SAN FRANCISCO, United States — In the fast-approaching future, the equity value of fashion companies will be based, not on how many products they sell, but on the quality of their software. Technology will not replace the aesthetic appeal of great products, the magnetic attraction of great brands, or the advantages of extended portfolio assets, because the fashion industry will continue to build great products, brands and businesses as it has done successfully in the past. But technology will, indeed, replace products, brands and financial strategies as the key source of value creation.
When contemplating the statements of Silicon Valley tech gurus like entrepreneur and venture capitalist Marc Andreessen, who forsees the death of traditional retail, it’s easy to get stuck on the hyperbolic prediction that e-commerce will replace physical stores by the end of the decade: “I’d bet on the pure plays in e-commerce,” Andreessen told Sarah Lacy, editor of PandoDaily, the self-declared website of record for Silicon Valley. “Software eats retail,” he continued, referring to his seminal essay “Why Software Is Eating The World.”
But at the core of his theory, lies the idea that “the best software companies will win at retail,” which does not necessarily mean that physical stores will disappear, but that more and more retailers are being run on software and that successful companies will need to think and operate like software companies.
To be sure, it’s not about whether a given distribution channel is online or offline. And it’s very possible that, in the highly tactile fashion industry, sales at physical retail stores will eclipses sales made via e-commerce for the foreseeable future. Rather, it’s about the intelligence level of your business.
Successful fashion companies like Nordstrom, Neiman Marcus and Burberry can now process gigantic flows of information and operate their businesses based upon software-driven intelligence. They base their businesses on the economic exploitation of data rather than capital, which makes them more effective. Indeed, equity value is flowing towards software technology and the ability of companies to organise and exploit granular information to drive intelligent decision-making through things like collaborative filtering and predictive analytics. Companies that embrace software enjoy a market cap several times those of fashion companies which are brand- or product-driven. Case in point: Zalando, the European online retailer founded in 2008, has a valuation of $5 billion, greater than the valuations of Versace and Moncler combined.
But to be clear, there is no contradiction between the survival of traditional sales channels, like physical stores, and the emergence of software-driven decision-making. In fact, technology might just be what keeps traditional stores alive.
Enrico Beltramini is the founder of the Fashion Technology Accelerator in Silicon Valley. Previously, he was a Gucci Board Member.
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