Indian e-commerce has come to terms with the business reality in 2016 with the focus shifting completely from vanity metrics like GMV (gross merchandise value) to the golden word – profitability. The e-commerce market in India comprises mainly of electronics (that is, mobile phones) and fashion. Mobile phones are a low margin category and help swell the top-line with little impact on the bottom-line. Thus, fashion is the largest source of bottom-line for all major e-commerce players.
However, selling fashion online is a complex affair and Indian e-commerce companies have not yet created the technology to tame this animal. It is fairly easy to sell mobile phones online since the number of stock keeping units (SKUs) is limited to a few thousand with standardised products. This, however, is not the case with fashion, thereby, creating a roadblock as well as an opportunity.
Over the last few years in India, fashion e-commerce players brought majority of their offline fashion inventory online, but their only selling point has been pricing and discounts. Most players sell over 90% of their inventory at a deep discount hoping the customer will return and buy at full price. However, the customer never comes back. Fashion makes sense only when e-tailers are able to sell at full price. That, however, means giving the user value besides low pricing.
Fashion has the following peculiar characteristics – millions of SKUs with a majority of them of literally no use to the customer, which means that curation is of paramount importance. Secondly, there is no standardization in the industry and there is a lack of appropriate metadata required for proper filtering and searching. Besides, users want to see how clothes will fit and look on them. Also, as majority of offline fashion shopping happens as window shopping, it is sub-optimal to sell online through catalogs.
These complex issues can be resolved with technology, which can specifically address each problem.
The first step is to create metadata which forms the foundation to resolving all other issues. Text and image recognition technologies are the means by which this data can be put together.
The inability to try out garments is the single biggest reason that prevents users from buying fashion online. The solution is to set up virtual trial rooms.
Developing an automated recommendation system can increase conversion rates. Such a system would provide rankings of garments and show users similar products.
Fashion is likely to sell more when users are able to see how their choices look. This has been proven through the popularity of websites like Polyvore which creates ‘looks’ for their users. Manually creating a look is prohibitively expensive as fashion is a fast moving category. Another way to sell fashion is through inspirational content where is it considered a ‘want’ and not a ‘need’.
Currently, e-commerce companies aggregate a large selection of products, generate demand and then handle the logistics. This does not address the difficulties these companies face. With the fashion e-commerce sector set to grow to $50 billion in India by 2020, creating technology to sell online is a great proposition and business model. Moreover, e-commerce companies outside India face similar challenges and technology can enable these firms to overcome these issues.
The author is the chief executive of Baggout, a fashion recommendation portal for women. The firm has created algorithms to power recommendations on the websites of its partner retailers.