The Future of Retail: Bridging the Gap Between Digital and Physical Shopping with Raghav Sharma, co-founder of Perfitly

00:00 Tim Rowe I'm just gonna do a soft check. Good. Right now. Laggy. Are we good? Coming through. Okay, cool. Think about this. Ad spend on retail media networks globally will tip the scales at over $120 billion this year. It's on pace to be more than $160 billion by 2027. About $0.12 and $0.16 on the global marketing dollar respectively. Now consider this. 83% of retail sales are still made inside of a brick and mortar store. Of the generally recognized global trade markets, only two have passed the 15% mark with 15% or more of sales coming from e-commerce, the United States and the United Kingdom. And both are in decline in that trend, with in-store shopping continuing to trend up. So while there's more room to grow for e-commerce brands in markets like Germany and Japan, the fact remains that retail is still king in every country on earth. So how do you create more engagement in a physical setting? How do you get customers to spend more money while reducing friction and increasing efficiency for yourself as a company? And how do you bridge the digital first buyer's journey with an experience like the one you'd get in a store? Because bridging that gap, whether you're a growth-minded clothing brand or a marketer bringing two-dimensional ideas to life as an out-of-home advertising campaign in the three-dimensional world, understanding how to bridge that gap is a storytelling secret that connects your customers to the outcome they're looking for and makes you the trusted guide in that journey. Raghav, you co-founded perfectly with your father, which as a dad myself, I think is awesome and maybe we can talk about that a little bit later on. It's like co-founding a company with your dad, but the story actually starts with your cousin and his wife and a whole bunch of online shopping returns. Maybe start there. How did this idea come to be?

02:05 Raghav Sharma How did Perfitly experience its own Genesis story? Well, thanks for having me on, Tim. Starting something with your dad, it runs the range of great to not so great, as you can imagine. Perfitly, we really got our start, as you mentioned, with just how people shop. My father was visiting my cousin and his wife. He was with them for a couple of weeks and he was struck by how friendly he got with the UPS driver. This guy was dropping off packages left and right. My father being a concerned individual, just inquiring how much of this stuff are you paying for? My cousin's wife assured him, she's like, this is all from Zappos. Most of it is, almost all of it is going back. Don't worry about it. That got him thinking because it may have been easy for her to get all these things, have it shipped for free, have it sent back for free, but somewhere, in his words, someone was taking it on the chin. That got us really thinking. Perfitly, we are a virtual fitting platform, which has been custom built for apparel e-commerce, sort of using AI, machine learning, and AR and VR technologies. What we did is we started looking at customer behavior. It was all about, for us in the beginning days, how can we get people to reduce their returns so that we can drive down the costs associated with all of that. We learned that it's so much more.

03:55 Tim Rowe Because they're buying, not to interrupt, but they're buying a lot, not with the intention of having to return. I'm buying a lot to go through it so that I can pick out the items I do like, that I want to keep. It's like trying it on, essentially, but at the retailer's expense because they're having

04:14 Raghav Sharma to ship it to you and process the returns and go through all of that hard work themselves. For the consumers, you said it in your intro, Tim, that physical retail is still the king in every country around the world. What consumers have been trying to do, albeit inefficiently, is recreate that physical store in their living room. That was our aha moment because we realized that it wasn't just about returns, but there was so much more going on. First there was consumers who weren't making purchases that they might have made if they were in store because they just can't tell how something fits them. They just never buy it. The unplanned purchase. Like you mentioned, there's the over-ordering with the intention of returning all or most of it. Then for the companies themselves, there's a huge drag on their environmental performance, on their financial performance because they're having to purchase more goods, they're having to buy more materials, manufacture more, et cetera. Then there's the operational performance of having bloated inventory, producing more in sizes that you may not need. Then things come back returned and you have to re-inspect them, get them back into the supply chain or in the case of some European brands that had horrible news, they just burned stuff.

05:51 Tim Rowe Just straight up burning the returns.

05:54 Raghav Sharma Just straight up burned. I can't remember who it was. It was either H&M or Burberry and they just got terrible press for burning hundreds of

06:03 Tim Rowe millions of dollars of clothes. Okay. The actual job to be done here is enable shoppers to have the most native shopping experience possible in the environment that they're most comfortable shopping in or meeting them where

06:23 Raghav Sharma they are. To put it even more simply, we offer them a way to digitally try something before they buy it, just like they do in the physical environment. That way they have more confidence in their purchases, whether it's trying out a new brand for the first time, a new silhouette in a brand that they know or even just playing around with different fabrics because different fabrics will fit you different ways, whether it's jersey versus silk. Getting that into the home and letting them shop at their own convenience so not tied to when the store is open or how far away it is or any other thing that might stop them

07:03 Tim Rowe from shopping. It's interesting. I was at a conference a few months ago and there was someone there from the TripAdvisor creative team and they were talking about how they're building this Web3 TripAdvisor overworld because a vacation is the most expensive experience that we don't try before buying. This idea of how do we enable trying things that are experienced in the physical world before we buy them as a way to solve all these other overarching business problems, it's very relevant to right now and where we are as an out of home advertising industry and one of the reasons I was so excited to connect and have this conversation. But obviously it's a long road to get to having technology that scans a human body and fits on a t-shirt and can change that between sizes and manufacturers, etc. Where do you start?

08:04 Raghav Sharma How do you start in solving a problem like this? Well, when my father had that epiphany, we're both problem solvers. This is his ninth company that he started. This is my third company. We both love the challenge of trying to help companies or industries get better. For him, it's all about waste and how can I drive waste out of the system. Neither one of us had background in the fashion industry. My wife would argue that I have zero background in the fashion industry. For us, it was a lot of education because at first we couldn't believe it. We said, this can't be real. There's no way that this is what we're still doing. Even if it is real, someone's got to have solved it. We started looking at the solutions that were out there at the time. What we realized is that they were based on really antiquated techniques and antiquated technologies that hadn't caught up to where the world had evolved. Specifically, smartphones, different spatial cameras, and the ability to digitize physical objects. They were literally almost saying, okay, well, we've compared the size chart of this brand with the size chart of this brand. We think that a small in this brand is a medium in this brand. That's what we recommend to you.

09:43 Tim Rowe That was best practice. I'm guessing there's still companies doing that because I have a heck of a time just

09:50 Raghav Sharma buying something as simple as a t-shirt. There are still a lot of companies doing that. We started with that. Then it was a lot of running around the world actually. There's groups in Germany, the PhDs who study how to build digital humans. There's this professor up in Cornell who has all been studying virtual fitting rooms, going down to Cary, North Carolina, where some of the heart of American apparel manufacturing is and learning what they do. There was a, what's that saying? Measure twice, cut once in the industry. We did that. Then we started building it. We set up these series of gates, if you will, every six months. Let's check in and let's see, can the technology do what we think it can? We were fully expecting at some point to hit a wall, but it just kept going and it just kept getting better and better and better. We launched commercially a little bit before the pandemic with a bunch of boutique brands.

10:59 Tim Rowe That's really how we got started. Wow. Launching right before the pandemic, obviously you had no idea of what was coming. How did that impact adoption? I'm sure it accelerated things. How do you balance the acceleration with a product roadmap? What happened next?

11:20 Raghav Sharma What happened when those dynamics all came into play simultaneously? We were lucky that we had a year before the pandemic with our first nine customers. It allowed us to see what types of apparel it really worked with, what types it worked less well with. Long story short, we steered away from swim, from intimates, and for privacy reasons, children. It allowed us to see what the metrics could be, how we could impact returns and so on. Then came March 20. Everything changed. To the bomb, bomb, bomb. For us, it's sort of a tale of two cities, if you will. There was the heart of the pandemic when brands were just struggling. Not so much because people weren't shopping. I mean, they weren't, but they could have gone to the e-commerce sites. They could have bought things, but they couldn't get goods out of China. For this industry, that's huge. So much is sourced through and manufactured in China. There were brands that we were working with that had to shut down because they just couldn't get inventory out and they just withered and withered up. What it made people realize in the industry is that digital was here to stay. The customer experience had to evolve because they were getting killed on the KPIs. In-store, it goes back to what we said, right? Physical retail is still king. In-store in this industry, you get a 25% conversion rate. So one in four people can walk into your stores, buy something. You have a return rate of less than 10% because people walk out fully knowing how that garment's going to fit and how it's going to work and look on them. It's only when they get home and they notice some loose threads, a missing button, that they might go back and return to the store. Online that's flipped on its head. You have a conversion rate, which if you're really good, is at 3%. So one in north of 30 people buy something and your return rates are 30 to 40%. And in things like women's dresses, they can go up as high as 80 to 90%. So while you have this lifeline during the pandemic that kept these brands going, they were getting killed financially by it. And as consumers got used to it, right? I used to be at McKinsey before and they looked at different industries and they realized that on average digital adoption had been yanked forward five years from where the trend line was before the pandemic. And while some of these new adoptees were going to bleed out and go back to offline ways of purchasing, a lot were going to stay because they liked the convenience and they liked everything else about it. And so you suddenly had this channel that had been helping, helping, helping, which

14:43 Tim Rowe is now up here and you have to figure out a way to make it financially viable. Hmm. Wow. Unplanned circumstances. Obviously things are going great. We're selling lots and lots of stuff online. So you start developing this technology and all of these challenges exist within these big retail e-commerce giants and they don't have a great solution for it. They start implementing this technology. Maybe walk us through from a consumer standpoint how the technology works for us as a consumer and then talk to specifically some of those like bottom line business impacts that brands are seeing because of implementing this.

15:28 Raghav Sharma Sure. It goes back to what we said about physical retail. It's not strange coming from an e-commerce adjacent technology, but we think the best way to buy something is to go into the store because you have you, you have all the clothes at your disposal. You have a mirror. You walk out of there pretty happy. And that was our philosophy when building the technology and the platform is how can we recreate that real world experience online? And what we've ended up with is sort of this five step process. The first starts with the consumer. You're at home. You have your smartphone. You download either our app or you go to your favorite brand that we work with and we've integrated our app capabilities in their app. Take a few photos of yourself wearing gym clothes and from that our AI is able to extract your body shape and recreate you as we call it the avatar.

16:31 Tim Rowe Your avatar, which is about 98% accurate to your body dimensions from just pictures of me and my gym clothes, which is what I wear 98% of the time.

16:41 Raghav Sharma I would be one of these fashion uninformed folks. It takes less than most people get through in 30 seconds. It takes you less than a minute and you can do it as many times as you want. People asked us, why do you let people redo it?

16:55 Tim Rowe I'm like, have you seen me after Thanksgiving? It's a great point, right? That's a really interesting point. Just that. Hey, it's summer. I'm getting a little bit in better shape. I've lost a few pounds. My body's changed. I've been going to the gym. I've been working out. Your body changes through these seasons, so it would make sense to update your physical profile in this environment. I'm not sure what that gym thing you're talking about is, but yeah, it sounds good. I saw a commercial. They sent me a postcard.

17:28 Raghav Sharma Nice. No, it's something where it's true. Also, we'll get to this in a bit, but you create your avatar. You've got your digital double. We don't store the photos. We don't store the avatars as images. We store them as a data cloud so that no one would ever see an image of an avatar other than the person when they're actually shopping. The second is we work directly with the brands. What they send to their manufacturing facilities, they send to us in parallel. The actual samples? Not actual samples, but when we started, it was about 20% of brands. Now it's north of 50% of brands use these electronic tech packs. You're thinking about those physical samples, but digitized, so they have digital cut patterns. They have what they call the grading logic, so how do you go between sizes? They have the fabrics that are used so that you know what different fabrics are used.

18:33 Tim Rowe This is a looser fabric. This one wears a little tighter.

18:36 Raghav Sharma This one's going to shrink in the wash. Well, actually, what the fabric is itself because what our system does is we have all the material properties of that fabric. Which then what it allows us to do is when we're e-stitching from that information they send us, we e-stitch the garment to create a digital twin that's going to behave the same way online as the real world garment does. That fabric is key to that. You've got these two things. You've got these two digital properties. Brand integrates us onto their website, so there's a little try it on button. If you're shopping, you're interested in this dress, let me see how it looks on me. You click the try it on. Now, if you're a returning shopper, what it does is it pulls your avatar. It takes that data cloud, reconstitutes it into the image, and then it takes the digital twin, that digital e-garment, and it simulates you wearing it. It drapes it on you using those fabric properties, the physical dimensions, the construction, where you put the stitching will affect how it drapes, and it calculates what it thinks the best fitting size is for you. Now, this is where we could stop and we could say, hey, you're a size six, but we don't because we realize that just giving people a point answer doesn't help them because people love to see how things look on them. They have personal preferences. You might like things looser. Some people might like things tighter. You have different occasions you're wearing it for, high school reunion, wedding. You may want to slay it. Work, you care a little bit less. That mythical gym we were talking about, you may not even get in. Yes, supposedly this gym. So what we do is we visualize it to you, and all this takes place in less than a second. So suddenly you see your avatar wearing the system recommended size, and we allow you to size up so you can see a looser size, size down so you can see a tighter size, and it shows you if this shirt was tight on me, it would actually show it pulling across like this. It would show it gaping. It shows you where the sleeves are bunching. It's actually kind of scary how realistic the wrinkling and where it's tight, where it's loose is. So that way, instead of adding two or three things to a card, you add just the size that

21:13 Tim Rowe you're looking for. Just what you're looking for. I think that applied so literally to what we do with advertising in the physical world. Sometimes it can be hard for a first-time brand who maybe hasn't done offline media before to understand what it's going to look like, what it's going to feel like. And a few months ago, caught up with the founder of a metaverse as a service company thinking about how do we use the metaverse to tell some of these stories? So it's interesting to see a lot of industries having this same type of challenge. How do we create that?

21:52 Raghav Sharma What would be a physical experience in a digital type of platform? It's funny you mentioned the metaverse when the metaverse was having its moment before generative AI came out.

22:06 Tim Rowe All of six months ago. Six months ago.

22:09 Raghav Sharma Changing so fast. We realized that with all the data that the brands were giving us to create these digital e-garments, we could help them abstract that into the metaverse so they could sell NFTs based off of that. They could sell digital clothing for people's online avatars. Makes sense. It didn't have to be a humanoid shape. We were able to abstract it in roadblocks so you could outfit your dinosaur or whatever it was so that we could help brands as they go into the metaverse or other digital properties. We could help them based on what we built. But going back to the core, the e-commerce mission, we've seen stunning stats.

23:01 Tim Rowe I would love to break that down. The technology makes sense obviously from a consumer standpoint, from a business standpoint. If I can solve this challenge, if I can have a more diverse potentially product line and be more operationally efficient, all of these business impacts are very attractive. Break that down. What does it actually look like when we put rubber to the road when you connect these

23:28 Raghav Sharma experiences? When we talk to brands, we always aim to help them to reduce their returns by a third and to increase their conversion by about 20%. If your return rate was 60%, we want to help you get it down to 40%. If your conversion was 3%, we want to help you get it to 3.6%. In reality, we are shooting way past those marks. For the brands that are using us, their return rates are down almost 64%. On average, our brands used to have return rates of 28%.

24:12 Tim Rowe Now it's down to 10%. That's closer to those in-store numbers.

24:17 Raghav Sharma Yeah, absolutely. Then our conversion rate has gone from an average of 4% to 7.2%. What this means for brands is that it means that their sales numbers are going up by about 70%. While reducing returns by 64%. Exactly. The industry uses two measures. It uses gross sales and then net sales, which nets all the returns. It's the net sales that goes up once the impact of both those forces. When working with some of the brands, what we've estimated is that translates into an earnings uplift of anywhere from 10% to 15% when measured as a percentage of revenue, not as a percentage of earnings. Depending on what metric you're looking at, your supply chain metrics are changing anywhere from 4% to 15%, getting better and a similar impact on financial metrics. It's a very similar impact on environmental metrics.

25:32 Tim Rowe It's really moving the needle for people. That's incredible impact. Obviously, all of that means happier customers that don't have to buy as many things and they're getting the right products. That's all inherent to this. Where does it go from here? We have talked a few times in this conversation that retail is still king and brick and mortar is still the place to be. In our first conversation, we talked about what the technology could look like applied to a physical environment.

26:06 Raghav Sharma What do you see being possible? Obviously, we've really focused on the e-commerce aspect of it. We've also focused on the data aspect, which is what helps brands think about their inventory planning. It helps them actually make better design decisions because they're seeing who's actually shopping them so they can change their designs to work for the body shapes of what people are shopping. One of the things, one of those learnings that we talked about and some of the stats that we've been talking about is that conversion rate. How do you provide an experience to a shopper that makes them want to buy? That's where it intersects with the out of home advertising and getting people aware of your brand. For us, there's a couple of things that we do in store. One is we can set up the system in store. You could have massive screens. You can have someone log in via tablet. That's cool. Do a pre-shop so that they're not running around the store. You could tie it to a shopping assistant. Here are the six things you've picked. I'll go get them for you. They're in your fitting room by the time you get done. The other thing that we have is what we call a fit whisperer, where if you have the app and you're walking by a rack, you can either scan the item and pull up and see how it's going to look on you so that you can make a decision right then and there on whether to bring it to the fitting room or even if you like it enough that you just put it in your shopping basket. Or depending on privacy settings and how you enable it, it could even be like a little, you get a vibration and you look down at your phone and it's like, hey, this thing you just walk by, this is how you look in it. I think that is where using that offering is where one of the biggest out of store, out of home applications could be. You and I talked about those personalized displays based on what direction you're viewing them from. You can see one of those and as people are walking by, they have perfectly enabled on their phone or the shop has perfectly enabled. There is some interaction between the display and your phone. You either push the image to the phone or using a directional display, you show them that. Just so that only they can see it. You try to pull them into the store that way or make them aware of the brand, things like that. This is exciting. Look books. Right now, people send you emails or physical brochures, which are the world's best models wearing their clothes and you're like, well, that looks great on them and they've pinned it at the back.

29:18 Tim Rowe I'm not 6'3", 160. Exactly. It's hard to tell on the webcam, but it's not my build.

29:29 Raghav Sharma Could be. Could be. Could be. I don't want to see you from the shoulders up. You can do the same things. You can send people personalized look books digitally as part of your marketing campaigns, which show them in the clothes. How cool is that? You could even quickly go again out of home, look books, like pull the person up in five different looks. Maybe it's a seasonal campaign. Starting to be fall, you want to show them in your winter collection as they're walking by the store or they're in the store or wherever they might be. There's lots of different ways that this can intersect to get to people and help brands and marketers get more exposure, more awareness, and not really tie it to just the, I am here

30:31 Tim Rowe pressing try it on because I am shopping. Thinking about what does that modern customer experience look like? That idea of being able to further enable an in-store experience by before I even, is this something that I should even try on? If I can eliminate friction in those steps in the decision-making process, what is that impact? I don't know. It's an exciting thing to certainly set a course and direction to in the future. I was on a webinar earlier this week about physical retail media and thinking about that, thinking about how does technology create a more personalized experience and how does that look today in 2023 and what does it look like in 2030?

31:23 Raghav Sharma I think that we've certainly got the start of it. Personalization and then also everyone says omni-channel. What does omni-channel mean? Just basically being able to allow, in my opinion, it's being allowing shoppers to shop how they want to shop. There's a lot of things that my family, we order online, but we live right over a gap in New York City. We can drop things off. We don't have to ship things back. There's happy returns and all those random places. There's just so many different ways. Then there's certain things that I will never buy a suit online. That's a great point. Eventually I will. I'm sure I'm going to eat my words and three years from now I'm going to buy a suit online. Right now I still like to go in and see it and then talk to the tailor because I'm not so fancy that I get custom suits. I can't do that. I'm just like, can you take the sleeve off a little bit? So forget shoppers. We can say there's differences in shoppers, but even in a shopper there's differences. It differs by category. It differs by brand, how and where they want to interact. Having the digital capabilities and the physical capabilities to meet them in all those different is what's in my opinion going to help a retailer or a brand really satisfy their customers

33:02 Tim Rowe and succeed going forward. Beautifully said. I couldn't agree more and I don't know that there's a better exclamation point for us to bring the train back into the station. In the real world we use Latin long. Give folks the Latin long. Where do they find you? Where do they learn more about perfectly?

33:22 Raghav Sharma How do they stay connected with you and everything that you got going on? So you can find us at perfectly.com. If you're a brand or a retailer and you want to learn more about us, that's a great place to start. Otherwise you could always email me, which is ragab.sharmai at perfectly.com. Tim hopefully you'll tell them how to spell that.

33:45 Tim Rowe I will do you one better. I'm going to put it in the show notes.

33:48 Raghav Sharma The only I have to do is copy and paste. We're happy to jump on the phone, jump on Zoom, come out to see you and talk about how you could get started. For shoppers that want to try it out, they can download the app from the App Store and also Google Play. Then just start taking us out to your favorite brands if we're there. That's how you'd get started.

34:20 Tim Rowe Awesome. We'll make sure to link to all of those resources in the show notes.

34:24 Raghav Sharma Can't thank you enough for being here and sharing as much as you have today. It's my pleasure, Tim. And thanks again for having me.

34:32 Tim Rowe Absolutely. If you found this episode to be helpful, please share it with somebody who could benefit. As always, make sure to smash that subscribe button. And wherever you're listening, leave the podcast review. That's how you help us grow. And we'll see you all next time.