Case Study: Zalando’s Innovative Use of AI

Background

Zalando, a leading European online platform for fashion and lifestyle, has consistently been at the forefront of innovation since its inception in 2008. Founded by business school friends Robert Gentz and David Schneider, the German-based company serves 17 European markets with an extensive selection of 400,000 products from over 2,000 brands. The retailer’s customer base has grown to 27 million, thanks in part to its early and sustained commitment to leveraging artificial intelligence (AI) and machine learning technologies. Most recently, Zalando announced the upcoming launch of a ChatGPT-powered fashion assistant aimed at transforming the online shopping experience.

Key Takeaways

  • Zalando has been using AI and machine learning to personalize the shopping experience and better understand customer needs.
  • The company launched an Algorithmic Fashion Companion (AFC) that uses AI to recommend outfits, driving business metrics like basket size.
  • Financially, Zalando reported an 87% surge in Q2 2023’s adjusted EBIT, despite a challenging retail environment.
  • The upcoming ChatGPT-powered fashion assistant aims to revolutionize the way customers interact with Zalando’s platform, making it more intuitive and personalized.
  • AI also finds applications in Zalando’s logistics, supply chain, and even size recommendations, showcasing the technology’s versatility.

Deep Dive: Zalando’s Innovative Use of AI

Approach

Zalando has adopted a customer-centric approach to implementing AI, with the primary aim of improving the user experience and boosting sales. The company has focused on addressing customer needs by offering hyper-personalized experiences, whether that’s through outfit recommendations or size advice. With teams that include 120 researchers, Zalando invests in technology to deepen its understanding of customer preferences and the broader fashion landscape.

Implementation

The Algorithmic Fashion Companion (AFC) was one of Zalando’s earlier implementations, a digital outfit recommendation tool based on a customer’s wish list or prior purchases. Adjustments by human stylists ensured that the algorithm remained aligned with current fashion trends. More recently, Zalando announced its plans to introduce a ChatGPT-powered fashion assistant. This assistant will help customers navigate the online marketplace by interpreting their natural language queries, making the shopping experience more intuitive. Furthermore, Zalando has employed AI in back-end operations, from supply chain logistics to offering AI-powered size recommendations based on customer photos.

Results

AI implementation has been fruitful for Zalando. For example, the AFC has been a driver in increasing basket sizes by 40%. Financially, the company’s Q2 2023 report showed a strong adjusted EBIT increase of 87%, partially attributable to its strategic focus on AI and technology. AI is also influencing Zalando’s partnerships, drawing in brands like lululemon and Lancôme.

Challenges and Barriers

Despite its successes, Zalando faces challenges in fully leveraging AI. One limitation is the AI’s inability to account for the influence of external factors like celebrities and social trends on customer preferences. There is also a data privacy concern as the company collects more personalized information from consumers. In terms of workforce, Zalando had to cut 250 marketing and communications professionals as AI increasingly automates these roles.

Future Outlook

Zalando’s future in AI appears promising, with plans to iterate and scale their ChatGPT-powered fashion assistant. The company aims to expand the assistant’s capabilities to offer fashion and beauty advice and potentially to integrate more personalized recommendations based on customer data. They are also keen on driving innovation in size and fit, aiming to solve this e-commerce challenge at scale.

Conclusion

Zalando has set a high standard in using AI to enhance the customer experience and improve its business metrics. Through a judicious mix of machine learning algorithms and human expertise, the company has succeeded in significantly influencing customer behavior and improving its financial standing. While challenges remain, especially concerning data privacy and the role of human employees, Zalando’s proactive approach to embracing technology makes it a case study worth emulating. The firm’s focus on constant learning and adaptation suggests a robust capability to harness AI’s full potential in the future.

Sources:
Zalando launches AI fashion assistant
Zalando to launch virtual fashion assistant powered by ChatGPT
The Amazing Ways Retail Giant Zalando Is Using Artificial Intelligence
How Zalando uses AI for hyper-personalised customer experiences
Zalando launches new brands and AI-powered size recommendations
Zalando to launch a fashion assistant powered by ChatGPT


Get in touch

Whether you’re looking for expert guidance on an AI initiative or want to share your AI knowledge with others, our network is the place for you. Let’s work together to build a brighter future powered by AI.