The pandemic came as a great lesson for many fashion brands. Companies that immediately hopped on to the technological bandwagon succeeded, but those that took their time faced a lot of difficulties. From advancements in AI to standardizing the end-to-end value chain, it is important to stay up to date to survive. Now, companies have to move beyond using technology for generating revenue and growing business to other prevalent issues like sustainability and de-risking supply chain. McKinsey & Company, through its report titled ‘State of Fashion Technology Report 2020’, sheds light on the advancement of technology and how it can benefit the fashion industry.
Seventy-one per cent of global consumers want companies to deliver personalised communications and products and 76% are unhappy when this is not offered
Rise of Technology
The report states that in 2021, fashion companies invested between 1.6 and 1.8 per cent of their revenues in technology. By 2030, they predict that the figure is expected to rise between 3.0 and 3.5 per cent. ‘Behind the predicted increase is a conviction among many that technology could create a competitive edge—in customer-facing activities, where companies have mostly focused to date, and, more increasingly, in operations.’ They also state that ‘Technologies such as robotics, advanced analytics and in-store applications may help streamline processes and support sustainability, as well as create an exceptional customer experience,’ the report adds.
It also sheds light on how the world witnessed a sharp rise in consumer digital engagement during the pandemic as a result of more hours spent online, new shopping habits, etc. In the case of fashion consumers, 48% said the pandemic was the reason for a digital transition, 27% cited convenience, while 11% cited product availability. The pandemic also boosted digital brand relationships, where 72% of customers reported interactions with the brands online in 2021. But with everything going back to normal, digital interactions will be limited to about 66% on an average.
Technology Will Pave the Way
According to the McKinsey analysis, fashion companies that have now embedded AI into their business could see as much as 118% increase in cash flow by 2030. On the other hand, those who are slower could see a decline of 23%. The report states , ‘Over the next three years, potential key areas in which fashion executives could make digital investments are personalisation, store technologies and end-to-end value chain management — areas in which digital can make a real difference to performance.’
Five Key Technology Themes
In its report, McKinsey identifies five key technology themes for the fashion industry to help them address challenges and unlock consumer opportunities.
- Metaverse Reality Check
Now that the marketing value of digital fashion and NFTs is clear, brands still need to distinguish between concrete opportunities from the hype ‘to generate sustainable revenue streams presented by growing consumer engagement with the Metaverse,’ the report states. According to bullish observers, says McKinsey, five years down the line, mass consumer adaptation of the virtual world will create the biggest opportunity for the fashion industry since the revolutionary e-commerce. They also predict that the hype around the metaverse will fade ‘as technologies fail to meet expectations or users prove reluctant to use virtual spaces as extensively as some business plans are counting on.’
According to their analysis, some companies are using AR for enabling users to alter photos and create digital skins to change a user’s avatar. However, like e-commerce, some companies might fail in metaverse-related ventures initially. Executives need to focus on metaverse strategies with respect to their digital ambitions and customer targets.
- Hyper Personalisation
According to the report, brands now have access to an array of personalisation tools and technologies. They can now upgrade and personalise their customer relationships. Now, top executives have an opportunity to harness Big Data and artificial intelligence to build long-term loyalty by providing one-to-one experiences. Consumers are now looking out for personalised products and brands. The report reveals, ‘Seventy-one per cent of global consumers want companies to deliver personalised communications and products and 76% are unhappy when this is not offered.’
Though fashion brands are now focusing on offering personalised marketing on the basis of the customer’s past purchase or online browsing history, they also now have the tools that help them work with all types of data across channels. But, companies need to re-imagine how e-commerce operates in order to offer a hyper-personalised experience, from landing pages to payment options.
- Connected Stores
The inevitable rise of e-commerce has made retailers rethink their physical store strategies. ‘Fashion executives can address consumer pain points by using in-store mobile Apps to enhance the in-store experience and micro-fulfillment technologies to leverage the store for the quick-commerce era,’ says McKinsey. According to their report, though rules of physical stores are changing, they are far from dead. There’s an opportunity to reshape the overall retail mix.
The report states that in-store technology such as magic mirror and connected hangers failed to make any impact in the retail stores. Instead, in-store technologies addressing operational pain points that fit seamlessly into the customer journey is an area brands need to invest in. The shopping experience at retail stores is not limited to changing in-store experiences; adopting technologies that allow stores to become micro-fulfilment centres is also on the rise.
Various digital and analytics tools have transformed key parts of the fashion value chain, but they are often confined within the organisation. For a more efficient and profitable way of operating, brands should embark on an end-to-end value chain. They need a new digitised value that unites multiple internal processes and data sources. The report says, ‘When it comes to digitisation, 61% of fashion executives believe end-to-end process management is among the most important investment areas for their organisation between 2021 and 2025.’
Many fashion companies have been improving their value chain process with the help of technology, but fully integrated back-end systems and workflows are still off. McKinsey says that one of the reasons is that very few off-the-shelf applications are designed to optimise the fashion value chain. ‘Brands thus need to identify solutions that address their pain points or custom build applications, which is resource intensive. At the same time, development costs remain high and companies face gaps in their technology stacks and talent pools,’ it adds. Value chain operations can also be achieved by combining various layers of technology, like product performance, category performance, supply chain optimisation, stock management and purchasing & demand.
- Traceability First
To effectively reach deep into the supply chain to understand the lifecycle of a product, fashion brands need to combine traceability systems powered by traceability software and Big Data, according to McKinsey. Growing consumer awareness has resulted in fashion brands being held accountable for their environmental and social impact. The report states that in terms of greenhouse gas emissions alone, it is estimated that the industry is accountable for 2.1 billion tonnes (or 4% of the global total), a figure that it set to rise if action is not taken.
But, as of today, the industry’s traceability efforts are challenged by unreliable data and manual processes due to lack of industry-wide standards, leaving both suppliers and brands struggling. According to the report, a common data language is essential for comparability, making it easier for suppliers and manufacturers to share data with multiple brands. ‘Traceability will put the industry on track towards a more transparent, accountable future, ensuring that investors, consumers and regulators can interact with brands based on sustainability information they can trust,’ says McKinsey.
In The End
In conclusion, the report states that there are few certainties in the fashion industry and one of them is that nothing stays the same. With ever-evolving technologies, the market must look beyond the challenges faced by them during the COVID-19 pandemic. ‘The task for fashion decision makers is to consider how to harness technology to creatively streamline operations and create value from innovation that can be sustained in the years ahead,’ concludes McKinsey.