The digital doubters are all gone.
After years when small steps forward were heralded as great advances, the retail, apparel and luxury industry got down to real work this year, reshaping fashion — from marketing to distribution to delivery.
It’s not just the hip new brands with newer ideas like Stitch Fix Inc. or the e-commerce giants like Amazon making a splash. The old guard is charging ahead and grabbing its future online.
The most dramatic moves came from those with the most to lose.
Compagnie Financière Richemont took full control of Yoox Net-a-porter and linked Chinese e-commerce titan Alibaba, moving quickly to ramp up online as the luxe giant looks to protect its real-world turf.
On the other end of the price spectrum, Walmart Inc. continued its e-commerce push — taking the battle to Amazon in a way that only it can. The brick-and-mortar leader, with sales of over $500 billion, squared off directly with Amazon in the Indian market and prevailed, spending $16 billion to win control of Flipkart and planting its low-cost flag in a growing market of 1.3 billion people.
Walmart also continued to expand at home, scooping up Bare Necessities as it brought Nike to its Jet.com platform and launching a Lord & Taylor online shop on walmart.com.
Nobody doubts that it was Amazon that lit a fire under Walmart.
Wells Fargo said Amazon could bring the mass retailer down a peg this year and rank as the largest seller of apparel and footwear, with a combined gross merchandise volume of $30.8 billion in those categories. That would mark growth of roughly 25 percent. To keep up, Walmart would have to grow its apparel and footwear business, weighing in at $29 billion last year, by at least 6 percent — big growth for a largely brick-and-mortar business.
But the battle has grown beyond the web.
As Walmart builds its digital cred, Amazon continues to grow in brick-and-mortar, expanding its cashierless Amazon Go concept and testing Amazon 4-star in New York’s SoHo shopping district as it builds on the retail presence gained when the tech giant bought Whole Foods.
After years of talking about an “omnichannel” future, bricks and clicks are really working together now.
Wells Fargo equity analyst Ike Boruchow said: “The fact that traditional retailers showed sustained improvement in the second quarter simultaneously with growing e-commerce penetration over the past few quarters likely suggests that it’s not a ‘zero-sum game’ in retail today…if traditional retailers can successfully drive demand, they can participate in the market growth that e-commerce is driving.”
The big luxury players in Europe were coming to something like the same realization.
For Richemont in particular it was a landmark year as the company’s chairman Johann Rupert had long been skeptical about luxury’s place in the digital world and fearful that online sales would dull the shimmer of the group’s products.
Now Rupert is all in.
The YNAP deal with Alibaba, which has 600 million users, will see the launch of mobile apps for Net-a-porter and Mr Porter and online stores in Alibaba’s quickly growing Tmall Luxury Pavilion.
Rupert talked about the “inevitable coalescence of online and offline” in luxury goods, and the importance of exploring new shop experiences and formats.
In the first half, Richemont’s online retail made up 14 percent of sales, although YNAP in particular will be a drag on profits due to the nature of the business and the costs of integrating it. But Antoine Belge, global co-head of consumer and retail research, was bullish about the YNAP purchase overall.
“Is YNAP such a bad asset? Most investors have taken a negative view on the acquisition by Richemont,” Belge said. “Short term, we agree that the lack of company guidance regarding the financial implications of this deal does not help. However, in a luxury industry that has been slow to embrace digital/e-commerce, we believe Richemont could emerge two to three years from now with one of the best platforms in the market, combining its own brands’ e-commerce capabilities with those of YNAP and Alibaba.”
Richemont’s latest moves in the digital space come as a new generation of men and women have joined the board, including Rupert’s son Anton Rupert, and the former Google executive Nikesh Arora.
The younger Rupert has been working at Richemont for more than a decade now, and at the time of his son’s appointment to the board, the chairman said he saw him as “the new Google Translate to tell us where the world is going.” Rupert said he was expecting his son to bring “further insight into changing consumer behavior in our target markets, in particular in the areas of digital marketing and web-based commerce.”
Clearly, a digital awakening has come.
Chanel, another slow mover in the digital space, inked a deal with Farfetch in February to develop digital initiatives designed to deliver what the iconic French brand termed an “unparalleled customer experience” both offline and online, in-store and out-of-store.
Chanel has taken a minority stake in Farfetch (which in September had a blockbuster initial public offering on the New York Stock Exchange) to demonstrate its commitment to what both companies described as an exclusive global multiyear innovation partnership.
“We have decided to work on the boutique of tomorrow,” Bruno Pavlovsky, president of fashion at Chanel and head of its Paraffection subsidiary, told WWD in a joint interview with José Neves, founder and chief executive officer of Farfetch.
Chanel also pushed farther into the digital space with acquisition of men’s swimwear label Orlebar Brown in September.
“As a digital native brand, Orlebar Brown will enable Eres (the Chanel-owned women’s swimwear brand) to strengthen its digital expertise and optimize its omnichannel distribution strategy,” the company said at the time of the purchase.
Even the digitally savvy brands continue to press on. Burberry had been a first-mover on the digital front, but also turned to Farfetch to ramp up its international business. For the first time, technology that Burberry has developed was integrated into the Farfetch API, allowing the brand’s entire global inventory to be available through an e-commerce platform.
The move was aimed at expanding Burberry’s international online distribution. The deal has already been delivering, with the brand boosting its geographic reach in the first half. It now ships to 150 countries, compared with 45 before the Farfetch deal.
Farfetch, which bulked up operations in China and the Middle East earlier this year, is only poised to get bigger: Following its IPO, the luxury platform now has $1 billion in cash on hand and is expanding in the double digits.
Neves told analysts that the $300 billion global luxury market would grow to $500 billion in the next decade and that online sales would make up “at least 25 percent of that, maybe 30 percent.”
The online luxury market represents an “incremental opportunity of $100 billion in new business,” he said. “We believe Farfetch is well positioned to take the lion’s share of that total addressable market.”
He said the company’s business model was designed to be self-reinforcing as brands come on the platform and attract more customers, which increases sales and in turn draws more sellers.
But now that fashion’s caught up with e-commerce and become more practiced selling online and offline at the same time, there is a whole new set of tricks to learn.
At the top of the list are voice commerce and artificial intelligence.
And that once again has retail following Amazon, which has successfully made its digital assistant Alexa a fixture in millions of homes across America with Echo products, including the Echo Look fashion selfie camera and the Echo Show, which has a display screen.
Amazon’s efforts essentially created a new category as Google also jumped in with its own display-equipped voice speaker this year.
The capabilities of both voice systems, Google Assistant and Alexa, are still rather imperfect. However, according to integrated marketing firm Walker Sands, it hasn’t stopped the march of voice shopping.
Walker Sands noted this summer that people “are more comfortable using voice-controlled devices to shop. Of the consumers who own a voice-controlled device, 64 percent use it at least once a week. Fifty percent have made a voice-controlled purchase in the past year.”
If that’s right, then advances in voice tech could bring on a veritable wave of e-commerce activity in the foreseeable future.
And speakers aren’t the only important point of convergence between fashion and tech.
Wearables became a bit more sophisticated this year thanks to the evolution of hardware like Qualcomm’s newer processors and more advanced software from Google and Apple. More smartwatches are lasting longer, offering features like voice and mobile payments, and the reach of Fossil Group, one of the biggest proponents of smartwatches, loomed a bit larger with its first tech licensing deal with Citizen.
The smartwatch is one of the few areas Amazon hasn’t infiltrated. It seems to be everywhere else. Granted, the company has engaged in some unconventional projects, such as a home delivery service that can drop off boxes inside people’s homes and patenting a virtual fitting mirror. But its considerable efforts behind artificial intelligence, natural language processing and computer vision are shining a light on where the momentum will be going forward.
AI has grown to be more than just a buzzword, but a revolution with the promise that the insanely complex tool can make almost anything easier — from sorting through mounds of consumer data to find just the right sales pitch to setting up an appointment with a stylist to ordering a T-shirt.
In an official blog post, Google described Android Pie, alternatively Android P or Android 9 Pie, as “powered by AI for a smarter, simpler experience that adapts to you.”
Alone, it’s a significant development. But pair these efforts with other AI initiatives — such as retail product recommendations, realistic augmented reality features, even online fitting services — and it seems that devices and services across the board will all get to know the consumer better than ever.
Yet consumer AI often fails at simple commands or dredges up inaccurate recommendations. And if great care isn’t employed in the writing of its algorithms, it can even veer into machine bias. Consider it a danger zone, particularly for areas that aim to quantify things like appearance and sizes.
And those visuals matter even more, considering the advancement of mobile cameras this year. Both Apple and Google released impressive updates — Android’s “night sight” feature alone may see a tidal wave of beautifully captured night images, when people tend to look their best for an evening out.
Retailers in the luxury sector got wise to AI through vendors like Salesforce, as well as newer tech movements like blockchain. Known best for its cryptocurrency applications, blockchain technology and its high-security nature boost the traceability of premium items for authentication, and numerous companies are pushing to use it in creating universal shopping profiles. The goal: Put the ownership of data back in consumers’ hands.
Whether consumers recapture control of their vital stats or not, change is the only constant in tech and will keep merchants and brands on their toes for years to come.