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- A landmark report, released by McKinsey, sets out 10 “organisational shifts” that are affecting businesses today, but which have deeper roots in the disruption of the last three years.
- The Interline has selected three of them for analysis: speed and resilience, the gap between commitment and capabilities, and the need to cautiously embrace AI. Taking the report’s industry-agnostic findings as a foundations, we’ve considered what each of these shifts has in store for fashion in the near future.
- Fashion has a uniquely strong relationship between resilience and speed, thanks to its combination of long product timelines and short trend windows, meaning a larger exposure to risk. This can be mitigated (or even overcome) through various technology initiatives that have the potential to increase speed to market, reduce uncertainty, and centralise decision-making.
- Many industries exhibit a gulf between their public commitments to new, digital-native ideas and their ability to execute on them, but fashion – again – is unique in its enthusiasm for new possibilities (see the industry’s rush towards the metaverse and NFTs) and its difficulty in delivering against them due to missing prerequisites in the end-to-end digital value chain.
- To both build resilience and overcome that disconnect between ambition and execution, fashion brands and retailers must prioritise investments that undergird multiple different process areas and capabilities, such as digital product creation (DPC).
- In the creative space, AI is problematic, but numerous other possibilities
The last three years have seen some sweeping, historic changes: a global pandemic, war, economic crises, and the rapid rise of AI capable of up-ending entire industries. Each of these would be a significant event (or a sci-fi script) in isolation, but having them all coincide represents a significant alteration to the environments in which fashion does business and to the customer bases it caters to.
We’ve already seen detailed analyses of what each of these things means for the world of business in their own right, but new this week is McKinsey’s all-encompassing State of Organizations 2023 report. This 85-page document rolls up cultural changes, global transformation, and technological advancements to paint a picture of what the near-future looks like for businesses across industries in what the advisory giant refers to as “10 major organisational shifts”.
The report is the first of its kind from McKinsey, and captures transformations that (while hyper-relevant for 2023) don’t necessarily have their roots in the last twelve months. Instead, many of them are manifestations of the historic disruptions and wild innovations that have characterised the last three years. (Along with some others that can, realistically, be traced back as far as 2008.) But wherever their roots lie, each of the shifts the report identifies is an area that any business – across any sector – needs to be acutely aware of, and prepared to formulate a strategy around today. Even if their impacts might not play out for years, or even decades.
To quote the report itself: “All of these shifts have long-term consequences, and all require clearheaded thinking and decisive action that can’t be postponed.”
We recommend reading the full report, but The Interline has also selected what we consider to be the three most relevant and urgent of the shifts from a fashion perspective. And in this focused instalment of our weekly analysis, we’ve used McKinsey’s industry-agnostic findings and recommendations as a springboard for our own thoughts on what these changes mean for fashion, and what it might look like for brands, retailers, and producers to begin putting a response into practice today.
Building resilience and speed; mitigating fashion’s risks
With half of McKinsey’s survey respondents reporting that they’re ill-prepared for another shock event on the scale of the ones we’ve all lived through, it’s important to start by considering what shape a hypothetical future-shock might take in fashion. Obviously disruptions like these are inherently unpredictable, but we can still extrapolate from today’s industry risk profile to identify some likely possibilities:
- Disruptions to the material and component supply chain – either as a result of inter-government tensions and sanctions, or unforeseen human or environmental crises.
- The continuity of heavily consolidated or over-focused manufacturing partnerships becoming threatened by localised events (i.e. political upheaval, war, climate events such as flooding etc.).
- Economic instability in consumption markets suddenly affecting consumer demand in pronounced and unpredictable ways.
- The sudden introduction or tightening of humanitarian and / or environmental regulations in a way that rapidly closes off access to key markets such as the EU.
- A journalistic or NGO exposé that unveils unknown but especially pronounced worker exploitation or unmoderated pollution (or other moral and legal problem) at facilities contracted by a manufacturing coordinator that works on behalf of a cohort of multinational brands brands.
This is by no means an exhaustive list, but rather a consideration of where fashion’s risk exposure truly lies today. This also makes it a list of some possible areas where brands and retailers should be building additional visibility and resilience. And these aren’t all hypotheticals, either. In a case study we recently released, international fitness and activewear company Zumba attests to how unpredictable factory closures can be and the stress of needing to reallocate manufacturing capacity and or material orders at short notice, to meet tight trend windows.
And in fashion, the concepts of resilience and speed are perhaps more closely interlinked than in any other industry. Fashion has a unique combination of long product lifecycles – from initial inspiration through prototyping, sampling, sourcing, manufacturing, and logistics – paired to vanishingly small instances of market demand.
Unlike other sectors, where demand can be forecasted or shaped well in advance, fashion serves a mercurial consumer, targets a merciless price point, and has extremely limited margin tolerance. At the same time, individual styles and collections are “in play” for a long time before they reach that consumer. And the longer they remain locked in the long cycle of design, development, production, and shipping, the greater their exposure to unpredictability.
Fast fashion is, at least in theory, more resilient in some areas simply because that market segment moves more quickly, reducing the amount of time products spend in limbo. But those same organisations are also more exposed to other areas (such as regulatory changes, or investigative journalism, for example) because their business model is already known for pushing the boundaries of what regulators and consumers will accept, prioritising price over supply chain visibility.
This demonstrates the importance of having critical information centralised, and the essential nature of detailed supply chain knowledge. In order to move faster and to shrink risk exposure, every step you, as a brand owner, take to digitise an element of your go-to-market processes (decision-making, design, fitting, colour approvals and more) represents a quantifiable reduction in the bracket of time during which things can go wrong.
And in order to build resilience by diversifying your sourcing and manufacturing base to reduce risk, or obtaining and analysing real, verifiable data around resource utilisation, carbon emissions, manufacturing wages etc. to start to add substance to sustainability commitments – you simply have to know as much as possible about the nature and composition of your supply base.
In practice, looking forward to the rest of 2023 and beyond, this is going to mean a sometimes-arduous process of supplier mapping, risk analysis, inspections, and supplier onboarding in new areas like material digitisation and digital production creation. But each of these areas also has its own isolated return on investment, as well as contributing to a reduction in overall risk.
There is, unfortunately, no shortcut to getting faster and more resilient, but fashion is a strong example of why those two things are so closely tied to one another. Which is why our team picked this organisational shift as the most important strategic area for brands, retailers, and producers to focus – above and beyond the importance that’s already placed on this for other industries.
And practically speaking, this also means implementing technology – whether it’s finding ways to replace physical samples with virtual ones, or trying to unlock near-shore production using digital tools, methods, and a network of microfactories. Because in our experience technology’s most obvious value in fashion has come from its ability to provide a faster, less error-prone, less wasteful, more efficient, and more sustainable route to market.
From potential to performance
Fashion has had an infatuation with a few cutting-edge concepts over the last 18-24 months – namely digital fashion, the Metaverse, Web3, and NFTs. All of which garnered the attention of some of the biggest brands in the world, only for those same brands to then vacillate between public passion and quiet ghosting.
While this bandwagon-jumping is easy to criticise, it’s also just the tip of the spear: a lot of fashion brands and retailers have made similarly bold statements about sustainable materials, for example, or 3D working. But the foundations beneath those outwards commitments are often less stable than the confidence they exhibit might suggest.
The McKinsey report identifies this as being a cross-industry trend, with businesses in every sector encountering a gulf between their digital and technological ambitions and their ability to support those commitments through resources, investment, executive buy-in, and a range of other obstacles.
This is a prevalent enough trend to earn a label – the “capability chasm” – with 96% of the companies surveyed revealing that they believe they need to act now, or soon – or are already too late – to build the in-house infrastructure and cultural foundations to realise a return on their initial investments in different areas of digital transformation.
In practice, for fashion brands, there is almost certainly some culling to do here: businesses need to conduct a frank evaluation of whether, for example, to keep skin in the game in the metaverse, or with digital collectibles, or whether to instead prioritise other capabilities such as core digital product creation and supply chain mapping, for instance.
As we wrote about at the start of this year some of these core capabilities – whether they’re unlocked by investment in technology or just accelerated by it – are a lot less showy and compelling than the exciting possibility space of things like the Metaverse, but they’re also more likely to deliver a return. Crucially, they’re also much closer to what the report refers to as “institutional capability building” – i.e. the building out of skills, processes, and technology integrations that support greater supply chain visibility, or the ability to prototype more styles in 3D, or are helping the organisation to lay the groundwork for a host of other current and future ways to streamline operations.
This stands in contrast to investments that are purely made into Web3 or the Metaverse in isolation. An investment in NFTs, for example, will deliver an extremely narrow return (if it delivers a return at all), whereas building digital product creation capabilities has the potential to create value institution-wide – in eCommerce, in-house, in the supply chain, and in a host of other areas.
All of which means that fashion brands will now need to prioritise their investments in a way that aligns the most closely with building out technology ecosystems, skills, integrations, and other components that have the most universal potential value – because these are likely to be the ones that are the most critical to success.
Fashion’s future: adapting to AI
Artificial intelligence (AI) has very quickly made its way into just about every industry – fashion being no exception – and it is now not a matter of stopping it but rather of how to harness it as effectively as possible. But with its rapid, and largely unbridled, rise in popularity and accessibility, valid fears about its future have come up.
In the fashion industry specifically, the most common concerns are that AI is going to eliminate thousands of jobs, that it stands to stunt human creativity, and that AI “creativity” could now be valued more than human effort. And this is on top of the cross-industry argument that AI is effectively stealing the ideas of designers whose work generative tools are trained on.
This has undoubtedly caused a certain level of resistance to change among a few (or many) in the fashion industry, who have strong arguments for putting off using AI in any capacity for as long as possible. This may be delaying the inevitable, but it’s a delay that has pragmatic rather than purely reactionary roots.
Despite these apprehensions around AI, fashion has already seen traction in the creation of AI models for fashion campaigns; the use of generative models to create “new” clothing to either test the market or as the seed for pioneering production runs; as an engine for personalised recommendations and product discovery for consumers; as the fuel for AI-powered virtual try-on; and for predicting demand, managing inventory, and optimising logistics in the supply chain.
And these are just the fashion-specific applications; there’s similar possibility space in the use of AI for other cross-industry applications such as hiring the right talent, automating repetitive and time-consuming tasks, conducting predictive analytics to identify patterns and future trends in pricing, marketing, and more – and for detailed customer insights. So it’s little wonder that the McKinsey report suggests focusing on building a solid foundation of data and analytics capabilities, identifying the right use cases for AI, and building a culture of experimentation.
And while it’s true that AI is likely to automate certain jobs in the fashion industry, it is also expected to create new roles and transform existing ones. For example, AI can help fashion companies to develop better products and reach new customers, leading to a need for new positions such as data analysts, machine learning engineers, and AI strategists. Additionally, as AI systems become more prevalent, there will be a growing demand for professionals who can design, develop, and maintain these systems. So overall, while AI may change the nature of work in the fashion industry, it is likely to create new opportunities as well.As for the issues around intellectual property and AI-generated images, two cases from earlier this year Andersen v. Stability AI et al and Getty Images v. Stability AI may hopefully offer some guidance once more details emerge, on a range of issues around copyright. Some of the biggest issues arise around whether the copyright should be owned by the human who created the AI algorithm or the person who used the algorithm to create the image; whether the AI-generated work is original enough to be eligible for copyright protection in the first place; and using existing copyrighted images to train AI algorithms, which may result in the creation of new images that infringe on the original copyright.
In a perfect world, we would see the various businesses in fashion embrace the potential of AI while mitigating its potential downsides, ultimately creating a more efficient and innovative fashion industry, strengthened by technology to make resilience a pervasive feature of the new normal. In reality, the results are likely to be more muted – with AI serving as a launching pad for new ideas, but with equal – if not more – attention being paid to fashion’s pressing need to become more resilient, faster, and to create the core business capabilities that will allow it to stand up against an uncertain future.
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This week we published an exclusive feature from Dakota Murphey, on how personalisation can benefit fashion brands and how technology and authenticity can help build lasting relationships with customers.