BoF Professional All-Access members are invited to join us on May 4, 2022, for The BoF Professional Summit: New Frontiers in Fashion and Technology. In session one at 09:30 (EDT) we’ll unpack findings from the report. Register now to reserve your spot. If you are not a member, you can take advantage of our 30-day trial to experience all of the benefits of a BoF Professionals membership or upgrade your existing membership here.
Technology has already revolutionised the way that global fashion companies do business. The Covid-19 pandemic further cemented the pivotal role technology plays in the industry, accelerating e-commerce adoption among consumers and further embedding digital tools in day-to-day workflows and decision making. Though the focal point to date has largely been on customer-facing technologies, brands now have an opportunity — born out of necessity in today’s volatile operating environment — to expand the breadth and depth of technology application in the industry. Fashion brands and retailers are leaning into technology not only to become more resilient to supply chain and other disruptions, but also to become more responsible and transparent as the world seeks sustainability solutions.
Against this backdrop, we expect fashion companies to ramp up their investments in technology, from between 1.6 and 1.8 percent of sales in 2021 to between 3 and 3.5 percent by 2030. Investors, meanwhile, will pour capital into companies whose technologies aim to make fashion players more nimble and more environmentally and socially responsible. Fashion players that fail to embrace these technologies will face existential challenges, while their tech-savvy counterparts should see measurable bottom-line benefits.
Technology’s impact is evident in key business areas, such as creating exceptional customer experience and engagement; helping to address sustainability issues; and upgrading internal processes and operations. This applies to fashion players across value segments, though the solutions may play out differently for luxury and mass market brands to accommodate varying customer needs and strategic priorities.
This report identifies the business opportunities on which fashion leaders should focus their technology resources and investments, based on executive and other expert interviews, analyses of public and private companies, market intelligence and consumer research. By focusing on these opportunities, the report aims to help leaders look beyond hype and buzzwords to explore how technologies can alleviate real pain points and have a tangible impact on business results.
When it comes to hype, there is no shortage in the matter of the metaverse — the interconnected, virtual ecosystem that overlaps with or offers an alternative to physical reality. But it is difficult — and potentially unwise — for fashion brands to ignore the fact that in 2021, global spending on virtual goods reached around $110 billion, more than double the total in 2015. That spend is expected to be worth at least $135 billion by 2024. While many experiments in the metaverse at this stage are largely marketing exercises, innovative fashion brands over the next five years could generate up to 5 percent of their revenue from activities in the metaverse. Virtual skins in digital worlds will be a big driver of that revenue stream, while NFTs can help to solve industry pain points and bolster customer loyalty.
As companies lean into digital opportunities, they will look to the hyper personalisation of experiences to increase customer loyalty. Shoppers have learned to expect curated, personalised service in other industries thanks to players like Netflix and Spotify, which harness AI to provide experiences specific to individual customer tastes and needs. But the fashion industry has been largely ill-equipped to move beyond basic customer segmentation owing to technology and talent restrictions. Brands that invest in AI modelling and Big Data to create one-to-one, personalised shopping experiences may see customer acquisition rates and sales increase as a result.
In a similar vein, executives should leverage technology in their physical stores to augment the omnichannel customer experience. As brands and retailers adopt and adapt in-store technologies, they will bridge the gap between online and offline channels. For example, in-store mobile apps for store associates can offer a frictionless way to serve customers, while in-store customer apps engage customers and result in more time spent in store. Meanwhile, beyond the shop floor, robotics and stock optimisation software, among other tools, can help brands and retailers set up micro-fulfilment centres, integrating physical stores as digital nodes in their distribution and delivery networks. Micro-fulfilment technologies can increase efficiency and reduce fulfilment costs by up to 90 percent, while also improving customer satisfaction thanks to faster delivery times.
Behind the scenes, technology is set to impact internal processes along the value chain, from demand forecasting to transport operations. While many parts of fashion companies’ value chains are already digitised, a challenge for many players is that digitisation has happened in siloes, creating bottlenecks and other inefficiencies when it comes to sharing data and knowledge between functions. As a result, fashion executives believe integrating digital processes throughout their organisations will be among their top-five areas for digitisation as they look ahead to 2025. The benefits of such integration include increased speed to market and full-price sell through rates, as well as lower manufacturing costs.
Digital connectivity of the supply chain is important in another key area for fashion: sustainability. Traceability software — which helps brands identify, monitor and manage products across entire lifecycles and in different parts of a supply chain — is essential for the industry’s sustainability efforts, while seeking to address demands from regulators, investors and customers for greater transparency around brands’ environmental and social impact. These traceability efforts cannot work in isolation, given the enormity and urgency of the sustainability challenge. Brands should consider joining forces with each other, start-ups and industry bodies to establish a common data standard, and to share data and knowledge via software platforms, open ledgers and Big Data technologies.
For decision makers across value segments and at all stages of the technological adoption curve, this report translates each of these opportunities into clear, actionable steps for brands and retailers seeking to be part of fashion’s tech acceleration.
To date, few brands or retailers have embraced technology with a truly competitive mindset. Now, fashion and technology go hand in hand to enable companies to expand into new markets, win deeper levels of customer loyalty, and establish data-driven strategies and decision making. As fashion leaders seek further digital transformations across their organisations, they will need to prioritise technology and align their companies’ talent and resources accordingly.
The report explores five technology-driven imperatives for the fashion industry:
1. Metaverse Reality Check
The marketing value of digital fashion and NFTs may now be clear, but fashion brands will need to separate hype from the concrete opportunities to generate sustainable revenue streams presented by growing consumer engagement with the metaverse.
2. Hyper Personalisation
Brands have access to a growing arsenal of personalisation tools and technologies to upgrade how they customise and personalise their customer relationships. The opportunity for executives now is to harness Big Data and AI to provide one-to-one experiences that build long-term loyalty.
3. Connected Stores
The inexorable rise of e-commerce has forced fashion players to rethink the role of physical stores. Fashion executives can address consumer pain points by using in-store mobile apps to enhance the experience and micro-fulfilment technologies to leverage their physical retail networks for the quick-commerce era.
4. End-to-End Upgrade
Digital tools and analytics have transformed key parts of the fashion value chain, but these optimisations are often siloed within organisations, limiting the potential for cross-functional improvements. Brands should embark on end-to-end value chain integration to create more efficient and more profitable ways of operating.
5. Traceability First
Traceability systems powered by tracking software and Big Data will help fashion brands focusing on sustainability to reach far into their supply chains to understand the entire lifecycle of their products.