You walk into your favorite fashion store. Without having to ask any questions, the store assistant greets you with a pair of shoes made by your favorite brand, in the model you like, and in your size. This is not science fiction; it will become a reality in the coming months, when an Israeli startup begins operating. Preciate, founded by Amdocs Ltd. (NYSE: DOX) founder Avi Naor and Col. (res.) Eyal Fisher, former commander of the cyber center in IDF Intelligence Corps Unit 8200, has developed a customer recognition platform. The startup's name refers to the importance feeling of appreciation from positive customer experiences.
"Almost the entire retail sector is talking about personalization - the need to know the customers and give them personal service. Such human interaction can't take place without data in the physical stores, or without omnichannel (integration between different marketing channels) that includes the customer's history," Naor tells "Globes." Naor is referring to the fact that while retailers are now studying the customers' consumer habits in online shopping, which enables them to influence their shopping, there is no link to the information accumulated about them when they visit physical stores.
Furthermore, if such a connection exists through customers clubs, for example, it takes place only at the moment of payment, when the customers have already completed their shopping experience in the store. "In contrast to an online store, when you enter a physical store, I don’t know what interested you until you reach the checkout counter. We examined the options we had for identification upon entry, and we realized that all of the other options were not personal identification of the customer. Facial identification makes it possible to meet as if we were high school friends," Naor says with a smile.
Preciate, founded last year, is based in Holon near Tel Aviv, and has 15 employees. In its first financing round, the company raised $5 million from private investors, of whom Naor is the most important, and is currently raising another $4 million. The system developed by the company identifies customers entering the store after initial registration through a selfie in order bring the same personalization currently existing in online stores to physical stores.
Facial identification takes half a second from the time that customers enter the store. The attendant knows what products customers bought the last time they were in the store, and offers them products corresponding to their preferences. In addition, the facial identification technology makes possible payment based solely on identification, with no credit or mobile phone. The company is currently conducting a pilot with a prestigious US fashion chain, and has signed a cooperation agreement with Fox-Wizel, controlled by Harel Wizel, Israel's largest retail fashion chain.
"Retailers know their regular customers"
The combination of the entrepreneurs happened almost by accident. Fisher was released from the IDF and began looking for something to do in business, and went to Naor to ask his advice. Naor, however, preferred keeping Fisher close by, and brought him in to help found the company. They were joined by CFO Moshe Sheffer, who became acquainted with Naor when Sheffer was CFO in another company in which Naor invested.
At first glance, Fisher and Naor's meeting in the retail sector appears surprising. Fisher comes from the security industry, while Naor has vast experience in retail. In recent years, however, many developments originating in the security industry have been adapted for use in marketing, where they are used for identification and adapting customers' experience. This sector is currently estimated at $20 billion in the US market alone. It is natural for Naor and Fisher to take aim at this market, with an initial focus on the fashion sector. "We believe in focus, and we're at the beginning, so we want to acquire expertise. We can later expand our activity to accessories, eyeglasses, cosmetics, sports equipment, furniture, hotels and banks. Each of these areas has human interaction with the people looking for service," Fisher says.
Naor adds, "The logic in the fashion industry is that if you are one of the VIP customers, they know you. But they don't remember the customers who come four times a year, instead of every three weeks, although these customers have the highest expectations. We enable stores to appeal to this segment."
"Globes": Why are you using facial identification instead of an app, as players like Amazon are doing with its Amazon Go chain of stores with no checkout counters?
Fisher: "It is very difficult to make everyone download a phone app. If you are Amazon, you can do it, but the goal is for retainers all over the world to use the technology. The idea is that we aren't forcing anyone to identify themselves when they enter. The store knows that customers enter without having to stop them or announcing it."
Naor: "The future of Preciate isn't just facial identification - eye identification is more precise. The problem is that in order to use this technology, customer have come close to the device, and that's very inconvenient for customers entering the store. For us, our journey to the customer and the added value starts after we've identified him or her." Naor emphasizes that the company's special advantage is the entire system connecting identification to the help that can be offered to the customer, not just the technology used in the identification process.
The challenge: Making customers register for the service
The system developed by Preciate is already in use in the US at the prestigious The Webster fashion chain and at Showfields, which provides an immersive storytelling retail concept revolving around concepts and brands.
Four months ago, Preciate made a deal with Fox-Wizel. The deal has two parts exercisable until the end of next April. The first is an option to acquire 20% of Preciate's share at a $15.5 million valuation, after money, i.e. for $3.1 million, subject to adjustments in the event of additional investments by the exercise date. The second concerns possible combinations by Fox-Wizel on Preciate's behalf with leading overseas retail concerns. Fox will be entitled to up to $500,000 for every such agreement that goes through.
Since the agreement was signed, the two companies have been working hard to translate it into concrete cooperation in the stores themselves. Sources inform "Globes" that Fox-Wizel is scheduled to begin a pilot in the coming months that will use this technology in two of its stores in Tel Aviv: one of them a fashion brand and the other a sports brand.
In recent years, the retail fashion chains have had difficult coping with increased overseas purchases and ecommerce websites. Fox-Wizel has an extensive line of brands that it owns or represents in Israel, including Nike, Foot Locker, and Urban Outfitters. The group has expanded overseas in recent years through a franchise to operate the Nike brand in Canada, and through the Laline chain of personal care products. Fox-Wizel's option to acquire a minority stake in Preciate is a new direction for it, involving a possible entry into the technology industry, which is having a growing impact on the global retail sector in general. If the two parties' plans are successful, it will have enormous potential for them.
What does it actually look like? "We usually install one camera at the entrance to the store. If we enter a department store like Macy's, we may also install cameras in other locations, for example to find out which department the customer enters," Fisher says. In order to encourage the customers to sign up for the identification system, however, solutions on the retailer's side are needed. "For example, we have a store in New York that decided that anyone registering gets coupons for the store. We believe that in the first stage, at least, most of the registrations will come from there. This is an extension of the customers club, and the next time that the customer enters the store, he or she will have an improved experience."
Fox-Wizel is currently considering which special services to offer in the pilot, which will be on a small scale, and will include a limited group of club member who agree to take part in it. Fox-Wizel is also already considering how to use the technology in the general market, and what value can be offered to customers agreeing to be identified. Among the options being considered are services such as payment through facial identification without waiting in line for checkout, ordering products in advance in your size that will be kept for you in the store, and notifying customers about new models and future launches of specific interest to a given customer. The aim is clear: to provide a service experience previously unknown in Israel.
Besides the positive aspects of upgrading the experience, however, the system creates problems concerning privacy. Many customers are liable to feel threatened by the idea of giving their photograph to a chain, especially when the purpose is to increase their volume of their purchases. While there is now almost no website our service that does not require synchronization of personal particulars with email or Facebook, some companies do not excel in protection of this information.
Fisher is trying to give the end customers confidence, including potential customers who want to maintain a high level of privacy. "Because of sensitivity to privacy, we're working with the customer's white label systems. If a customer makes an agreement with another customer, as a result of which they exchange information, we will have full support in creating such an environment. People are very suspicious, and ask what we're planning to do with their photographs. From our perspective, the purpose of the information is to give the customer personalized service," he says.
Naor adds, "Installation will probably take two years, but as soon as you enter the mainstream, all of the customers are willing to join the next day, as happened with credit cards. We think that it will eventually be a non-issue."
Working with hotels throughout the world
Two other prominent sectors with major potential for facial identification that Preciate has in its sights are hotels and fast food. "Take Starbucks, for example. They have a high percentage of regular customers, and they currently have an app. The problem is that when customers order through an app, their average purchases drop by 25%, because no one offers them extras, such as a pastry together with their regular coffee," Naor explains.
Sheffer reveals that the company is on the verge of signing an agreement for activity with a leading tourist hotel chain with a presence n Europe, Mexico and the Caribbean for offering special service to VIPs paying an annual subscription fee and offering them a premium experience with services such as a special area for club members, with free benefits, and even identification of family members' birthdays.
Naor says that Preciate is preparing to work next year with medium-sized customers, and to expand to large stores and department stores in 2021. "We wanted to work in a sector and a market with limitless potential, in which there is no limited to growth. I'm not saying that we'll be the next Amdocs, but we want to found an Israeli company in the Israeli environment that will provide jobs for a great many people. It's a market of trillions, and we're pretty far ahead in it," Naor says, adding facetiously, "We think that competition is good as long as we win. But we have a feeling of being pioneers, of educating the market."
Published by Globes, Israel business news - en.globes.co.il - on October 27, 2019
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