How AI Will Affect Business Strategy

We have been focusing on retail developments in the West for a while, but here is an
insightful and revealing look at what is happening in the East. China is leading in retail
innovation, ahead of the rest of the world. In 2016, e-commerce giant Alibaba’s founder
Jack Ma predicted a seamless merger of offline, online and logistics for a dynamic new
world of retailing. China is no more the back end of the world but also at the leading edge
of technology.

Alibaba CEO Daniel Zhang said recently, “Companies must use Big Data analytics to
redefine the traditional core elements of retailing – Consumers, Merchandise and Stores –
and the relationships amongst those elements to upgrade current formats and create new

For example, in Alibaba’s Fashion AI Store, consumers get a completely personalised
service from check in to the store to check-out. The environment between the consumer
and the products is extremely interactive and the role of the sales staff comes largely from
requests of consumers using the technology interfaces.

Developments in AI Drive Predictive Ability of Machine

Whether it is Harry Potter or Matrix, the human characters’ belief in predictions drive the
plot. Predictions affect behaviour and they influence decisions. It is important to
understand what prediction means. Prediction need not be just about the future, it can also
be about the present moment. We predict whether a current credit card transaction is
legitimate or fraudulent, whether a tumour in a medical image is malignant or benign,
whether the person looking into the iPhone camera is the owner or not.

Most of us are familiar with shopping at any online retailer, e.g., say Amazon. As with most
online retailers, you visit its website, shop for items, place them in your cart, pay for them,
and then Amazon ships them to you. Right now Amazon’s business model is ‘Shoppingthen-
Shipping’. During the shopping process, Amazon’s AI offers suggestions of items that
it predicts consumers will want to buy. The AI does a reasonable job. As per neutral studies, ‘With millions of product offerings, Amazon gets individual predictions right 5
percent of the time’. That is very impressive considering the width of offerings.

When this prediction accuracy reaches a threshold, it would make lot more economic
sense for Amazon to fi rst ship and then sell. In other words, consumers will get goods and
they will keep it if they like it else return the goods. No wonder Amazon fi led a patent in
2013 for ‘Predictive Shipping’.

With higher accuracies of prediction, the fundamental business strategy of Amazon shifts
from Shopping-then- Shipping to Shipping-then-Shopping. If it adopts this new business
model, Amazon then needs to build a network for getting goods back.
Prediction abilities hence will impact business strategy in the time to come.

Using AI capabilities accuracy of prediction has been improving significantly over the
years. Fraud detection accuracies used to be about 80 percent in 1990, moved upto 90-95
percent in 2000 and 98.5-99.9 percent today. Another area prediction has been
successfully used in is language translation. We have come to a stage wherein the
machine translation is a lot more accurate than even the best linguistic expert. We all see
the benefit of this development in accessing information across the world.

How Are These Developments Relevant For Fashion Business?

A quick check on the way fashion predictions reveal that there is a fair amount of future
validating questions that are asked to experts (wholesale partners or internal

What needs to be done to bring in a true ‘outside view’ into fashion decision making. With
consumer information available a lot more than ever before, smart usage of data – both
from outside and inside – to derive insights is one big step towards formally bringing in an
‘Outside View’ into the decision making process.

With the ability of machine vision, AI models are able to predict 40-50 percent better than
existing fashion prediction processes. Those brands and retailers who equip themselves
with a better view of the future, better than their counterparts in the market, are the ones
who can win the consumers’ wallet in a sustainable way. With constant improvements in
predictions, we could soon see shift in the fashion business paradigms like the one we saw
above in the case of Amazon.