With Nike’s recent acquisition of Celect, an AI-driven predictive analytics company, the retail giant has the potential to transform its business from shoes and clothing to data. But privacy pitfalls lie ahead, and how customers feel about their buying patterns being monitored remains to be seen.
Boston-based Celect, founded in 2013 by two MIT professors, uses machine learning and predictive analytics to help retailers, including Lucky, ALDO, Aeropostale and Urban Outfitters learn more about customers. The companies leverage that data to improve supply chains and store inventories, better arrange in-store and online offerings to drive sales, and reduce the waste of unsold products or split shipments.
Nike, which didn’t disclose the deal’s financial terms, said it looked forward to serving its customers “more personally at scale” by using Celect’s tools to be more “insight-driven, data-optimized and hyper-focused on consumer behavior.”
Many companies are trying to determine the best way to merge machine learning, AI and data science, but few are executing as well as Celect. That boosts the value of the purchase for Nike as it pivots to a future business model, V.S. Subrahmanian, professor in the department of computer science at Dartmouth College, told Karma in an email interview.
“In the long run, Nike’s revenues from shoes and athletic wear may be dwarfed by their revenues from the customer data they may be able to gather,” he said.
Nike’s ability to understand its customers’ behavior will likely come with consumer benefits, such as smarter-stocked stores, more efficient shopping experiences and better personalized shopping recommendations. But it could also mean that, suddenly, other brands will know a lot more about those consumers, too.
“Nike should consider transforming themselves into an information business rather than an athletic business,” said Subrahmanian. “In addition to using Celect personnel to analyze the behavior of Nike customers and use them for their own business needs, Nike will be able to use Celect’s personnel to more effectively analyze the customer data they have gathered and sell the resulting analysis to third parties.”
Potential Uses
Through Celect, Nike could learn, for instance, that a consumer frequently runs outdoors, prefers shopping online, and buys the same shoe repeatedly despite lingering on other brands’ shopping web pages. If Nike sells that info, the consumer might receive an email about an overseas marathon, or see an Instagram ad for a mileage-tracking app for runners. Plus, in six months, Nike could send a discount code for a pair of shoes — perhaps more expensive — that a consumer has been eyeing.This may be provide a boost to Nike sales and investors eager to see the Celect acquisition lead to new revenue streams.
But the company must tread lightly and not trigger customers’ privacy concerns.
“Customers can and should be asked to provide consent to Nike’s plans to collect, analyze, and disseminate information about them,” Subrahmanian said. “Unfortunately, these consents are often captured through ‘Terms of Use’ agreements that usually consist of legalese that most customers do not understand or even read, but sign off on.”
