The fashion industry is accelerating its technological advancement across the entire value chain. Leading brands and retailers plan to double their spending on new technologies in the coming years. This is the conclusion of the new study “The State of Fashion: Technology”, which was carried out jointly by the industry magazine The Business of Fashion (BoF) and the consulting firm McKinsey & Company.
Currently: Focus on technologies that make retail more flexible, sustainable and attractive
As the study shows, fashion companies are expected to increase their investment in technology from 1.6-1.8 percent of sales in 2021 to 3.0-3.5 percent in 2030.
In 2021, the value of the top 50 technology investments in the fashion industry increased by 66 percent compared to 2019, totaling US$16.2 billion, according to a McKinsey analysis based on data from business information platform Crunchbase -Dollar. These investments went either to fashion retailers or companies that sell products or services to fashion companies, rather than fashion brands. Roughly 55 percent of investment went to e-commerce, which has benefited from the pandemic-driven surge in online shopping. Payment technologies, including buy-now-pay-later companies, in social commerce and resale accounted for most of the rest, followed by supply chain and logistics companies, and companies involved in NFT or virtual reality technologies.
Future: Focus on competitive technologies
There are still only a few brands that have introduced technologies successfully and in a competitive manner. But those who invest may see the positive effect on their profits, say the study’s authors. Companies that are already using AI technologies for their business to increase operational efficiencies and improve customer retention could see a cumulative increase in cash flow of 118 percent by 2030, the study continues. Organizations just beginning to use AI could see their cash flow increase by 13 percent by 2030.
According to the study, the top three areas in which fashion industry executives want to invest between now and 2025 are: personalization, in-store technologies and end-to-end management of the value chain.
The industry is concerned with five key technological issues
Metaverse: The Metaverse has already arrived in the fashion industry. Even if this only addresses a small target group at the moment, brands could generate up to five percent of their sales in the next two to five years with business opportunities related to the Metaversum.
Personalization: Access to customers online is becoming more and more expensive, personalization, data and AI-supported marketing and e-commerce are becoming increasingly important. Personal experiences are crucial for long-term customer loyalty.
Brick-and-mortar integration: Despite the accelerating trend towards online purchases, research shows that customers still prefer to shop in-store so that they can examine the products at their leisure before making a purchase. The connection of shops through mobile apps and microfulfilment will further develop the role of stationary shops.
End-to-end integration: The application of AI-supported technologies to analyze the value chain is still in its infancy and is usually only done selectively and in silos. The aim will be to integrate the entire value chain end-to-end in order to exploit the full potential for cross-functional optimization and to make processes more efficient and profitable. Machine learning and cloud computing are among the key technologies that brands can use to achieve this goal.
Traceability: Transparency requires the traceability of processes and is the key to socially and environmentally responsible production. Tracking systems based on tracking software and big data can help fashion brands keep track of their supply chains.