Right Product, Right Place, Right Time with José Chan, Professor at Parson's and Founding Member ...

We talk a lot about tech, but the product is key. Without the product, the tech's not gonna solve your problems.

Hi and welcome to another episode of Fashion Made. Today we are sitting here in New York City and I am with Jose Chan, professor of Parsons School of Design and member of the founding team of Select, which is— well, Jose, you can tell me a little bit more about Select.

Sure. It's a machine learning platform that optimizes inventory across the supply chain by predicting future demand.

Okay, pure and simple.

It took a while to get to that, but yeah, yeah, absolutely. Pure and simple.

Yeah, yeah, it was a sort of a much more complicated idea at the beginning, and then you've managed to narrow it down to that pure focus.

Yes, so it was always the same pain point, right? Like with startups, any startup, you always have to define a specific pain point. But in terms of being able to summarize what a particular product does, and you could apply this to fashion or any company, getting to, let's say, a tagline or the idea of what it does in a simple format takes, takes time and takes years.

Yeah. I bet, I bet. And did you always have a background in AI and machine learning?

Actually, I went back to school for another master's at MIT.

Oh, cool.

And did a master's in management of technology and started to get exposed to different types of technology because being from the industry as well as being an educator, I realized that, 12 years ago, I realized that the future was in tech. But if you were to ask me 12 years ago, José, what is tech in the apparel retail space, if you will, fashion, I wouldn't know what to tell you. I'd tell you, well, you know, I think tech is the IT department. That's tech. I think, think back 12 years. My computer is tech. E-com, or let's say a website, is tech. But I couldn't really articulate and envision, tell you how all these things were interconnected other than just saying, "That's tech." The industry was going that way, and I realized, well, in order to be part of the conversation and be a player within that aspect of the industry, being an insider, not an outsider, it was important to get further education in order to learn about it and disseminate the knowledge across different audiences, whether it was a commercial audience, or perhaps the student audience.

Fantastic. So fast forward 12 years, and you're now helping brands deal with common problems.

Yes. So put it this way: we're like many providers. We're one of many, but the key is to solve a specific pain point. For us, inventory is important because that is the biggest item on a balance sheet, right? And it's the old story of retail. You need the right product at the right place place at the right time at the right price. The 4 rights, right? Now, we take care of the first 3. Right, exactly. Right. We take care of the first 3. The price is different. We can, but ultimately, if you could fix that, works well. However, we're only, again, one solution provider. There are many others. So if you look at the apparel supply chain, it starts with design and it ends with a retailer, physical or digital. That, that, that's the beginning and the end. In between, you have a whole supply chain where you have everything from design to manufacturing to logistics to shipping and everything else that happens in between. So there are many pain points to be solved, and I think if we solve one pain point, the inventory piece, but you could go back and there are many opportunities, many other let's say, solution providers that solve other pain points. For example, 3D. 3D is— there was a time when design was just a pencil and a paper, which then evolved to CAD, which is now more sophisticated. We call it 3D overall, and in different systems, right, that take care of this. That's a pain point. Then there's another pain point that needs to be solved in terms of the supply chain. Right? So you could say that design's part of the supply chain. Then you get to the manufacturing process. There's an issue there where the sampling process takes too long, and getting physical samples has become a bottleneck for many, let's say, brands/retailers. So what they've done is digitized that process somewhat, right, in order to minimize the time that it takes to get samples, which ultimately serves to help you reduce the time to market, right? Because as you've had fast fashion companies like H&M, Zara, Uniqlo come into play— Zara being among the most noted ones— you, you've had everybody wanting to emulate that model of a 10 to 12 day design to consumer cycle. Whereas if you think of brands and retailers traditionally, it's an 18-month cycle. If— I mean, because you're big scale, right? But to reduce the 18 months to 14 to 12 to 12 months, I'd say reasonably, that's a big stride. And that helps you get closer to solving that pain point of getting to your consumer, getting them things more quickly.

Brings to mind the H&M, Zara case studies. —would you say you would advise one of those strategies over the other?

Look, I'm agnostic, but I'll tell you what— if you read what's been going on with these two companies, I'll tell you specifically. With a company like Zara, they already have technology— machine learning, for example— baked into their process. Right, that they're from the beginning— think of them as probably an original new retail company, right, because their processes were built from scratch. So it's not like they're plugging in new processes into an existing process, which is what's happening with a lot of brands/retailers today that have existed. They were able to create it from the start and over time add. So they're very much ahead. So I believe there was an article this past week. If you just Google Zara and technology, you'll find an article that talks about how for many years they've been leveraging technology, which is what is part of their success, among other things, right? The supply chain. So what are the things that make them successful? Mostly that they own a lot of their fabric mills within Europe, which makes it closer, and they're produced in Europe mostly, right? Maybe parts of it in other parts of— different parts of Europe, but you could get your fabric— if you get your fabric quickly to your factories and at the same time turn a product— turn into a product quickly and then ship it logistically, and that takes work, to a store quickly with the feedback that you're getting, you have a winning model, which is what everybody's trying to emulate, 10 to 12 days. On the flip side, H&M, their issue is that they have had no technology, or very little. So if again, you just have to Google this, H&M, and just look at their earnings. Their earnings about, uh, the last set of earnings about a month ago were horrible.

I mean, it's not gone well for them at all.

Well, too much merchandise, because in the world that we're living in today, and as it goes back to the earlier part of our conversation, I realized that personally I need to be in the game. Personally, I needed to know about tech. I think late in the game for them, and they're much larger than I am, so there's no comparison, it's just more of conceptual comparison more than anything else. They didn't act on the fact that they needed technology. And there's technology today that could help minimize excess inventory, optimize your buys, and there are many solution providers that do the merchandising, and it could be any solution provider, again, agnostic to this, but they just needed to look outside of themselves in order to realize there's something there. So if you were to read, again, you could Google this online, H&M has a big initiative now where the CEO has said, "We have a big digital initiative, and we're going to bring in technology to help us with our problem," because you need some of that on the back end. And that's only one of the things they could do, but they need a lot of help in different places. Have you given them a call yet? No. Not me personally, but I think someone on the team has. I should hope so. I should hope so.

When it comes to AI technologies at the moment, I'm quite interested to, I guess, know what maybe some of the biggest problems, kind of challenges are with it at the moment, but also maybe looking more positively at the future, what are actually some of the biggest opportunities? So, I mean, if you can name maybe the biggest problem with AI right now, in your opinion, could you name one?

Yes, the biggest problem with AI is that every brand and retailer in the world is talking about AI. And if you look at the consulting or business, let's say, questionnaires, surveys that are talking about the need to use AI in retail/brands, everybody's going to say resoundingly, we need it. It's part of our strategic mission. We need to have some sort of technology, whether they call it AI or not. Um, it usually— they mean AI, but technology is a catch-all. That's great. The problem is that they don't exactly know how to leverage it or what is right. So the big problem isn't the technology. The big problem is the human problem of the change management. Is, and it's very simple, it's how do I take this into my existing company infrastructure? I'm not a new retail company that just started and I grew up with this, but I'm trying to catch up to the new retail companies and leverage different types of technologies. How do I stitch this digital strategy, right, to my corporate strategy break down the silos that I have and make something viable, measurable, work for my particular, let's say, organization. I think that's a big problem.

So the biggest problem with AI is humans?

Human, yeah. Change management. If I had to sum it up, it's really the change management component of how to integrate it within existing processes, because that's really what we're talking about. It's not a tech problem. Tech itself, incredible problems. But if you can't apply it, or you can't apply it consistently, or, um, you can't get actionable insights from it, then it's like a piece of software that you spend a lot of money on that you just don't use, which is what I'm getting at. And so one of it is the change management involves many layers. It's one, having one, the strategy, and two, you Even with the strategy, it's ensuring that it is actually used in specific areas. And I would add, you don't need technology, AI or any other type of technology, to solve every problem. So you just can't throw things at your business as a CEO or C-suite executive to say, ah, this is the silver bullet that's going to solve this problem. No. It has to be very surgical. This is going to solve this particular problem, this is going to solve this particular problem, and for this problem, you know what, I need a process change, I don't need an external organization, we could actually— we don't need heavy technology to do any of this. So the other thing is, Reid, separate— so that I think that answers that, but separate is you have to think that companies are also looking for end-to-end solutions. Whereas today there is no end-to-end solution to any of this, which is why a strategic roadmap in order to plug and play technologies that you actually need to solve a pain point fit in.

Once we overcome that change management aspect, I mean, what are the biggest opportunities?

Ah, that's a great question. I mean, you have— that's success. So for example, Um, you're right, that is the hardest part, but I think we're still one in the early days. And I'll give you a case study. I saw a presentation given by the CEO of a company called Children's Place. And Children's Place is an American retailer with about 300 brick-and-mortar stores that effectively just sell, just much like its name, children's clothing. She took over the company And the stock was at roughly $30-some-odd, which was very low for them, right, just to put into context. And it was failing, essentially. So she explained her strategy, and this is the case study. So this is at a public talk, so I'm not speaking out of turn in terms of what she said.

I don't have to bleep anything out then.

Yeah, exactly. That's why I bring this up, so you don't have to bleep it out. So she said there are 4 pillars, maybe a 5th, but the first is she had to get the product right. The product had to be right. So she had to, one, find the right merchant head to take care of the product in order to make it palatable to their customers, because that wasn't working. That was the first part. The next part was systems, getting the right systems in a place, not necessarily technology, but just systems. Everything was being done manually, and there wasn't a cohesive system that let you see inventories clearly across the company or single view. So ERP systems, etc., right? The third piece was finding new revenue streams that would help them get cash flow in a difficult time. So they expanded out in the Middle East. And they were able to essentially get revenue from there, right? So they had to think creatively, and it worked for them. The fourth piece was store fleet optimization. So this is optimizing their store fleet, making sure that it was in the right sizes, in the right places, not as big as it was, but the way that a customer wanted to shop. And the fifth piece, which ties back to the let's say, transformation/technology is what they're doing now, which is adding a digital strategy, right, that actually goes with the corporate strategy and addresses all of the pain points as needed. And they were able to actually bring in a new head that where IT and marketing reported into, a Chief Digital Officer, so that everything would be seamless. And I mentioned the siloed mentality earlier. They didn't have to fight anymore, and by reporting into the same person, they could actually have better results and tie back to everything. So that, that's an example of a company It's doing things right, and so their stock price, if you were to look at it up, the stock price today, it's roughly $100 and change a share. So it's been a remarkable and transformational, let's say, experience for them, but they're only getting started, I think, on their digital journey. But what I'm getting at is in order to have a digital journey become a successful journey, a lot of support has to come from the C-suite along with everybody else across the organization. If that doesn't happen, then you could have the best technology in the world, it's not gonna make a whole lot of difference.

Yeah, I mean, that's part of the cultural change, isn't it? Yes. Like, when people talk about cultural change, you immediately think of getting the people that are using a bit of software or something to adopt it and use it and be happy about it. Or at least for me, that's what I think. And I know when people talk about cultural change at a lot of events that I go to, it always seems to be the focus. But sometimes you have to change the culture above you as well, or try to at least.

Yeah, exactly. Above— well, look, it starts somewhere, but you need a change at the top, a change in the middle, a change in the bottom. So it's in transfer— in business transformations, right? Still very much related to tech because that's really what we're talking about. The transformation corporately has to happen top-down, bottom-up, across all over the organization, but it has to start somewhere, and you have to need champions at different levels. And if you don't have the vision at the top, you just end up like, unfortunately, uh, Sears-Kmart, right? Which is sad because it's— it's every month that you read something, they're selling something else off, right? They're selling off Kenmore brands and spinning it off. They're selling off more stores. They're closing down more stores, and you don't hear about the growth, which is why we hear about the retail apocalypse, because It's still a large company. Any hit that they take would probably hit them all, right? Any hit that a JCPenney takes, mall anchors, right, makes a mall empty. Who are the new tenants that are anchor tenants in some malls, not all? Apple and Tesla. Those are anchor tenants nowadays, which is, if you think about it, 10 years ago, that who? Tesla? Apple? Anchor tenant? It's Macy's, or at least in the US again. It's Macy's. It's JCPenney. It is any other company, but not Apple or Tesla.

I'd like to finish off today by looking into the future somewhat. Um, when you sit down and think about all of the possibilities, what is the thing that you find the most exciting?

That's a good question. I mean, experience, right? The experience— I think experience is timeless, the word, but the context of experience is not timeless. So the experience that you or I would have expected 10 years ago from any brand retailer was one, but compared to the experience we have today, it's completely different. And so to answer your question about the future, it should be an experience that is contextual and very very much a signature of a particular brand. That is, the experience that you and I, for example, would expect from a Louboutin, if we were walking to a store, would be very different from the experience we would expect from a Selfridges, which would be very different from the experience we would expect from a Burberry. Three great brands/retailers, but they're very different experiences that we expect. So it has to be tailored to each one of those, but ultimately it has to be an experience that has key elements which I think are missing in today's experience that perhaps for some was not missing in the past, but has to be part of the future. Specifically, walking into a store small format, pop-up, physical, because it complements digital, needs to be an experience. It needs to be special. You need to walk in, and it need not be expensive, right, in terms of a brand, so it need not be luxury, if you will.

Does it need to be bespoke to you?

Yes, and it has to mean something to you. That means if you walk into a store, you have to be wowed. By like first the merchandise, right? We talk a lot about tech, but the product is key. Without the product, the tech's not going to solve your problems, right? So you start with the product, kind of like the case study we talked about with Children's Place. So it has to be really cool merchandise displayed in a really cool way in an environment that is inviting, in an environment that— and these are elements and it would vary by brand— where, you know what, maybe you have a salon. That actually brings in speakers beyond a retail store that you're interested in listening to. Maybe it's a museum curator for the Metropolitan Museum of Art. Maybe it's a curator for the Tate Gallery, right, that comes in for the brand that you're purchasing. As you walk in, that's one of the services. Then maybe, you know, while you're shopping, you could have an espresso or whatever type of coffee that you want, which brings that experience, right? Then maybe you could also have You know, a bespoke experience which is digital, kind of like if you walk into museum that takes you through and walks you through the store and explains brands. If you want that, it could be on your phone, it could be a human being. So I'm not really giving parameters, but just ideas in terms of what it should be. The experience should be special and it need not be a luxury brand.

Yeah, so this tech allows for incredibly bespoke customer experiences across the board. Exactly.

So, so let's think of— so the scenario I gave you, I didn't talk about the technology because it's assumed that it's part of the experience. Not obvious.

Yeah, so it's just in the background, it's just working away. And so I guess, yeah, the beauty of AI is when you don't notice it.

Exactly, which is what it should be to a certain extent. I mean, you can shop on your phone and have— okay, let's, let's be a little bit more concrete and put the AI equation in there. Before we get to this imaginary world or a retailer where they may have a salon with a guest speaker that you're going to go see, but you're going to shop an hour beforehand, VIP, uh, with coffee and espresso to meet fellow shoppers, you will get an email that allows you to pick certain items that you want to wear, and when you get there, they're already in the dressing room.

Doesn't need to be bespoke.

Before the event, you're trying things on, right? That's convenience. Then you could already order your coffee before you get there, and it's already, uh, waiting for you when you get there. And if you're late, that's okay, because you could use AI to figure out that you're running late, and it'll be ready and made right before you get there. So It's not cold coffee, but it's just the way you want it.

Amazing. I mean, I can't wait for that. José, I just want to thank you so much for coming and joining us today. Um, I really look forward to talking more about it next time. And yeah, once again, thank you very much. It's a pleasure. Thank you.

Everybody get up!