI across
the whole industry.
SaaS companies, such as Exponea, whose consultants are on the lookout for repeating pat-
terns across various online retailers are supplying AI development teams with insights, which
are pushing the precision of algorithms, which could be applied across the industry.

AI development teams are coming up with new solutions to test out across multiple online
retailers, proving their feasibility behind a pure hypothesis or a single use.

That is the reason why we at Exponea are so highly focused on AI. By developing and perfect-
ing our algorithms, we empower our clients to leverage our collective know-how to become
highly competitive in their respective markets.
Thank you
for reading through this e-book and reaching this last page.

Exponea
Experience Cloud
is the first GDPR-certified SaaS company. Using AI-enabled marketing automation and
advanced data analytics, the platform empowers e-commerce.

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