EP 215: The AI-Powered Merchant: Creativity Meets Retail Technology

Guest: Ken Pilot of Ken Pilot Ventures, a retail advisory and technology investment firm. 

The convergence of traditional retail expertise with technological innovation is at a critical juncture for industry leaders. The retail-tech landscape is rapidly advancing beyond basic digitization into practical applications that directly impact the bottom line. Join Shelley and Ken as they dive into the next-gen technologies that are changing the retail landscape. They discuss how conversational commerce is revolutionizing the way customers discover products and how new technologies are transforming in-store operations by empowering associates with AI-driven styling tools and inventory insights. What will define the next level of retail success? The ability to harness retail-tech tools while maintaining brand authenticity and merchant creativity. Listen in to a tech-infused, stimulating conversation.

For more strategic insights and compelling content, visit TheRobinReport.com, where you can read, watch, and listen to content from Robin Lewis and other retail industry experts, and be sure to follow us on LinkedIn and Twitter.

Transcript

Transcript by Descript: 

 One of the key roles that I play, or what I think has really helped me is the fact that I'd been in retail, as long as I've been in operating roles, understanding the needs of the business from the inside out, I can better understand the technology and take it from the outside in. Retail Unwrapped is a weekly podcast hosted by Shelley Kohan from The Robin Report.

Each episode dives into the latest trends and developments in the retail industry. Join them as they discuss interesting topics and interview industry leaders, keeping you in the loop with everything retail.  

Hello everybody, and thanks for joining the weekly podcast. I'm Shelley Kohan, and I'm very excited to welcome Ken Pilot of Ken Pilot Ventures, which is a retail advisory, and technology investment firm.

And Ken, you are like what I would call a true veteran of our industry you held several leadership roles at Gap, J. Crew, Ralph Lauren, American Eagle, ABC Carpet and Home. You also founded and you were CEO of Robot Galaxy, and last year you actually launched your own podcast called the Retail Pilot Podcast and you bring in all kinds of veterans like Mixie Drixel, Mindy Grossman, Steve Madden, on and on.

So I am thrilled to have you on Retail Unwrapped. So let's jump right in and I would love for you to kind of tell our listeners a little bit about your journey You started in the Macy's training program And I believe your last kind of in the industry job was abc carpet and home  Yeah, well, it's great to be here and thanks for inviting me on it's  It's good to be on this side of the podcast for change a little different  But I started my retail industry a little bit before I got to macy's always doing retail like jobs growing up I think the last retail job I had before having a legitimate job was  boy I loved scalping tickets in college.

I was, it was great, but I did a little differently. I scalped tickets at the visiting with a visiting team because all my friends who weren't going to the game gave me their student tickets and then I'd sell them to the visiting team attendees for a little bit less than they would have had to pay. at the gate.

So, you know, you sell 10 tickets, you get a hundred bucks and you've got beer money for a week or so. So that was kind of a little bit of exposure to retailing. And then I also, when I was in college, sold boast shirts, which is a polo shirt. And the icon is a Japanese maple leaf, which looks a heck of a lot like a pot leaf and embroidered Colgate over the leaf and just sold those out of my room and whatever the tickets didn't pay for.

The shirts did. When I got out of college after teaching tennis for a few years, I got into the Macy's training program and I, I just loved it. I loved the combination of  the creative, the left brain and the right brain, the operations from the bot to the buying. And yeah, that was, gosh, that was  1985. I think it was when I started at Macy's and  I've stayed in it ever since. 

That's great. And what's interesting is like you can't you have this huge like entrepreneurial merchant background, but now actually a lot of people know you more on the techie side. So tell us about this transition from this entrepreneurial merchant now known techie person in the field.  Well, it's funny, Shelley, when I was at Macy's, then really onto Gap and I was at Gap for 13 years, always going up through the merchandising ranks, then running the divisions, was president of Gap Outlet, and then became president of Gap Global.

I was never interested in technology. Like, if you called me to go to a tech meeting, you better tell me that the point of sale. Machines in the store weren't working. They couldn't collect the money like then I would go and I would just yell at somebody to fix that. But like, I didn't want to know about technology, you know, you kind of knew it was there, but it just wasn't sexy.

No one cared. It was all about being a gut merchant, like in true Mickey Drexler fashion. So.  I was even I was actually even given the responsibility to start gap outlet direct gap online direct, you know, should we call it God? No, not a good name. Not a good acronym. But, you know, who's gonna buy clothing online.

So I was involved very early on. But it really wasn't until, my last job with ABC Carpet and Home, where a friend of mine, Ken Seif, who'd been a techie for a long time, asked me if I wanted to put some money in a fund, Beanstalk Ventures. And the fund was made up of a number of early stage tech platforms that really supported retail. 

And I was like, Yeah, I'll put some money in, you know, I was pretty good at losing money on what I was investing in. So why not spread it out? So I did put some money in then I also met the companies that were within the fund And as I began meeting these companies  I said to myself. Oh my god If i've had one of those or those or those or those when I was working in retail I would have been dangerous and it really got me excited and all of a sudden like You I went from this full on merchant to like, what's techie in new and, you know, fast forward, 10 years later,  I still work with companies on the advisory side.

So I get a little bit of exposure to product and brand stuff because I love that. I still buying and betting on an item, a key item. I mean, there's nothing more exciting than that,  but the technology that's out there today. And what's available to whether you're a merchant, whether you're a. The chief digital officer, you're a designer.

There's so much out there that can help you do your job that it's exciting. And I love finding out what's new and how it's being used and deciding what technology is out there that may not be that important from my perspective. And  generally I'm looking at companies as if I were running a company today, a brand today, would I use the product?

Do I like the team? Does it make financial sense? So you still go through this vetting process, but I'm so open to seeing what's out there and hearing about what's next and new that I spend a fair amount of my time each week, you know, vetting new companies or listening to pitches, et cetera. So I went from really merchant to, to nerd.

Over a 10 year period.  Well, I wasn't going to say nerd, but you are known in the industry with really understanding retail technology. So retail tech, so I have to ask you, you know, tell us what are you seeing in the retail industry? What's the great tech out there? And I'd love if you can start by kind of the biggest elephant in the room, which is the artificial intelligence and the impact of that.

And what are the use cases? Like, what are you seeing out there?  Well,  you know, there's so much buzz around AI. I mean, you, you can't  go to a conference. You can't have a tech conversation. You can't look at a problem and not discuss how AI can address it, resolve it, et cetera.  AI has been around a while.

It's just now it's the buzz. And one of the key roles that I play or what I think has really helped me is the fact that I've been in retail as long as I've been in operating roles, understanding the needs of the business from the inside out.  I can better understand the technology and take it from the outside in.

And because I understand what it takes to run a brand or a retail company and where the opportunities are versus where they're not  so you can go through and you create your own filter on. That's what I need. I need a better planning. System. So I'm not running overbought, et cetera. So  that's what really helped me do this.

But I think the sexiest thing and back to your question on what's happening today would be AI and it's happening in a number of areas. You know, let's I'll talk a little bit about online. What's exciting about AI online and how is it used? So I work with a few companies. and generally, whenever I'm talking to a CEO about a company with whom I work or I've invested in, I will always tell them who they compete with.

If you were going to run an RFP, who should you have in the room?  Whether you use the company I tell you about. Or somebody else, you make the decision, but don't do nothing. So, for example, right now, probably the hottest topic within AI is conversational commerce, at least from my perspective. And by that, search we're so used to for years searching like cave people.

Like you would type in a word blue, blue coat, you know, and you're hunting and pecking and now you really wanna say something like, I'm looking for a blue coat that I can wear,  to a, on a winter vacation.  And people are using  sentences and phrases for their search. So one company with whom I work with Lily AI, they attribute, they attribute your product.

You basically push your product catalog to Lily. They take in your catalog. They add up to 25 different attributes or meta tags. Push it back in, and that typically compares to four or three meta tags that are done manually. Well, if your product has that many more tags, the likelihood of it being discovered within search goes up exponentially. 

It's critically important. It replaces what's being done today manually with something that no person can actually do.  I think it also, it's like, and just to put this in super layman terms, correct me if I'm wrong, but if I'm looking for a red dress, I'm going to put in red dress. But if you happen to label that dress brick and not red, back in the day, I would never find the brick dress, which is actually red.

That's right, war. Vice versa, the merchants might call it brick because bricks, the name of red that the designer used. So we'll take a lot of the, we take where Lily takes industry term and puts it in layman's terms. Yeah. And I love what they do and they do the same for SEO and SEM. They put the catalog so that Google can read the phrase because Google will advantage.

Product or items that have phrases around it versus just terms. So if you want to increase SEM or SEO, that's something else that Lily can help with.  along those lines, I love another AI platform I like is FindMine. And what FindMine does, do you know FindMine? Oh my gosh, yes. I love Michelle. I love Julie Bernard, Lily.

I love Michelle. Those are like rock stars. I mean  all women's companies I work with 'cause they get it done best.  and I have to, hats off to Perva who's, who founded Lily, but fine. Mine's amazing. Once you found the item with Lily, then fine. Mine completes the look.  I think a big opportunity, though, there is it's great that that's being done for online.

But let's face it, Shelley, so much business is happening in store. Why don't associates have the ability to help the customer with search and then complete the look? Every associate.  should be the best stylist in the world. And those two platforms coming together on an app and which is, you know, on your phone, which is also your point of sale, you should be able to solve any problem for a customer in the store, as well as customers solving it for themselves online. 

Another AI platform that I find incredibly exciting, and I, I am not an investor, is Simulate, and that's with a C. That's John Andrews. And what John does  is, he's from, he had a great example. Select, exactly. Yes. What Simulate does is they actually take ChatGPT.  And embed it within a, a brand's site. So you're actually on a chat GPT search platform that is improving the way you search and shop within a site.

Cause if you just took open AI, the latency of open AI would be a problem. If the chat GPT is built in, it's going to take you through the search. Based on the words based on actually the clicks based on what you're looking for and improve the experience. So that's, it's just think about chat GPT embedded in your site and then enabling your customer to use, to type sentences. 

I'm looking for something that's organic or that's green or that's light shades of it. Again, Lily helps tag it so that helps surface it for a platform like simulate. They all kind of work together. And that's amazing. Everything from large language models to generative AI.  one other one that's very fun, which started kind of as a simple video commerce firework.

What they're doing now is they're creating AI enabled associates.  So when you're on the PDP, You see an associate that can look like anyone could look like you, me or whomever, and you can begin talking to that associate as if they were a sales associate on the selling floor and asking them questions, either through voice or or by inputting the prompt.

So all of a sudden you're kind of taking that, that store moment of interaction with your associate and you're bringing it online. So in summary, AI is enabling just a, a really exciting way for us to shop and I think was maybe last week Perplexity just came out and announced that you can now shop through Perplexity and buy through perplexity, which obviously is a, an AI platform. 

That's great. So outside of AI, do you have any like great technologies that retailers should be thinking about?  well, I have, I have another AI solution that maybe is one of my favorites, but it's for the designers. Okay. And it's called Raspberry AI. And what Raspberry does is it enables designers to iterate Their designs and reiterate their designs far more quickly reducing sample costs and increasing speed to market. 

So you're basically replaced. You're not replacing the designer.  You're replacing their bike with a car.  So imagine if you've designed, you have a sketch of a boot. You can upload the boots into, I want to see this boot, in leather and Sherpa.  And all of a sudden you have four versions, photo real versions of a boot with leather and Sherpa.

And then I want to change the sole from off white to gray. I want to change the laces from cream to black. And in real time, you are seeing this.  It's amazing. I mean, those are so that's super exciting. And that's, they, they would compete with,  a dolly or a mid journey, but they understand the DNA of the brand a little bit better.

In fact, they just completed a huge round that was led by Andreessen Horowitz. So very exciting, but that's what Raspberry is doing. So that's kind of super cool. And that's really cool because like, So we used to, back in the day, when you were in the training program, we used to have four, four collections.

That's it. We'd have maybe five. We'd have, you know, spring, summer, fall, resort. But now we have these micro, all these micro, you know, capsules that come out. So now designers are really being taxed to have, you know, 20 different, 30 different, you know, mini, mini capsules that are coming out. So Raspberry must be a great help with that.

Well, imagine if you're taking, you have a, a long sleeve drop needle turtleneck that was a bestseller for holiday, and you want to create that spring rendition with short sleeves and maybe all of these things you can do very quickly just through prompts. And the prompts are the same type of prompts you would use in chat GPT.

So again, you're not. Taking away creativity. You're just accelerating creativity so you can get there sooner and also have a better idea of what you're getting than having to wait for a sample.  Love it. Love it.  And I'm kind of obsessing over a few things right now.  you know, all those, all those platforms are quote unquote, there's, there's a business model that costs you, whether it's a monthly, a SAS fee, there's a fee. 

Then there are some things out there that actually cost you nothing. And if you're not careful, you make money.  So my, my, my favorite one right now is it's in the retail media networking space. It's called rocked. I don't know if you know about rocked.  I don't know about rock, but I know about the retail media networking is it's big, everybody's talking about it, but it's hard to really see.

Well, what is that going to look like for a brand? I mean, we can all get how a supermarket can take all the refrigerator screens and show videos of Coke and Pepsi or whatever's behind the screen. But like, if you're, Dick's sporting goods or a gap or American Eagle. What can you actually do to leverage your traffic, have advertisers show up and make money?

So what rocked does is they actually pay retailers or brands to advertise on their e commerce confirmation page,  post purchase. You get, you get your receipt and then you might see an ad for Hulu or an ad for Apple or an ad for Orange Theory. And you can, if you click on an ad, you, you might get a free month of Hulu, or you might get one free month of membership at Orange Theory.

So to me, It's a way for brands to get paid for the amount of traffic that are coming to their site.  And the financial aspect of this is pretty exciting.  It generally results in 20 to 25 cents per transaction to the brand or retailer. So if you're doing two or 3 million transactions, you know, you're looking at two to 3 million. 

Worth of, worth of  EBITDA, no SAS, no integration, just here's your money. So I love that big challenge out there. Not every brand feels that's on brand. Okay. That's one another freebie that I like, working with a company called extend.  And the big thing that Xtend does, they do purchase insurance. So when you bought your  Faraday product or whomever, for 1.99, you could add purchase insurance. If you don't get it, Xtend takes care of it.  One call, they pay for the package that didn't arrive in your five story walk up, no doorman.  They take care of it and the retailer participates in that 1. 99. So they get a piece of each transaction. Again, you're not paying for it.

You only pay for it if it's get used. So I love that.  Yeah. The last one is really quite fascinating. Again, it's free.  This company that I met, it's, it's early stage company out of Israel called Flex Factor.  Flex Factor  will do it.  Confirm. Approve. 30 percent of your online credit card declines real time. 

Interesting. Typically, typically, brands have anywhere from 10 to 12 percent credit card declines. FlexFactor, at the point of decline, where the wheel is spinning, they'll go in, they'll take a third of those, they'll approve them. They will factor them, and then they will pay, they'll take a small percentage, On that transaction.

So again, a retailer doesn't pay for it unless they have a, a charge that is actually, that was going to be declined, that's overturned. So those are some of the things out there that I like, because look, everyone's very expense conscious. How do I make extra money? How do I leverage my brand? And those three areas are really, Good service ways that really do improve customer loyalty to make additional money. 

Definitely. Wow. Those are so exciting. So, one other quick question on technology and that is, is RFID, where are we at with RFID, is it dead? Is it moving forward? Like, I feel like I've been talking about this for like, Two decades or maybe at least when I was, when I was in gap, I was working on RFID project.

I mean, that's how RFID  has been around for a long time.  obviously when you think about so many things in technology, the costs have come way down. I mean, you probably remember the first Fujitsu screen, TV screens that came out, the 50 inch TV screen that you had to have that was 10, 000 and weighed about 10, 000 pounds.

I mean, today it is Black Friday when we're, we're doing this. I think today you can get a 50 inch TV screen from Samsung that's far better than the one that we had that was 10, 000 for about, I'm going to guess 249, 249 gets you, 249. A great 15 anyway. So technology has come way down in price. And so is the access to RFID,  what I'm seeing out there and what I love out there, actually it's a company called radar and what radar does it's a ceiling mount RFID reader. 

So it replaces that, that handheld one thing that requires associates to go around.  So imagine all of your product is sending a signal to these readers and you're getting a real time read on your inventory. It has about 99 percent accuracy. They rolled out to over 500 American Eagle stores and they're also, I think they're in deep discussions with the old Navy at the same time.

Gap is an investor and so is American Eagle. So I love that. I mean, one thing that they do, which is cool customer  thief leaves the store with a stack of jeans,  you know, right away, you know, right away, which jeans are missing. You can replenish that. Otherwise you wouldn't, you wouldn't know what was stolen.

And in the. Probably the most interesting statistic with inventory accuracy is that if a brand, a retailer or brand is not on RFID, the average inventory and accuracy is anywhere from 27 to 31 percent off, not the shrink, the shrink, you know, you're missing two units or 2%.  But your inventory and accuracy is, is that far off.

So you think about where we are today with things like buy online, pick up and store, how can you possibly send your customer to a store if you're not sure if you have the units? So what retailers do is they'll build a safety stock bill. If it's two units or less, they're out of stock. They won't chance it with a customer.

That's right. So that's fine with fairly inexpensive stock to carry more. But what if they're more expensive items? It's outerwear. You don't want to continue to push more inventory into the store just to cover the safety stock you can. So you may not move the amount of inventory you want from the store because you're not sure you own it.

So I, I love, I love what, what they're doing. And, They work with another company in stores called Crave. I don't know if you know Crave. Crave Retail? Crave Retail? Matthew? Oh, I know him well. I love that company. Well, you know, they're working with Macy's, they're working with Old Navy, but basically when you're in the fitting room, and it works with RFID, you can reach out to an associate for another size,  And get that size or actually you can complete the look  because they're partnering with find mine.

So you can stay in the fitting room and let's face it. When you're in the fitting room and your pants are down, that's a really good time to convert a customer.  That's awesome. And it's so funny. I ran into Michelle and Matthew at the NRF last year in the Cray retail booth. So it's all connected. It's awesome.

Right. It is. It's funny. There's not as much buzz. The other buzzy thing for stores that you either have it or you don't, but it's modern POS. There are a lot of legacy POS systems out there. I was fortunate to work with Predict Spring for a number of years. They, they exited with Salesforce.  But having a modern point of sale solution that's mobile,  that can help you with search, that can do your accounts and inventory and, and even do clienteling  or combine an online and in store transaction into one transaction, I think that's table stakes.

There just aren't that many other. There's so many more things going on in the online space with technology than what you can really do to improve the store experience, but the main things for me would be an RFID solution, a great selling tool like we talked about earlier, whether it's with a lily and a fine mind and a point of sale solution and a way to improve the fitting room experience.

That's where you win.  Yeah, absolutely. Now, before we go, I have to ask you a personal question because I'm just so enamored by all the stuff you do. You're a podcaster. You're an advisor. I believe you sit on a few boards.  and you also have to like, stay up, stay up on all the retail tech, which in my opinion, that in and of itself is a full time job.

And every time I go, Or speak or participate in a conference. You are there. We run into each other all the time. So like how, tell me about how you get all this done and, and what does your day look like?  You know, as you can imagine, it's all over the place.  it's,  it's fun. It, it's varied so you can sort of.

Pivot from one area to another,  the, the podcast and the technology work really well together, you know, from conversations with CEOs,  to conversations about what they're looking for in the area of technology. You can connect them with people that, you know, you're working with or, or what they might need help with.

So those two work together super well. And then I've been fortunate to  always have at least one brand At a time that I'm advising and now I'm working with a company that's kind of a combination of technology and product, which is not standard and not standard really started as a made to measure brand. 

Matt Muller is the founder. He started it where you could go. On to his site or to hit seven locations and you would get a made to measure suit. They take two images of you with an iPad and then shoot the measurements off to a factory. And four to six weeks later, you've got product.  They recently about a year ago, pivoted it.

Now it's really just focused on the technology. So that technology now exists at  We're in about 50 stores in Nordstrom's. We're in all the Brooks Brothers stores. And we just launched with Todd Snyder last week.  it's exciting to see how. The technology is helping with this creative bespoke moment in the store. 

And, you know, people that love to get creative or, you know, you're, you're a hard person to fit, or there's a detail you want that a suit might not have, or the spread of the collar isn't necessarily offered in what the merchant's carrying. So,  Matt and I've been working together for about a year and,  he uses a lot of AI to understand sizing that's a more of the LLM model because when you take over 2 million measurements, you can start to really provide the right type of sizing and the right fit.

So that's been a lot of fun. So I kind of, that's my advisory life, the podcast life, and then the tech life. And,  You know, you just check your calendar in the morning and see what's going on. I don't think I can do it without Calendly. I'll, I'll take meetings.  I'll take meetings. I'll put it out there. I always want to hear what's happening.

I'll take calls and, you know, just try to stay on top of it.  That's great. Well, thank you so much for being here today. What a wealth of information we learned and I have to have you back next year for sure. And I really appreciate you being here. So thank you.  Thank you for listening to Retail Unwrapped.

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