Photo: Gap Inc.
Gap expands tech investments with deal for AI retail analytics startup
Gap Inc. has acquired Context-Based 4 Casting Ltd. (CB4), a New York and Tel Aviv-based start-up that uses artificial intelligence and machine learning technologies to improve the customer experience and drive sales through predictive analytics and demand sensing.
“We believe artificial intelligence and machine learning will shape the future of our industry. Gap Inc. has experience working with CB4’s world-class data scientists, so we understand the impact and the wide applications their science can have across sales, inventory and consumer insights, as well as its potential to unlock value and enhance the customer experience,” said Sally Gilligan, chief growth transformation officer and head of the Strategic Growth Office at the clothing retailer.
Gap’s Strategic Growth Office, which looks for opportunities to use technology to fuel growth across the retailer’s namesake brand, Athleta, Banana Republic and Old Navy, brokered the deal.
CB4 was funded by investors including Sequoia Capital prior to its acquisition by Gap. The company’s technology has been implemented by retailers and consumer-direct brands such as Kum & Go, Levi’s, Lidl and Urban Outfitters.
The CB4 deal was one of several for Gap this year, including the acquisition of Drapr, a 3D technology firm that uses virtual fitting rooms to reduce online product returns. Athleta, which took part in a funding round for obé Fitness, then incorporated its fitness and related content into the chain’s new AthletaWell digital platform.
Gap Inc. has picked up the pace of its technological investments since moving its systems to the cloud in October of last year. It joins a growing list of retail businesses that are migrating parts or all of their systems to the cloud.
Public cloud spending is expected to reach a record $385.3 billion this year, up from the previous high of $312.4 billion in 2020, according to an International Data Corp. forecast.
A KPMG report published last year identified the speed with which many companies were moving their systems to the cloud. Fifty-six percent of technology executives surveyed said that full migration had become an “absolute necessity” for their businesses and that previous “piecemeal migrations” were being abandoned in direct response to facts on the ground resulting from the pandemic.
- Gap Inc. Acquires AI Startup CB4 – Gap Inc.
- Will a new digital platform create a must-join safe space for Athleta’s customers? – RetailWire
- Will an enhanced rewards program turn Gap’s customers into ‘lifelong loyalists’? – RetailWire
- Walgreens finishes its trip to the cloud and its retail journey is just beginning – RetailWire
- Cloud tech becomes a retailing priority amid COVID-19 – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Where do you see tech investments by Gap and other retailers heading? Will ownership by retail chains affect the ability of these tech firms to pursue innovation?
Poll
Loading …BrainTrust
Ken Morris
Managing Partner Cambridge Retail Advisors
David Spear
VP, Professional Services, Retail, NCR
This is a prudent move by Gap, given the broad applications for AI/ML and its potential impact in retailing. When you cut through the hyperbole about AI/ML and look at the practical and important use cases – it will become a competitive advantage and I expect to see more retailers making these types of investments. That all said, AI alone won’t burnish a brand that has fallen out of favor with consumers.
All of this technology is wonderful and can be highly beneficial to businesses. However it amounts to precisely nothing if a retailer doesn’t have things that people want to buy. And this is the big issue with the core Gap brand: what is it doing to sort out its proposition? Other than the partnership with Kanye I see very little advancement or innovation. Perhaps this should be the focal point of the company alongside its technology advancements. Admittedly, Old Navy and Athleta are solid brands and I am sure demand analytics will be useful in those businesses.
Retailers acquiring technology companies is a growing trend. Walmart has acquired several technology companies and Nike acquired Celect, an analytics technology company, in 2019. Owning the technology gives retailers complete control of the development roadmap and they can customize the software to their individual needs. How they handle reselling the software may differ based on the retailer and the type of technology.
Gap’s acquisition of CB4 means that it’s serious about in-stock excellence and findability in the store. All retailers know these are key drivers of sell-through and profitability. If Gap is also using RFID tagging in conjunction with CB4’s analytics and prediction engine, their store managers will look like total geniuses. They’ll know where to place merchandise better, and even which individual stock units have been in which locations and for how long. Migration to the cloud is key to enabling these types of advances, made even more powerful with the addition of IoT.
This acquisition is another great example of retailers buying strategic advantage, taking it off the market, and denying their peer group the opportunity to compete. This is a brilliant move, leveraging the playbook established by Nike’s acquisition of Celect and Kroger’s deal in the U.S. with Ocado. These technologies are game changers.
The reasons for a retailer to acquire technology companies, almost by definition, preempt these technology companies from selling in the commercial markets. Retailers can pump money into these businesses but will be reluctant to develop a secret sauce for themselves that eventually gets sold in the public marketplace to potential competitors.
Retailers acquiring tech companies and startups has been an ongoing trend for many years now, including Nike, McDonald’s, Walmart, and others. Gap is smart to do this to help them retool how they define and execute their overall shopping journey for customers – an area they very much need to improve. This new acquisition may help them better understand customer insights and ideally will lead them to rethink their merchandise mix and product development, two more areas they have very much needed to improve. Gap has been investing in technology for many years now, including supply chain management and now AI analytics tools. These investments should pay off in the long-term as long as Gap integrates these solutions into their core business processes and that they rethink their shopper journey and product mix. I expect more brands similar to Gap to follow this approach as they seek technology that can help them differentiate in the middle segment of the market where so many retailers produce uninspired shopping experiences that cause customers to pass them by.
Hopefully these types of investments will result in personalization across the marketing mix. AI and Machine Learning can be extremely powerful in aligning supply and demand via more strategic pricing, promotions, offering, and distribution approach. The key will be to ensure these technologies are utilized across all departments and are integrated within an ecosystem of capabilities versus being treated as silver bullets on their own.
This is a chance for the retail industry to help drive tech innovation versus the other way around.
So exciting to see this. AI is a huge gamechanger for digital retail. it’s great to see Gap innovating. It’s also great to see investment and a lack of risk aversion by leadership. Many will follow if there are wins.
Tech is moving faster than most industries can keep pace, but I view this is as a positive harbinger for companies like Gap. Whether that’s acquiring an AI based tech startup or simply leveraging data scientists from tech consulting firms, the IP and skill sets will enable retailers to move faster, become more innovative and offer hyper-personalized service to its shoppers. These are all positive things, but it will amount to nothing if the retailer doesn’t take full advantage of the technology. I’ve seen many acquisitions of really cool, hot tech that have flopped. For Gap to reap benefits of CB4, the transformation office must continue to follow through on execution vs. announcing the deal and moving on to the next shiny penny.
Retailers’ tech investments will include more AI, augmented reality (AR) and robots.
Whoever owns these innovative firms must give the tech experts the authority to focus on inventiveness that improves the customer experience.
One of the big issues COVID-19 exposed for retail was the gap in the application of analytics and data to make decisions and inform decisions across retail. Companies like Target and Best Buy were able to quickly pivot to shifts in consumer demand for capabilities like curbside and home delivery because of the investments they had made in advanced analytics. Those retailers who ignored these trends and didn’t make investments in technology and innovation struggled and now find themselves playing catch-up. Going forward I believe the key areas of continued investment will be in customer analytics, supply chain management and demand forecasting. All of these areas require speed and the ability to consume and find actionable insights in mountains of real time data. That requires real investments, winning companies are and will continue to spend in these areas.
Gap continues to demonstrate that they are forward thinking on many fronts. They are nailing it with Athleta and Old Navy. The new strategy with Banana Republic will hopefully be a needed shot in the arm. Walmart for Gap Home was an eye popper. YZY is a dramatic marketing move, and look what great marketing (Swing campaign) did for basic khakis. And this new acquisition is absolutely what is needed for next-generation retailing. Now if they can just put a fraction of all that energy into the content at the Gap division, they will have made another great leap forward.
This is a positive strategy for Gap as this technology has proven it can help the brand keep product on the shelves by learning the customer’s demand. As we go into a holiday season where the supply and demand are being challenged, this will ensure Gap provides their customers with the product they need, enhancing the overall customer experience.
It’s increasingly clear that without the necessary capital investments, technology investments, and an innovation imperative around driving outstanding customer experiences, retailers will fail. We have seen the shifts where data science and analytics fuel personalization, optimization, demand forecasting, and increasingly predictive merchandising, assortment, and pricing strategies.
Gap’s acquisition of CB4 is following the roadmap that Kroger and Nike established with their startup acquisitions. Technology and innovation are the enablers to drive the subsequent phases of Gap’s transformation strategies. Just as retailers are taking a vertical integration strategy to their supply chains, taking ownership and bringing in the creative, analytical powers, these firms offer around artificial intelligence, augmented reality, and analytics is the way to go.