The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Barely has the fashion industry — still shaking off its reputation for being slow to embrace technological innovation — gotten to grips with the first two generations of the web that attention is now turning to web3, the metaverse and the vast array of associated technologies, from augmented reality to blockchain. The pandemic has only accelerated the pace of technological advancements and adoption, threatening to leave brands that haven’t already headed into the metaverse, or embraced decentralised autonomous organisation, in what might soon feel like the Stone Age.
But there’s another, more hopeful narrative, asserted Jeff Carvalho, co-founder of streetwear blog and media brand Highsnobiety, while debating the business viability of NFTs at The BoF Professional Summit: New Frontiers in Fashion and Technology, a gathering presented by Coinbase on May 4 in New York. “Anybody telling you that you’re late [in deploying next-generation technologies], it’s not true. We are extremely early in this,” he said, echoing the prevailing view at the summit that companies and consumers alike are still experimenting with how best to embrace emerging technologies that will one day enable a seamless blend of physical and digital worlds.
Still, waiting on the sidelines may not be an option for much longer given that the pace of change is far faster than when, say, web1 arrived. As Natalie Massenet, founder of Net-a-Porter who is now leading a venture capital firm backing emerging entrepreneurs, put it at the BoF gathering: “Brands know that they have to adopt things a lot faster than they did in 1999.”
Amid this growing urgency, leading fashion companies are expected 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, according to “The State of Fashion: Technology,” a new report from The Business of Fashion and McKinsey & Company. For many fashion brands and retailers, it’s now a matter of zeroing in on the technologies that offer the greatest impact, in terms of both addressing today’s pressing industry challenges and positioning their businesses to be ready for tomorrow’s opportunities.
“Experimentation Is Key”
Whatever the technologies brands invest in, there is a new element of the unknown, one that may not lead to the traditional returns on investment they have come to expect and requires a willingness to start experimenting with breakthrough tools that have the potential to radically transform the fashion industry, according to Ommy Akhe, a creative technologist specialising in experiential software and augmented reality (AR) prototypes. “Experimentation is key,” she said.
She described AR as one of the “foundational tools” already enabling what will one day be the metaverse, the physical-digital interconnected worlds of the future. AR is being used in a variety of ways to create shopping experiences and make purchasing decisions — through filters, lenses and “click-to-try-ons” — integrated into platforms. Studies show that AR-guided purchases lead to a 25 percent decrease in product returns and interacting with products in AR can lead to a 94 percent higher conversion rate, Akhe noted.
But to increase the benefit of new technologies, there’s a strong case for brands to look beyond such studies and even their traditional metrics, like conversion rates or customer acquisition costs, said Alex Zhang, de facto mayor of Friends with Benefits, a crypto-enabled cultural membership and decentralised autonomous organisation (DAO). In speaking about how companies can use web3 to upend the increasingly outdated, “one-to-many” approach to customer engagement, he said some brands are uncomfortable with the inability to use traditional metrics to gauge the business impact of technology investments designed to build out new, two-way communication between a company and its community. The response of some companies is to hold back on tech investments. The better approach, he said, is to lean further into new technologies with an entirely new set of metrics, capable of picking up on “the variety of signals” communities are sending. “It’s not about being cautious; it’s about being patient,” he added.
What many fashion communities are signalling is that they want more, not less, communication about and knowledge of products to better align their purchasing decisions with their values.
Product passports, or digital identification tags, are one way companies are empowering their communities with product information. Digital IDs for physical goods promise to make every garment the centre of its own ecosystem of data and services. Shoppers will be able to scan a QR code and see the item’s sustainability credentials, get styling tips or access to perks. Brands could theoretically use these IDs to collect royalties each time an item is resold, benefitting from its whole life cycle — not just the initial purchase.
Digital IDs can also address an industry pain point in which “the moment that a brand sells a product, they lose the connection to the customer,” said Natasha Franck, founder of Eon, a digital ID platform that has received backing from Massenet’s Imaginary Ventures. “Digital ID is the first step to seamless retail — the current approach is very analogue.”
Brands are already embracing the opportunity. “The State of Fashion 2022″ report highlighted how product passports are now a key strategic priority for fashion brands, revealing that two out of five fashion executives plan to adopt product passports this year — or had already done so. Earlier this week, H&M Group announced plans to trace more than 200 million garments by the end of 2022 as it expands collaboration with blockchain platform TextileGenesis.
There’s a further way that brands can embrace technology to better serve and connect with their communities while also addressing the industry’s significant climate impact, said Sean Simpson, chief scientific officer of LanzaTech, a manufacturing platform that supplies sustainable fibres to brands such as Lululemon and Zara. Though the level of commercialisation and scaling of the technology enabling sustainable fibres and other materials is low, next-generation materials are part of what Simpson called a “megatrend” in which people want to know more about the environmental impact of their everyday lives, from what they eat to what they wear.
“When you get on an aeroplane, you’re not choosing necessarily what fuel goes into that aeroplane. But when you go to the store and you buy a new piece of clothing, you can make the choice as to where the carbon in that clothing comes from,” he said. “The more people have the ability to make a choice, the more momentum there will be behind technologies like ours that can drive a new set of climate-friendly, planet-positive manufacturing principles.”
The Community Economy
Brands are increasing spending on technology at a time when wider forces are transforming the attitudes, behaviours, likes and dislikes of the world around them.
“Brands need to change completely – the word consumer is over,” said Benoit Pagotto, co-founder of virtual fashion start-up RTFKT Studios, which Nike acquired in December 2021. Instead, brands need to rethink traditional measures of success, such as a high market capitalisation, which might no longer be the key indicator of a brand’s value. “It’s the communities that define your value,” he said. “Instead of ‘what can I get from them?,’ ask ‘what can I do for them?’ That’s a big shift.”
The ability of brands to make that shift successfully hinges on several factors, said Zhang of Friends with Benefits. One key factor is how well a brand embraces web3′s “many-to-many” dynamics of community building. “Web3 is a conduit between brands and community in a more evenly distributed way,” while creating a sense of shared ownership and decision-making about products and brands through incentives such as NFTs, which increase in value over time, he said. “It’s a huge unlock.”
Ultimately, he added, it comes down to whether a brand embraces technology with a long-term plan, which “really values their community as opposed to a new way to sell stuff to people.”
The BoF Professional Summit was made possible in part through our partners Coinbase, McKinsey & Company, Joor, Brandlive and The Invisible Collection.
THE NEWS IN BRIEF
FASHION, BUSINESS AND THE ECONOMY
Gucci to accept cryptocurrency. The Italian megabrand is set to accept payment in Bitcoin, Ethereum, Dogecoin and other digital currencies at select US stores.
Kering invests in lab-grown leather start-up VitroLabs. The French luxury giant participated in a $46 million funding round intended to accelerate commercialisation of San Francisco-based VitroLabs’ lab-grown leather.
Moncler sales beat expectations in first quarter. Sales at the Italian fashion group jumped by 60 percent, driven by strong performance in both China and the US, as well as in online sales.
Karl Lagerfeld owners sell brand to G-III in $210 million deal. G-III, the parent of DKNY and Sonia Rykiel, said Monday it agreed to buy the remaining 81 percent of Karl Lagerfeld it did not already own from a group of private and public investors led by Fred Gehring of Amlon Capital.
Adidas lowers 2022 expectations amid China lockdowns. First-quarter currency-adjusted sales shrank by 3 percent worldwide, to €5.3 billion ($5.58 billion), while profit from continuing operations fell 38 percent to €310 million, Reuters reported on Friday.
H&M aims to trace more than 200 million garments by end of 2022. The fast-fashion giant is expanding its traceability programme with TextileGenesis, a blockchain-based platform, to cover all man-made cellulosics and recycled polyester.
Boohoo sees tough year ahead as profit falls 28 percent. The British online fashion retailer said on Wednesday it made adjusted EBITDA of £125 million ($156 million) in the year to Feb. 28 — in line with guidance and down from £173.6 million in 2020-21.
Zalando posts first decline in sales since founding. First-quarter sales fell by 1.5 percent to €2.2 billion ($2.33 billion), after posting a 46.8 percent increase in the same quarter last year thanks to the coronavirus pandemic.
Hong Kong retail sales plunge again in March on virus curbs. The fall in sales value from a year earlier was worse than the median estimate of a 12.6 percent decline expected by economists in a survey, though it was less than the 14.6 percent drop in February. Sales volume fell 16.8 percent from a year ago, the Census and Statistics Department said Thursday.
Next maintains full-year guidance. The retailer said on Thursday its full-price sales rose 21.3 percent in the 13 weeks to Apr. 30, its fiscal first quarter, driven by a very weak comparative in 2021 when most of its stores were closed in a Covid-19 lockdown.
THE BUSINESS OF BEAUTY
Estée Lauder cuts profit forecast on China Covid curbs, Ukraine crisis. The maker of MAC lipsticks and Bobbi Brown foundations also missed third-quarter sales estimates.
Wella Company acquires hair care brand Briogeo. Wella Company, which was spun off from former parent Coty last year and is now under the ownership of private equity firm KKR, acquired hair care brand Briogeo for an undisclosed sum.
Saul Nash wins Queen Elizabeth II award for British design. The designer and choreographer was presented the award Wednesday. Nash was also the 2022 winner of the prestigious Woolmark Prize, announced last week, and was a semifinalist for the LVMH Prize in 2021.
Hearst Magazines names Adwoa Dadzie chief people officer. In the role, Dadzie will oversee Hearst Magazines’ people and culture departments. She joins the publisher from SoulCycle, where she served as vice president, head of people experience.
MEDIA AND TECHNOLOGY
Mark Zuckerberg meets Italian fashion leaders. On Wednesday, Zuckerberg posted an image of himself on Instagram with Leonardo Del Vecchio, chairman of eyewear behemoth EssilorLuxottica and founder of the Luxottica Group. Following meetings included Federico Marchetti, founder of Yoox and former CEO of Yoox Net-a-Porter and OTB Group founder Renzo Rosso and Brunello Cucinelli.
Highsnobiety launches new sports vertical with concept store. Highsnobiety Sports will be a new section on the publication’s website. It will also inspire a retail pop-up store in Los Angeles opening in May.
E-commerce stocks slump amid deepening malaise over earnings. Etsy sank 17 percent after providing a second-quarter gross merchandise sales forecast that fell short of analyst expectations, while Canada’s Shopify dropped 17 percent in New York trading after merchandise volume and revenue for the first quarter failed to meet analyst expectations.
Compiled by Joan Kennedy.