Fashion industry to double down on tech investment to stay competitive

Last week Bored Ape Yacht Club, a non-fungible token (NFT) collection built on the Ethereum blockchain, sold the biggest metaverse NFT project to date, with over 320 million dollars of assets sold in one mint.

The news comes as fashion companies are set to invest record amounts in technology, nearly doubling their stake from 1.6 percent in 2021 to 3 percent of sales by 2030.

According to the latest Business of Fashion and McKinsey report, The State of Fashion: Technology, the fashion industry and world at large will see the biggest technological progress in the next decade than has happened over the past 100 years.

Fashion’s entire value chain will see technology differentiators, from making commerce more nimble, sustainable and engaging to shoppers. In 2021, the value of the top 50 investments in technology related to fashion grew 66 percent compared to 2019, reaching 16.2 billion dollars, according to, based on data Crunchbase. These investments went towards either fashion retailers or businesses selling products and services to fashion firms.

E-commerce, having benefitted from the pandemic-driven surge in online shopping, received roughly 55 percent of the overall investment amount, says the report. The remainder largely comprised payment technologies, including “buy now pay later” firms, social commerce and resale, followed by supply chain and logistics companies and those working in NFTs or technologies like virtual reality.

Presently, few brands have successfully embraced technology with a competitive mindset but those who invest could see an impact on their bottom lines. Companies that are already embedding AI technologies into their businesses to increase operational efficiencies and improve customer engagement, realising a 118 percent potential cumulative increase in cash flow by 2030. For those just starting on this journey, implementing AI-driven initiatives between now and 2030 could generate a 13 percent increase in cash flow.

These tech investments and advancements are impacting all segments of the industry, from fast fashion to luxury, albeit in different ways. In luxury, for example, where around 80 percent of sales are influenced by digital touchpoints, personal, face-to-face services remain at the heart of the shopping experience and clienteling apps, among other tools, are becoming part and parcel of how store associates enhance customer relationships, as industry experts in the report reveal.

The rise of virtual fashion

Though spending on virtual goods is increasing year on year, industry-wide success in the metaverse — the interconnected, virtual ecosystem that overlaps with or offers an alternative to physical reality — is still largely dependent on how quickly it will become accepted on a wider scale. According to The State of Fashionestimates, brands could generate up to 5 percent of revenues in the next two to five years from metaverse-related opportunities.

Achim Berg, Senior Partner and Global Leader of Apparel, Fashion & Luxury at McKinsey, said: “Last year, fashion companies invested between 1.6 and 1.8% of their revenue in technology. We are convinced that this figure will double by 2030 because technology can help brands gain a competitive edge both in customer-facing activities – where companies have mostly focused to date – and increasingly in operations. Even more importantly, technology can support companies in addressing sustainability issues.”

Anita Balchandani, Senior Partner and EMEA Leader of Apparel, Fashion & Luxury at McKinsey, said: “Much of the investment in Fashion Tech over the last decade has been in customer-facing innovation. In the next decade, we expect this to be complemented with innovation that transforms the operating backbone of Fashion players – expect to see algorithms and AI playing a role across the value chain – from smart pricing to identifying bestsellers and to reducing returns. Europe, home to half of the top-20 global Fashion players is well-placed to foster and accelerate this innovation that could create a more profitable model for fashion players.”

To see the full report visit Mickensey.com.

Article source: The State of Fashion: Technology by The Business of Fashion and McKinsey & Company/small>