Fashion’s Business Transformation Gameplan

Unless a company is Away, Reformation or Goop chances are that it has been frustratingly slow in using digital technology for innovation. Too often, fashion incumbents consider technology mostly as an advertising tool and not as a business model.

As advertising, technology allows for more effective ad planning. As a business model, it opens up new revenue streams and transforms everything from the supply chain to operations, marketing, merchandising and materials used in production.

The gap between these two scenarios reveals legacy fashion’s short-term approach to its own business growth. In contrast, vertically integrated, direct-to-consumer fashion entrants all adopt the long-term view. They built their businesses around technology and in the process accumulated the wealth of consumer data, created flat, fast-moving organizations and invested in sustainable and transparent supply chains.

The technology gap also reveals a discrepancy in competitive fitness among the main players on the global fashion market. In the past, the competitive edge was achieved through amassing scale, opening new stores and increasing corporate marketing budgets.

Today, this isn’t how the fashion business grows. If the twentieth century was the age of the corporation, the twenty-first century is the age of the consumer. Closest to consumers are vertically integrated, direct-to-consumer fashion companies that didn’t exist a decade ago. They are now here to eat fashion incumbents’ lunch. Joining them are online retail aggregators and, despite the vocal industry deniers, Amazon.

To rapidly shift their vantage point towards customer-centrism, incumbents need to understand the role that digital technology plays in their business beyond advertising.

A good way to go about it for the fashion companies is to examine whether they are using digital technology with their end-consumer in mind or as a way to get more out of their legacy business. They also need to ask whether technology creates just incremental value for their business or is it transforming it.

Depending on their answer, there are four directions that fashion incumbents can take.

Addition (creating incremental value, market focus): A legacy company becomes more valuable if it uses technology to add a new revenue stream to its core business. Technology is used as a value-add to a fashion business’ traditional value chain, and it becomes its additional sales and marketing channel. LVMH launched 24sevres.com for this purposes.

Systems (creating transformative value, market focus): A company can choose to grow by creating value outside of its traditional value chain. It builds a service around its existing product offerings and treats it as a new source of revenue. Goop’s expansion from a publisher into a retailer created a new market and a new audience for the company while enhancing its core value proposition.

Design (creating incremental value, customer focus): Companies that use data, CRM and customer service make their existing products and services more desirable and relevant from the standpoint of end-customers. These companies do not transform the core business they are in; rather, they improve it incrementally. Matches Fashion’s offers VIP and personal stylists services to make their business more viable and attractive from a customer point of view.

Disruption (creating transformative value, customer focus): A fashion company that creates a completely new value in the established industry is considered disruptive. It creates a value chain that is radically different than the one that the industry has been built around. Reformation is a direct-to-consumer B-corp that uses recycled and vintage materials to produce its clothes.

Fashion industry talks a lot about innovation. It throws money at initiatives that promise disruption but that, in the end, merely use digital technology as added value to its existing business. There is nothing wrong with incremental innovation, unless everyone around you is in the business of transformation.

This piece first appeared in Lean Luxe.