Every week, The Interline rounds up the most vital talking points from across the fashion technology landscape. We provide our take on what matters, and why. This roundup is also delivered to Interline Insiders by email.
Trading with the enemy: should fashion brands hedge their bets to benefit from eCommerce giants’ investments in technology?
The economic outlook is gloomy no matter your industry. But figures released this week suggest that fashion has had it worse, with revenue cliffs up to twice as precipitous as other sectors’. In the UK, that’s a loss of £30 billion ($37.5 billion USD) in sector revenue from 2019 to 2020.
The Interline does not want to dwell on the negative, since the results are all around us in the UK, US, and in essentially every other retail market. But the sharpness of the pandemic’s impact on fashion, compared to other industries, is important because it will affect how much operational and capital budget brands and retailers can assign to their recoveries.
It’s no secret that The Interline sees technology and digital transformation as the lynchpins of any forward-thinking fashion business – and that’s an opinion that’s only become more widespread, and more urgent, since March. But both of those things require investment – to a degree that may be prohibitive for a brand that’s been particularly hard-hit, in an industry that we now know has, at least here in the UK, been impacted worse than others.
For example, 3D product creation and consumer engagement – our focuses in April and May – are both compelling value propositions, with clear returns on investment that can be realised within a meaningful timeframe from implementation. They are also not free, and brands and retailers could be facing a stark reality: they may have no choice but to continue normal operations, as unsuitable as they may for an altered world, to build up the investment required to make those sorts of large-scale, technology-enabled changes to the way they work.
This does not mean that 3D software is especially expensive. Nor are supply chain management solutions and sourcing platforms. Nor PLM, PIM, DAM, ERP, or any of the other acronyms that make up the enterprise technology picture. In normal circumstances there are compelling, affordable options in every area. But these are not normal circumstances, and in light of the severity of the current situation, any cost could prove to be too significant.
There are, however, options for brands to benefit from these technologies without directly footing the bill themselves – by partnering with eCommerce leaders like Amazon, JD.com, and Alibaba, who are increasingly offering technology services to third parties who choose to sell through their marketplaces.
This week the Harvard Business Review looked at ways that sellers can turn a presence on Amazon to their advantage – primarily by leveraging reach, operational efficiency, and cost saving versus pushing the same products through their own direct to consumer channels. Implicit in the guidance is also the idea that brands that opt to sell through Amazon can effectively piggyback on Amazon’s technology backbone. The HBR article uses a publishing example, where Kindle distribution offers a clear route to more customers than a book publisher would be able to reach otherwise, at the same time as trimming cost in excess inventory, printing, distribution and so on.
The same principle can also apply to fashion, where brands have wrestled for years with whether the reach and convenience offered by initiatives like Amazon Wardrobe – try before you buy and free shipping and returns for Prime customers – offsets the very real possibility that Amazon will throw its weight around and create cheaper knock-offs after snooping on their data.
Amazon’s overseas competition also offers an onramp for other, technology-driven reach and convenience options that brands might find too expensive to develop for themselves. JD.com is gearing up to launch an augmented reality foot measuring service – building on its AR try-on service, which is already available for more than 1,000 footwear SKUs. Crucially, these are not solely deployed for JD’s house brands; those SKUs include third party sellers’ products, and in fact both services (try on and measurement) are being made available on a Platform-as-a-Service basis. And these are on top of JD’s existing efforts in autonomous last-mile delivery, which are, by many accounts, outpacing’s Amazon’s developments in the same area.
So, by opting to sell through JD or choosing to rent its technology, footwear brands can gain access to consumer experiences and channels that they would otherwise have to wait to invest in. And JD is by no means the only eCommerce giant pursuing this route: Alibaba now has a fully-fledged technology arm (it recently dropped the pretension that it was working in fintech only) and earlier this month CPG giant Unilever announced that it would partner with Alibaba’s cloud and machine learning business to gain new insights into consumer buying behaviour and develop better digital marketing and demand-generation strategies.
In every instance, these kinds of partnerships are going to be value equations that need to be balanced. As a streetwear brand, for instance, would selling into China through JD and using its AR services to reach new demographics offset the margin lost to the platform holder on each sale? Or would they be better, as Gucci did last year, partnering with a startup like Wanna Kicks to achieve a similar end?
Or if Amazon were to offer a 3D scanning service for third party sellers – removing the need for 3D product visualisation workflows to be developed in-house – would that additional visibility and consumer engagement potential outweigh the risks of ceding yet more ground to a company that has already strayed far outside its lane and begun seizing a share of physical retail?
Prior to the pandemic, retailers already faced a difficult choice: to invest in their own eCommerce channels, or to sell through the biggest and best-established platforms. There have been success stories on both sides. In 2020 and beyond, though, this decision could be complicated by the gap between brands’ own technology capabilities and those of the eComm giants, and the partnership prospect may look more appealing if it guarantees access to experiences and efficiencies that cash-strapped, post-COVID companies might not be able to afford for themselves.