Tech is Fashion's Latest Accessory 🛍️

Welcome to a special guest post edition looking at the convergence of fashion and technology, written by Stephen Babcock of The Current. This article originally appeared on the Current's website on May 4, 2022. It's a great resource for all things e-commerce.
 

Style trends may come and go over the next decade, but investment in fashion technology will see steady gains all along the way.

A new report from McKinsey says fashion companies are set to roughly double investments in technology over the next eight years.

In 2021, companies invested between 1.6 and 1.8% of their revenues in technology. By 2030, that percentage will rise to between 3 and 3.5%, according to the management consulting firm’s State of Fashion Technology Report 2022. This increase is predicted as result of a pair of converging trends, the report states.

For one, technology is advancing rapidly. Improvements in AI, cloud computing, automation of work functions and 5G networks are creating new capabilities for companies. Technology is also affecting bottom lines.The McKinsey analysis states that the fashion companies that are already embedding AI into their business models could see a 118% cumulative increase in cashflow by 2030. Those who start now stand to see a 13% increase in cashflow, per McKinsey. By contrast, there’s risk of a 23% decline over the same time period for those that are slower to invest.

At the same time, shoppers are turning to digital channels as they seek to stay on trend. They are finding fashion online, as 72% of customers said they interacted with brands on mobile and desktop in 2021, though that figure is expected to stabilize to 66% in 2022. Shoppers are also doing so because of the many benefits offered by e-commerce. Of customers who turned from in-person to digital shopping in 2021, 48% did so because of the pandemic, 27% cited convenience, 11% cited product availability, and 11% cited promotions.

E-commerce already receives 55% of all tech investments, and these technology investments will be directed toward further improving shopper experience. At the same time, fashion companies are expected to make technology-oriented upgrades to operations and harness these capabilities to follow through on sustainability commitments, the report states.

The report said the tech expansion in fashion will be driven by the following five key areas:

Digital goods and NFTs are on the rise, and a focus on the metaverse could help brands generate 5% more revenue over the next 2-5 years, McKinsey found. But brands will need to “separate hype from the concrete opportunities” to turn virtual interactions into sustainable business offerings, the report states.

One of the more thoughtful early strategies is coming from PacSun, where CEO Brieane Olson thinks the company's metaverse presence will help not only with sales but also the sourcing of new products.

About 70% of customers want personalized experiences, and around three-quarters are disappointed when these personalized experiences aren’t offered, the report states. Brands can use big data and AI for one-on-one experiences and loyalty. We're already seeing how machine learning is meeting the fitting room through solutions like those made by Vue.ai.

Digital tools can be used to improve in-store experiences, and physical assets can help to expand opportunities in quick commerce, the report states. Those who use digital technology in a store are likely to spend up to four times longer shopping, the report states. It's a big reason why retailers are making big moves to scale software teams and invest in startups.

Brands and retailers can bring together digital tools and analytics to more fully integrate technology offerings. This focus will be a top-five priority for more than 60% of executives in the coming years, the report states. It's why Levi's Chief AI Officer Katia Walsh is thinking across the organization as she considers uses for machine learning.

Tracking software and data will power sustainability initiatives, enabling a better understanding of product lifecycles. More than 50% of fashion decision-makers believe software will be a top-five enabler to reduce emissions in their supply chains, the report states.

We're already seeing an example of this idea from Higg, a startup that just raised $50 million to expand tools for sustainability measurement that the company says already have 50,000 brand and manufacturer users.

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