Fashion companies are expected to increase their technology investments to 3.5 percent of their revenue over the next eight years, according to a new report from McKinsey and Business of Fashion. In 2021, fashion companies will invest an average of 1.6 percent of their revenue in technology, which means that investment is expected to more than double by 2030.
According to McKinsey’s “State of Fashion: Technology” report and Business of Fashion, the fashion industry and the world in general will experience the greatest technological advances in the last 100 years of the next decade.
McKinsey reports that technological differentiations will occur throughout the fashion industry’s value chain, according to the press release. Investments are being made in making fashion trade more agile, sustainable and attractive.
There will be technological differentiations across the fashion value chain, such as making trade more agile, sustainable and attractive to shoppers. In 2021, the value of the top 50 investments in technology-related fashion grew by 66 percent from 2019 to $ 16.2 billion, according to Crunchbase data used by McKinsey in the report. These investments went either to fashion retailers or to companies that sell products and services to fashion companies. The e-commerce sector, which has benefited from the pandemic-driven rise in online shopping, received about 55 percent of the total investment amount, the McKinsey report said. The rest consisted largely of payment technologies, including “buy now, pay later” companies, social commerce and resale, followed by utilities and logistics companies and companies using NFTs or technologies as virtual reality.
The report notes that to date, few brands have successfully embraced technology with a competitive spirit, but those who invest now could see an impact on their investment, could have an impact on their balance sheet. Companies that are already integrating AI technologies into their businesses to increase operational efficiency and improve customer engagement will see a potential cumulative 118 percent increase in cash flow by 2030, McKinsey said. For companies just starting out, implementing AI-driven initiatives could provide a 13 percent increase in cash flow between now and 2030.
All segments of the industry, from fast fashion to luxury, are feeling the impact of this technology investment, albeit in different ways, McKinsey said. The agency notes that in the luxury industry, where about 80 percent of sales are impacted by digital touchpoints, face-to-face services remain at the heart of the shopping experience. However, client apps and other digital tools are becoming an increasingly important part of how store employees improve relationships with their customers, experts say in the report.
McKinsey: ‘Technology investment helps fashion companies stay competitive’
Achim Berg, Senior Partner and Global Leader of Apparel, Fashion & Luxury at McKinsey, said in the report: “Last year, fashion companies invested between 1.6 and 1.8 percent of their sales in technology. We are convinced that this figure is doubled in 2030, as technology can help brands gain a competitive advantage, both in customer-centric activities – which companies have focused most on so far – and increasingly in business operations.
Anita Balchandani, Senior Partner and EMEA Head of Apparel, Fashion & Luxury at McKinsey, said in the report: “Much of the investment in Fashion Tech over the past decade has been in customer-centric innovation. Complemented by innovation that transforms the operational backbone of fashion players. – expects algorithms and artificial intelligence to play a role across the value chain – from smart pricing to identifying bestsellers and reducing returns.Europe, home to half of the top 20 gamers worldwide, is well positioned to promote and accelerate this innovation, which could create a more profitable model for fashion players. “
This article was previously published on FashionUnited UK. Translation and Editing into Dutch by Caitlyn Terra.