Editor's note: Leo Chen is a former product manager at Amazon and is currently the co-founder of Monogram, an iPad fashion discovery and shopping app funded by 500 Startups. You can find Leo on Twitter @leoalmighty.
Death of brick-and-mortar retail
Andrew Chen recently recommended a video to me, which inspired this post. It's a keynote by Ron Johnson, the CEO of JC Penney and the man behind Apple's retail revolution. In the video, Johnson spoke about the history of the department store and why JC Penney has fallen behind.
It wasn't very long ago that stores like JC Penney, Nordstrom, and Gap were the pinnacles of fashion retail. These retailers provided better products at unbeatable prices. Retail buyers acted as personal curators for customers and the in-store experience was exceptional.
Then came e-commerce. Predictable products like books, CDs, and electronics drove the first wave of e-commerce for e-tailers like Amazon. But fashion lagged behind. Consumers want a tactile, in-person experience when it comes to garments. They need to touch and try it on. Even as e-tailers offered lower prices, consumers preferred to shop in stores.
That all began to change when Zappos came along with free shipping and returns; customers are encouraged to order multiple sizes and colors, try on the items in the comfort of our homes and return what we don't want. For free. Coupled with better product visualizations (large images, multi-angle views – see Warby Parker and MyHabit), consumers are increasingly turning to the web for their fashion needs.
'Apparel and accessories' is projected to be the leading category in e-commerce in the US over the next 5 years.
But soon, online retailers will also become less relevant
The bar for e-commerce is rising every day: great visuals and free shipping are fast becoming commoditized. If product, price and service are the same, consumers will grow indifferent towards the seller.
Retailers still drive marketing, supply chain and distribution for designers and brands, but how long before brands figure this out themselves? Social curation and discovery tools like Pinterest and Fancy are leveling the playing field for retail marketing; Amazon is disrupting supply chain and fulfillment (more on this next).
So why are we still shopping at a handful of our so-called "favorite stores"? Because the internet has a noise and discovery problem. I believe that's where the next wave of fashion tech innovation will take us.
Pinterest has found an optimal balance between aspirational browsing and shopping. Social shopping is more about discovery, conversations and relationship building, something that's apparent in the way Pinterest users interact.
As Pinterest evolves, they will focus more on monetization and driving direct commerce. They have already experimented with affiliate links and the Rakuten investment is a strong hint at direct commerce. Here's what I predict Pinterest might do next (purely speculative, of course):
- Branded pages for brands, stores and boutiques
- There's already evidence that Pinterest users spend more money than Facebook users.
- Pinterest could compete directly with Facebook pages by offering brands a better way to showcase products with access to a higher quality audience.
- Integrated/Universal checkout
- If users are already discovering products through Pinterest but going off to merchant sites to transact, Pinterest should own that transaction and offer a consistent user experience.
- For smaller retailers and boutiques, Pinterest could integrate, acquire or build their own version of Shopify and let merchants sell directly on the Pinterest platform.
- For large retailers and brands, Pinterest will have to form partnerships and integrate with retailer payment systems: essentially selling products on Pinterest, and having the retailer drop ship inventory. Retailers may resist this initially because Pinterest will effectively render the merchant less relevant.
- Brands will be more inclined to work with Pinterest because they see it as an effective distribution channel. Brands can ultimately skip the retailer if they can get distribution through Pinterest. Fulfillment by Amazon (FBA) solves the logistics challenges — brands can simply ship inventory to an Amazon warehouse and have Amazon handle fulfillment. Consumers get the added benefit of Amazon Prime.
- Create an e-commerce channel
- To mitigate the risk of disrupting (and irritating) current user, Pinterest will likely create a separate shopping channel if they decide to focus on commerce (e.g.shop.pinterest.com).
- This shopping channel will be product and commerce focused. You won't find the cute puppies and fortune cookie quotes here, but you can bet Pinterest will leverage all your data for targeting.
Challenges Pinterest will face
As Pinterest scales, the biggest challenge will be surfacing signal buried in noise. It's the Facebook Newsfeed problem, but much more difficult because of its focus on fashion and other tastemaker products.
- Facebook is about people, so to make my newsfeed relevant it has to factor in the quality of my relationships. Who am I closer friends with, who is my family, which fan pages do I interact with most, etc. This is easy because we give Facebook that information every time we look at a friend's photos, like a status update or comment on a post. Facebook doesn't care what content we interacted with; it only needs to know who produced that content.
- Fashion and other tastemaker products (e.g. home decor) are highly subjective, which means that I don't necessarily like the same clothes or sofas as my closest friends. If I like a picture of a cute puppy my friend pinned, doesn't mean I share his taste in fashion. Aside from existing Pinterest categories, they will have to find ways to add deeper tags on the products pinned (e.g. brand, color, style, season, fabric, patterns, etc…) to accurately target.
What's next in fashion tech?
To date, most fashion tech companies are more commerce than tech. If you look at Gilt and Fab, they're primarily commerce companies built on fairly standard e-commerce backends with some slight twists. It's hard to drive disruptive innovation when your KPI is revenue.
In order to fundamentally change the way people shop, we will need teams with fashion experts, product visionaries, deep technical horsepower and growth hackers. It's a hard combination to find, especially when most hackers in the valley shlep around in jeans and t-shirts — they're not their own target user.
What will online fashion shopping be like in the future? I believe today's multi-browser-tab search and filter behavior will feel as ancient as printed maps and yellow pages are today.
When I have a specific purchase in mind:
When I'm in the mood to browse:
Welcome to the future.
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