Fashion firms to double investment in tech by 2030: McKinsey report

Behind the predicted increase in investment in technology 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, McKinsey said in a press release.

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.

In 2021, people spent, on an average, just below four hours on their mobile phones, which includes about two and a half hours of scrolling though social media.

Of the fashion customers who made the move to online-shopping channels in 2021, 48 per cent said the pandemic was the reason, 27 per cent cited convenience and 11 per cent cited product availability and promotions, according to the report.

The pandemic also boosted digital brand relationships, with 72 per cent of customers reporting they interacted with brands online in 2021. In the year ahead, as restrictions ease in some geographic areas, digital interactions will likely stabilise at about 66 per cent on average.

Soon after 2024, more than three-fourths of enterprise-generated data could be processed by cloud or edge computing. This offers a more flexible, scaleable foundation on which brands can potentially build their tech offerings.

By 2030, more than 80 per cent of the global population is expected to have access to 5G networks, enabling, among other things, faster connectivity and data transfer across Internet of Things devices.

The operational potential of technology is becoming ever more apparent. McKinsey analysis shows that fashion companies that now embed AI into their businesses models could see a 118 per cent cumulative increase in cash flow by 2030. Conversely, those that are slower to invest in digital technology will lag behind—and could see a 23 per cent relative decline.

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. These areas in which digital can make a real difference to performance, the report said.

McKinsey and the Business of Fashion have identified five key themes that could help the industry address some pressing challenges, as well as unlock potential opportunities: metaverse reality check, hyperpersonalisation, connected stores, end-to-end upgrade and traceability first.

The marketing value of digital fashion and non-fungible tokens (NFTs) may now be clear, but fashion brands will need to separate the concrete opportunities from the hype to generate sustainable revenue streams presented by growing consumer engagement with the metaverse.

Brands have access to a growing arsenal of personalisation tools and technologies to upgrade how they customise and personalise their customer relationships. The opportunity for executives now is to harness big data and artificial intelligence to provide one-to-one experiences that build long-term loyalty.

The inexorable rise of e-commerce has forced fashion players to rethink the role of physical stores. Fashion executives can address consumer pain points by using in-store mobile apps to enhance the in-store experience and microfulfillment technologies to leverage the store for the quick-commerce era.

Digital tools and analytics have transformed key parts of the fashion value chain, but these optimisations are often siloed within organisations, limiting the potential of cross-functional improvements. Brands should embark on end-to-end value chain integration to create more efficient and more profitable ways of operating.

Traceability systems powered by traceability software and big data will help fashion brands reach far into their supply chains to understand the entire life cycle of their products, a key enabler for sustainability road maps.

Of all the technology-based evolutions affecting the fashion industry, one of particular interest is virtual worlds, also known as the metaverse, the report said. Global spending on virtual goods reached more than $100 billion in 2021, more than doubling the total in 2015, with around 30 per cent of revenues attributed to virtual fashion assets.

Amid demand for products such as virtual fashion and NFTs, fashion companies focused on metaverse innovation and commercialisation could generate more than 5 per cent of revenues from virtual activities over the next two to five years. The task for decision makers, however, will be to focus on specific opportunities.

In parallel to personalisation, the coming year will likely see many brands investing in in-store functionality and experiences, bridging the gap between online and offline channels—and moving away from stand-alone technologies such as magic mirrors, connected hangers and interactive holograms.

In-store mobile ‘clienteling’ apps could offer a frictionless way for store associates to serve customers, while in-store mobile apps can help boost engagement, reduce customer pain points and increase time spent browsing.

More than 60 per cent of fashion executives believe creating integrated digital processes throughout their organisations will be among their top five areas for digitisation as they look to 2025.

More than half of fashion decision makers say traceability will be a top-five enabler of reducing emissions in their supply chains, but many brands currently have visibility over only direct supplier relationships.

McKinsey sees brands increasing their focus on traceability through their supply chains, helping them address demands from regulators, investors and customers for greater transparency. As they aim to cut emissions and meet their environmental, social and governance (ESG) targets, brands could benefit from a common data language to enable comparability, as well as new labeling standards and tracking software.

Brands could consider joining forces with peers, start-ups, and industry bodies to establish a common data standard and to share data and knowledge via software platforms, open ledgers, and big data technologies, the report added.

Fibre2Fashion News Desk (DS)