Smaller Brands Seize The Moment and AI-Powered Surveillance Pricing Gets Scrutinised

The Fashion Technology Survey 2024/25

The Interline has partnered with MMGNET to survey the global fashion industry – with the data we capture becoming the foundation of a new, industry-defining report for publication later this year.

This 10-minute anonymous survey will capture the external forces and inward strategic objectives that are defining the fashion industry agenda for 2024/25 – and will document the tools, technologies, and digital transformations organisations of all shapes, sizes and market segments are using to respond to them.

To anonymously share your perspective on the key trends in fashion technology, the realities of turning innovation into action, and other key metrics, take part from today.

Participants will also have the option to provide a point of contact to receive an early debrief on the findings of the survey, ahead of the official release of the report.

An opportunity for small fashion brands coincides with a luxury sector slowdown

This week, French luxury giant LVMH reported a second consecutive quarterly revenue decline, down 1% year-on-year, indicating that even the most popular, digitally-savvy brands are struggling to counteract luxury’s demand slump. LVMH has been an industry bellwether with its portfolio of over 75 companies – covering champagne, watches and handbags. Other luxury peers Hermès, and Gucci have also recently taken a hit after years of growth, and just last week Burberry and Hugo Boss (not directly a luxury brand, but still) both issued profit warnings. 

Adding to the luxury sector’s troubles, Armani and Dior are under investigation for alleged unfair commercial practices linked to the exploitation of workers in their Italian supply chains.

Though luxury product demand may well recover in the coming quarters or full years, the current dip in popularity could offer a prime opportunity for smaller brands to capitalise on the potential for trickle-down spending. Some have already recognised this and have made a start on seizing the moment by pulling all the levers available to them to extend their reach and expand the surface across which consumers can reach them. This August, premium knitwear brand Hades and custom sneaker company Canvvs are leading the charge by opening new stores just off London’s Oxford Street. The opportunity is part of Westminster City Council’s Meanwhile On: Oxford Street project, launched last year, aimed at providing prominent retail spaces to new brands at lower rents, and revitalising the famous London high street at a time when foot traffic to the capital (and to many other major UK and EU cities) remains deeply changed by the shifting balance of in-person and remote work.

Alongside initiatives that have a more brick-and-mortar focus, technology is also proving essential for empowering smaller and micro fashion businesses to secure a competitive advantage. Earlier this week, Vodafone Business released the third episode of its Digital SOS documentary series, featuring brand ambassador and Diary of a CEO host Steven Bartlett as he supports the owners of D.A.Y, a small fashion boutique in Peckham, South-East London, in expanding their online sales. ​​Vodafone Business created the documentary series to assist SMEs in effectively adopting digital technology and accelerating their growth – in this case via online sales using Urchin Tracking Module (UTM) tracking links, and customer insights via analytics.

“SMEs are the backbone of our economy and by making greater use of technology and leaning into the digital world, business owners can improve their digital skills as well as their business potential,” Bartlett told The Interline.

Here at The Interline, we often focus on enterprise transformation and broad, macro-level shifts in markets and technology strategies, but this week’s news is a reminder that the scales of fashion and retail often tip in smaller and less visible ways – but in ways that can have more profound impacts over time by steadily evening the playing field.

The ambivalent future of AI-driven surveillance pricing

This week, the US Federal Trade Commission (FTC) initiated an investigation into AI-driven “surveillance service pricing” – a practice that might ring a bell for anyone who has used an incognito browser to dodge inflated prices, or anyone who’s developed a sixth sense for when Uber or Lyft will charge ‘surge prices’.

The FTC describes surveillance pricing as the practice of using AI, and other technologies – especially when combined with personal data like location, demographics, credit information, device usage, and browsing or shopping history – to create individual profiles and set customised prices for products or services that draw on other variables beyond the usual push and pull of supply and demand.

Supporters claim the technology is a natural evolution of efficient pricing strategies and cost-effective consumer engagement and acquisition at a time when both are becoming pricier than ever. Opponents argue that it is unjust, discriminatory, and undermines the principles of free-market capitalism as well as disrupting the implicit understanding that consumers willingly engaging with brands will get them lower prices and better offers, not pricing that’s calibrated to their ability to pay.

Whatever your view, the commissioners voted unanimously to order eight financial, tech and consulting companies to reveal what pricing services they offer, what data they collect to power these services, who is using their services, and what effect that’s having on consumer prices. The eight who will need to provide this information are Mastercard, JPMorgan Chase, Accenture, and McKinsey & Co, alongside lesser-known firms Revionics which supplies pricing services to The Home Depot and Tractor Supply; Task Software who is used by McDonald’s and Starbucks; PROS who works with Nestlé; and Bloomreach, with clients like Williams Sonoma and Virgin Experience Days.

To clarify, this is not a legal proceeding, or even anything prohibitive. Rather, the focus is on “helping the FTC better understand the opaque market for products by third-party intermediaries that claim to use advanced algorithms, artificial intelligence and other technologies.” The eight companies have until early September to submit their reports to the FTC, and the Commission is expected to release some of its findings to the public. But it remains uncertain whether additional steps will follow.

Though surveillance pricing isn’t yet common, it’s approaching – and this could have substantial effects on the fashion industry. The outcome of the FTC’s investigation will be a clue into how fair pricing will be established going forward and determining what standards should be adopted.

It’s also important to consider this in the broader context of customer acquisition versus customer loyalty. Everyone reading this will be familiar with the idea that being a long term customer of an internet service provider or utility company does not mean preferential treatment – and in fact new customers are often the recipients of the best offers. And provided those customers are given the right frameworks and support to easily switch providers, these practices have gone largely unchallenged.

But those have been pretty blanket, binary approaches with simple data points and switches (i.e. ‘new customer’ or ‘old customer’), whereas many of the concerns swirling around the use of machine learning relate to its granularity, with surveillance pricing incentivising companies to collect more, and more sensitive, customer data. Public prices are also important for fairness, transparency, and predictability. Unpredictable pricing can complicate budgeting for consumers, making it difficult to plan and manage expenses – especially at a time where the fashion industry is needing to steer consumers away from purchasing cheap fast fashion products and invest in more sustainably-made, potentially more expensive items as a fundamental part of the industry’s sustainability strategies. 

Like many aspects of AI, its deployment here also is without many guidelines and guardrails, and could add complexity to the FTC’s probe. This is because the intricacies of the AI systems used in surveillance pricing may be hard to unpick, and cooperation will be needed from the creators of the systems on how their algorithms are designed and function. Only from there will regulators be able to assess the potential for discrimination – something that the EU and UK have recently pushed towards with regulations intended to mitigate AI harms through visibility into how the models function… even if the model creators are still struggling to interpret those behaviours.

Today, the increased precision of data and the hyper-personalisation it unlocks have transformed the shopping landscape – and will likely affect fashion and every other sector too. The old saying that “everyone has a price” is now more literal than ever, and it has the potential to be a central strategy moving forward for many businesses. 

And the truly dystopian-minded members of The Interline team can foresee a near-term future where AI search doesn’t just deliver opaque recommendations to prospective customers, but also personalised and equally opaque pricing. What that kind of moving target might mean for margin calculations, the secondary market and other extended concerns is anyone’s guess. 

Best of The Interline: 

Kicking off this week: a new handbook from SOURCING at MAGIC and The Interline provides a practical guide to weighing up the possibilities against the potential risks.

Kevin Cochrane questions whether AI is a one-size-fits-all innovation. And how the infrastructure to support the demands of AI in all its different forms – hardware, software and more – is being built to scale. 

Closing this week, in his first exclusive for The Interline, Erik Lindvall looks at how fashion’s future lies in balancing creativity with sustainability, turning waste into opportunity.