Technology Trends and Benefits Changing Competition in the Fashion Industry
Perpetual Motion — Introduction
Fashion has always been an industry with quick turnaround times. Last year’s designs will hold a business back, as each company competes for relevance.
This rule of thumb undeniably carries over in regards to technological adoption, or more specifically, artificial intelligence. In 2018, the global artificial intelligence in the fashion market amounted to $270M. It is predicted to reach $4.4B by 2027. The more money invested into this technology, the more awarded in return, providing incomparable boosts to Businesses with the earliest insights.
It is estimated that AI’s role in the fashion industry will continue to increase by 36.9% over the next 6 years.
Therefore it stands to reason these next 6 years will determine which fashion entrepreneurs, retailers, fashion students, etc. remain relevant and who will become obsolete.
The pattern for each respective success and failure follows the technology adoption curve as it pertains to artificial technology. This overarching display of market adoption timing has long been observed and documented. We are witnessing firsthand the stages AI will carry the fashion industry through. The following sections recount observations on present examples of fashion companies within the technology innovation lifecycle as well as discussion of our current placement, the chasm.
Understanding the position of others, the market and your own businesses is an important first step toward improvement.
Early Bird Catches the Worm — Innovators (Tech Enthusiasts)
Back in April 2017, Farfetch introduced their “The Store of the Future” project, aimed to dramatically improve retail productivity by capturing invaluable customer data and enhancing human interactions between shoppers and sales associates. At the time of inception, Farfetch was not yet profitable, with market reports suggesting it lost around $40 million in 2016. In the second quarter of 2021, they made a profit of $87.9 million. It goes to show how slow and steady wins the race if you invest in artificial intelligence.
The key features of “The Store of the Future” may seem eerily familiar now, but were quite astounding in the summer of 2017. They include: a universal login that recognizes a customer as she checks into the store; an RFID-enabled clothing rack that detects which products she is browsing and auto-populates her wishlist; a digital mirror that allows her to view her wishlist and summon items in different sizes and colors; a mobile payment experience similar to what exists in Apple Stores; and, of course, the underlying data layer that connects these services with each other and the Farfetch platform.
Overall, Farfetch took a risk entering the forefront of AI adoption when their business was struggling and such concepts were far from proven paths to success. This risk came to pay off as Farfetch survived through the pandemic to emerge newly profitable and ahead of the game in technological advancement.
Fashionably Late — Early Adopters (Visionaries)
Over 3 years after Farfetch broke the mold to introduce AI elements to brick and mortar stores, 3 major retailers came to showcase similar features as those displayed in “The Store of the Future”. Macy’s, Adidas, and ASOS — each significantly profitable and powerful in their own right — chose to invest in the emerging technology of AI to provide virtual fitting rooms.
This decision was far from spur of the moment. Abundant research, which included the feedback and effects of the Farfetch launch, coaxed these companies to try what may be the next big thing. COVID-19 had already begun to harm business, and virtual reality offered a potential oasis to offset these setbacks. These businesses were taking a risk, but one they could likely afford.
Early data showed the service has helped reduce return rates for partners by 36%. Macy’s currently has a return on capital employed (ROCE), a financial ratio that can be used to assess a company’s profitability and capital efficiency, of only 11% with Adidas’ only slightly higher at 12.34%. This data shows returns are far from a thorn in the side of these businesses, no doubt partially helped by their AI investments.
While Macy’s, Adidas, and ASOS did not pave the way for AI in fashion, they saw its potential early on in the life cycle, using it to their advantage. Each of these companies made it through the pandemic with profits and continue to advance their already substantial power and influence within the market.
Three’s a Crowd — Early Majority (Pragmatists)
The present can be looked upon as the defining moment between Visionaries and Pragmatists — the companies that will adopt in the next few years to defend this title. Gone are the days of uncertainty about AI. It is hardly seen as a fad in the face of data supporting its placement as a key tool in any fashion company’s armory.
Still, it can be expensive to invest, even without the threats associated with risk. Why bother to sacrifice revenue if your business is already making a profit? What if none of your closest competitors are making the shift? Is it better to wait till the market is more repaired? These questions can easily act as deterrents to the unaware.
Retailers be warned: artificial intelligence is coming and right now is the ideal time to decide your place in line.
Late Isn’t Great — Late Majority (Conservatives)
The late majority is where most retailers will likely find themselves once they realize they are playing catch up to integrate AI. While it’s never too late to adopt, issues arise from being years behind other companies. It will become nearly impossible to compete with those who have invested in technological advancement, with predictions suggesting a steep gap between revenue levels. Even if you can manage to better your closest competitors, technology (or more specifically lack of technology) can keep you in an entirely different league than those leaving each year at the top of the market.
Trying to play catch up can be a dangerous game, covering risks akin to those taken by the Early Adopters. Desperation can set in, influencing panic and negative business decisions. Without confidence or even a support system, businesses fail more often than not. Failing to adopt AI may not destroy your business immediately, but it’s a step in that direction.
Great Expectations — Laggards (Skeptics)
There is an easy comparison between AI adoption and e-commerce adoption. Think of how many brick and mortar stores went extinct because they did not adjust to consumer preferences/ technological advancements. While a record 9,500 brick and mortar stores went out of business in 2019, this hardly compares to the 25,000 that shut down permanently in 2020. Winning strategies don’t stay winning strategies without revisions. The strategy that has succeeded in the past holds no promises in the future.
AI is a similar story — if retail brands want to avoid becoming obsolete they must adopt. 9 out of 10 leading businesses have investments in AI technologies. While some companies may manage to survive without AI, they will sacrifice any chance at holding a leading position by allowing themselves to grow obsolete. Those still skeptical of AI this late in the life cycle will likely find themselves in a precarious position. It is likely that some of the hype and expectations for AI may fall short of predictions; however the core message of advancement through AI is factual and will come to punish ignorance. The artificial intelligence (AI) in the fashion market in the U.S. was worth $94 Million in 2020 alone.
Risks and Rewards — Conclusion
In the years to come, more evidence will be available to support the main areas of growth for AI as well as its major weaknesses. However, by then it will be too late for companies to adjust their stance for a chance at becoming market leaders. The fashion industry, like most markets, rewards risk. Designers who think outside the box and retailers who strive for unique customer experiences are those who wear the laurels and fill the coffers. Technological adoption is no different than this proven pattern of victory. The time has passed for the initial venture into the unknown, but there is still room at the top. The businesses that choose to support artificial intelligence development will reap its benefits, while those that bask in the sun of their current profits may find themselves in the shade.
Like the hands of a clock, fashion companies must stay in perpetual motion to rise in a congested yet extremely profitable industry. Awareness is only a part of the required traits needed to surpass the competition. Without the confidence to weave between the Pragmatist and the Visionary, market leadership is near impossible.
Paraphrased from the poetic words of Anaïs Nin, the day will come when the risk to remain tight in a bud will be more painful than the risk it took to blossom.