Why we all need an astrophysicist in our life.
While Matt Agnew and Chelsie have just announced their split this weekend, the astrophysicist come reality star may just be what your retail team needs. Don’t be fooled by the astrophysics title, what Matt has actually been doing is working as a data scientist for NAB through his employer Quantium – a data analytics firm.
So how does astrophysics and retail work together? Machine learning and Artificial intelligence are the new black when it comes to innovation and success in any customer lead business. Think Netflix & Spotify – they both use complex algorithms to predict and offer ideal content to customers to increase their customers lifetime and overall spend. It’s the astrophysicists that bring the know how to build the predictive mathematical models that sit behind these algorithms. Below we look at a prime example of this coming together with data science driving the next frontier of disruption in the retail market.
CASE STUDY – Stitch Fix
Stitch Fix is the latest innovator in the retail space. Using a sophisticated algorithm paired with human stylists, they offer a styling box service of 5 items in exchange for a USD$20 fee that is credited across any items kept from the box. Set up much like a subscription service but with no contracts, customers can schedule deliveries as they please.
Upon signing up for the service, customers provide as much insight possible with their measurements and style preferences, but this data set grows as the customer purchases items from each of their “fixes” delivered and, through the App, customers can play their Style Shuffle game to further deepen the knowledge on what items a particular customer will like and purchase. The predictive algorithm has proven that style is a science that can be dissected and harnessed to increase stock efficiency and profitability.
They have a team of over 100 data scientists paired with 3900 stylists who put together the algorithms recommendations and create the final delivery of items known as “fixes” to be delivered to their clients. The human intervention makes sense of the clients’ needs and picks up any subtleties that the algorithm cannot, hence increasing the hit rate of each delivery.
Founded by Katrina Lake in 2011, and launched publicly in late 2017, Stitch Fix has some impressive performance stats already on the board:
- turned over 1.6 billion in FY19 (up 29% on previous year)
- net profit of 36.9 million in the same year
- 2 million active clients
- gross margin of 45.1%
- average item price paid is $55
- 9% year on year increase in net revenue per active client – 2019 4th quarter
So, what’s the secret behind Stitch Fix’s success? Apart from increasing stock efficiency and profitability, they’re tapping into the mindset of the consumer. We are busy and don’t have the time to spend trawling stores to try on clothes that don’t fit well. We know the footfall is declining in department stores. And, who doesn’t want a personal stylist who can get it right and take the pain and suffering out of being trapped in a stuffy fitting room with unflattering garments and a fast eroding sense of self-worth? If only they offered their service in Australia, let’s see how long it will take for our logistical challenges to be overcome by such an algorithm.
Australian Retail Innovation – an oxymoron?
While omni channel investment has been the preoccupation of most retailers for the past 5 years, the next big frontier for future success is data. Amazon’s entry in the the Australian market has given its competitors the need to get their omni game up to speed, but as yet data science is yet to make its presence in our local retail scene. In general, Australian retailers have not been using the goldmine of data they already have at their fingertips. This being for a number of reasons, mainly, lack of investment with a preference for cost savings over innovative risks.
The leap into data science will take some heavy investment and change in team dynamics to take off in our market. Does your retail business have the willingness & ability to take on this next frontier?