SAN FRANCISCO — Fashion’s not ready to cede tech innovation to the Silicon Valley bigwigs.
This story first appeared in the July 15, 2014 issue of WWD. Subscribe Today.
Retailers from Nordstrom Inc. to Wal-Mart Stores Inc. have opened up “labs” in hopes that a geeky start-up vibe will attract the right talent to generate the next big thing in digital commerce or some proprietary add-on. And these incubator programs have a related mission: actively grow the next generation of savvy brands from online roots.
It’s a case of retailers following the money and the consumer into the digital realm, and almost everyone wants to get into the game.
Over the past three years, Nordstrom and Wal-Mart, as well as American Eagle Outfitters Inc., Sears Holdings Corp., Target Corp., Kohl’s Corp. and shopping center giant Westfield Group, have been building their own internal tech labs filled with engineers who can speak retail. While some have chosen to set up their tech projects closer to home — Nordstrom’s Lab is in Seattle and Sears’ is in Hoffman Estates, Ill. —Wal-Mart shot for the center of the tech universe and set up camp right in Silicon Valley.
In 2011, @WalmartLabs was born with the acquisition of big data start-up Kosmix, which led to the creation of Polaris, Wal-Mart’s search engine, which Ben Galbraith, vice president of global products for @WalmartLabs, said yields a 20 percent conversion rate. Polaris was based on Kosmix’s semantic technology, which uses algorithms to rank the popularity of search results from social networks such as Pinterest. “There are some teams with hard-core engineers who focus on how we can scale up our search engine to handle all of the queries to our Web site,” said Ben Galbraith, vice president of global products for @WalmartLabs. “They’re obsessed with understanding the customer and the industry.”
@WalmartLabs has acquired 13 start-ups, building a workforce with expertise in iOS mobile app development, mobile receipts, cloud computing and predictive analytics. The @WalmartLabs team has grown to 3,500 employees. “We created a best in class Internet company within a retail company,” said Galbraith. @WalmartLabs is working on e-receipts — a way for customers to create shopping lists and track their spending.
Nordstrom’s Innovation Lab follows a “Lean Startup” methodology, which encourages constant customer feedback, instead of releasing products in a vacuum, according to J.B. Brown, director of mobile app delivery. The lab team often creates products from scratch in days or weeks based on how customers react in stores, and refines them over months or years. To create an iPad app that enables retail staff to help customers choose the best pair of sunglasses for their faces, the lab team spent the day in the Seattle flagship discussing potential ideas with customers. The result was an experimental app that allows customers to take selfies and view side-by-side images of themselves in various sunglasses. Brown said the lab works without red tape and has the agility of a real start-up, a necessity for competing with actual start-ups in the field.
“Start-ups out in the industry are going to be doing this anyway.…Instead of having them be competitors and having them come up with the new, fast cool idea, we should do it ourselves,” Brown said in a promotional YouTube video about the lab.
German Software behemoth SAP (which stands for Systems, Applications and Products) is piloting an app called MyRunway through its Silicon Valley-based lab, “AppHaus.” Li Gong, vice president of product at SAP and the creator of MyRunway App, said the acquisition of cross-platform e-commerce technology Hybris will enable MyRunway to give consumers real-time insights into major retail stores’ inventory, in addition to online stock. Gong said 70 percent of major fashion brands run on SAP and noted that “once those brands implement Hybris, MyRunway will be able to provide true omnichannel integration, which is of course the ultimate goal.” Gong added that while labs within corporations allow access to unparalleled talent, funding and technology, a large corporation’s size and established protocols may bring about challenges. Known as the hurdle of the “Innovator’s Dilemma,” Gong said he and his colleagues are working to overcome the lag time created by existing governance from product and marketing departments, which slows launches and can prevent out-of-the-box concepts. In other words, stripping out corporate bureaucracy is a vital goal to such fast-paced digital innovation.
While established players look to build new skills to gain competitive relevance, a vibrant start-up scene in the shadows of the Silicon Valley tech giants such as Facebook and Google is also working to fuse technology and fashion together.
“Today, an online fashion company built five years ago can have a bigger valuation than an offline fashion company that has been around for 30 years,” said Enrico Beltramini, a former Gucci corporative executive and founder of the Fashion Technology Accelerator, which works with 16 companies across Silicon Valley, Milan and Seoul. “I believe that we have several potential multimillion-dollar companies in the accelerator.”
For an undisclosed amount of equity, the accelerator’s start-ups get access to an advisory board of experts such as North Face founder Kenneth “Hap” Klopp and introductions to potential investors such as Zappos chief executive officer and venture capitalist Tony Hsieh.
Like brands’ size charts, the definitions of accelerators, labs and incubators will vary depending on whom you ask. Beltramini, a Silicon Valley veteran, said independent accelerators, incubators and labs grow multiple businesses simultaneously, while corporate labs typically work on internal acquisitions and innovations. “It’s all part of the same trend….We all want the same thing: to innovate fashion through technology,” he said.
According to Jinah Oh, fashion merchandising professor and adviser at the Accelerator, the dialogue between fashion and technology is coming along, with minor technical difficulties. “People in the tech world didn’t take fashion seriously for a long time, but it’s changing,” she said. “Some engineers still think that fashion is so easy, they see ‘Project Runway’ and think that a fashion show happens in an hour.”
Westfield Labs’ headquarters in San Francisco looks like a software start-up, with an open floor plan and white boards that ostensibly encourage collaboration and brainstorming for more than 50 project designers, developers and managers. “Our big thing is the convergence of the digital and physical world,” said Lindsey Thomas, vice president of marketing and communications. Recent Westfield Labs pilots included same-day delivery services powered by Silicon Valley start-up Deliv and digital storefronts, which allow customers to browse on wall-sized touch-screen pads in Westfield’s San Francisco mall.
In San Francisco, spaces formerly reserved for the tech crowd are welcoming fashion companies. Runway Incubator shares a building with social-networking companies Twitter and Yammer in the city’s tech mecca neighborhood, South of Market. But Runway’s founder, Allan Young, said he didn’t want his incubator to only house start-ups that build tools for other start-ups; he wanted hardware. For Young, accessories company Saako and men’s apparel brand Isaora were a welcome addition. “They bring an element of design, beauty and culture,” said Young, who refers to himself as a geek who wouldn’t know his way around Nordstrom. “They’re working with something tangible, something global.…When [start-ups] are just looking at and writing code all day, you’re not focusing on your customers, but Saako will inevitably creep into their subconscious and the other companies may potentially make more beautiful software products.”
Just a few blocks away, the Wearable World Lab accelerator is taking a different approach and is trying to put more tech into fashion. The lab’s founders take up to 3 percent equity in exchange for a three-month immersion that helps start-ups create and refine their products and pitches. Portfolio companies in the lab’s first accelerator program include tech-jewelry maker Keyrious; Zackees, creator of a sleek, LED-flashing turn-signal glove that allow bikers, skaters and the like to signal turns at night almost as vividly as a car; and motorcycle headgear company Skully Helmets, which already has 55,000 preorders for their first smart helmet that enables GPS navigation, a rear-view camera and Bluetooth smartphone integration.
Start-ups in the lab’s “family” must aim to solve a problem or meet a need in order to be admitted into the lab. Ian Fletcher, the lab’s director of partnerships, said, “When you have a new space like wearables, there’s a danger that people will make something new just because the technology is there, so we really look for entrepreneurs who are solving something.”