Why ‘Unsexy’ Tech Will Be a Priority in 2023

This year, while Gucci keeps building its virtual worlds, there’s another, less-flashy technology project that parent company Kering is just as excited about at its crown jewel.

The company has been investing in artificial intelligence to better forecast how much inventory to produce and how much stock to allocate to Gucci’s stores and distribution centres around the world. The tech is delivering results that continue to improve, it said. Its inventory predictions are now upwards of 20 percent more accurate than previous methods. Kering is also using algorithms at its brands for tasks such as recommending products to shoppers and even optimising the boxes it uses for shipping.

While NFTs and Roblox activations generate more hype, the bulk of Kering’s tech investments in any year go to these sorts of projects, it said. Though it doesn’t follow it explicitly, it leans in the direction of the 70-20-10 model, where 70 percent of investment is on innovation in the core business, 20 percent goes to adjacent opportunities and 10 percent is for disruptive technologies.

In 2023, that’s not about to change. Across fashion more broadly, a more practical, less hype-driven agenda is taking shape as companies prepare for economic uncertainty ahead. With interest rates and inflation running high and slowdowns expected in China, the US and Europe, businesses are facing tougher times where consumers are apt to spend less and money will be tight. Many brands and retailers are wary of repeating last year’s inventory miscalculations that left them bloated with overstock. The shine has also worn off the NFT market as crypto values remain in a slump and the industry reels from the spectacular collapse of crypto exchange FTX.

It’s a moment when many businesses are under pressure to emphasise projects more likely to shore up their foundations, particularly if they aren’t already profitable. Tools for better demand forecasting or connected platforms that let brands and their suppliers share data may not get minds racing quite like virtual worlds, but they’re the sorts of tech investments that can help brands weather a downturn and emerge stronger on the other side.

“There’s the hypebeast at the front and the unsexy stuff in the back,” said Karla Martin, Deloitte’s fashion and apparel leader, and it’s a lot of the unsexy back-end operations, like building a more efficient supply chain and meshing online and in-store systems, that Martin sees many brands still trying to work out.

Bigger, Better Data

Jonathan Kutner, an analyst at advisory firm Gartner, expects technologies that let companies better tailor their product assortments to be a priority this year. Gartner predicts retailers overall will aim to hold 30 percent less inventory by the end of 2024.

“Essentially what they’re doing is they are using assortment tools to refine and make [their] assortment much more precise, much more targeted, so you can lose the periphery, lose the stuff that you have the lowest sell-through on,” he said.

Advanced analytics could prove big differentiators in the months to come, like using AI to make decisions on pricing and markdowns. It goes hand-in-hand with more curated assortments, in Kutner’s view, and can allow retailers to process far more data to arrive at better conclusions. Companies such as Levi’s are already using AI for the job.

“Otherwise you are doing things on spreadsheets and you say, ‘Well last year I marked a similar style down by 30 percent and it sold through in this period.’ If you think you’re going to do that this year, you’re just guessing,” Kutner said.

Margins on clothing from China — the world’s largest apparel producer — could shrink about 10 percent due to a confluence of issues including inflation, labour shortages and disruptions to supply chains, according to Kutner. To keep profits up in that environment, companies will need to sell at full price as much as possible.

A big obstacle to many fashion companies making smarter use of data, however, is that they don’t yet have the infrastructure in place to capture, clean and analyse it. They may be inclined to remedy that this year.

In a Dec. 28 note on key themes for 2023, Cowen analysts noted an effective customer data platform “will help inform promotional and pricing actions, creative and emotional direction, and faster marketing decisions.” Loyalty programmes are a foundational step for capturing customer data and will be vital, according to Oliver Chen, an analyst at Cowen — with the caveat that brands need a great product or service for customers to want to join it in the first place.

“Also, with the privacy changes that are happening on mobile phones, first-party data is more important than ever, so brands have to have methodologies for collecting it,” Chen said.

Better Ways to Design, Manufacture and Sell Clothes

Companies aren’t just pressed to make better and faster decisions. They have to execute on them.

3D software that lets brands design and prototype items digitally has been gaining momentum at companies from Timberland to Hugo Boss. Though integrating these tools can take a good deal of time and training, they allow brands to save time and reduce waste by cutting back on physical samples. Kering, for example, said it’s still in the early days of scaling its use of 3D design but intends to keep expanding it this year. Its brands are now using it for products such as bags, shoes, small leather goods and carryover styles, it said.

“Everybody that we talk to now is really thinking that that’s going to be the way of the future,” said Deloitte’s Martin. She noted they’re also seeing manufacturers retooling facilities to go from a digital sample straight into production runs.

Connected platforms that let brands and their suppliers share data are proliferating too, according to Martin. After the disruptions caused by Covid in recent years, companies want to make sure they have more visibility into their supply chains and are able to pivot along with customer demand.

At the same time, to improve the shopping experience for customers, many are still working to create a unified commerce system across their online and in-store operations. It makes it easy for shoppers to pick up or return online purchases in stores, for example. It can also allow a sales associate to see a customer’s full purchase history regardless of which channels they’ve shopped through, making for more personalised recommendations and better service.

Augmented Reality

Even if practicality takes greater priority for many businesses in the near term, big brands won’t stop experimenting with technologies they think could be important in the future.

H&M has already made a move in 2023 by launching a Roblox space called “Looptopia,” saying in a release it would “continue to explore this fast-growing expanse of virtual and augmented realities.”

“I think we have to watch augmented reality. We already have good use cases for AR like beauty,” Cowen’s Chen said. “There’s more on the horizon as processing powers improve.”

Tech watchers widely expect Apple to announce its first mixed-reality headset this year. If that happens — and it meets consumer expectations, which won’t be easy — it could mark a big step toward AR going mainstream.

NFTs may face a challenging road as they’re still finding a path to becoming more meaningful to the average shopper, said Lisa Yong, director of consumer tech at forecasting firm WGSN.

Even so, “I don’t think I can write [them] off right now,” Yong said. Some fashion brands have found them a useful way to foster deeper relationships with their most engaged customers.

Getting operations in order may be the first goal for many fashion businesses in the next few months, but those with the resources won’t give up trying to anticipate the next few years, too.