"The fashion industry currently contributes up to 10 per cent of global carbon emissions, and big brands can’t pay the problem to go away."
VogueBusiness, 2020
As a CEO of a shopping malls developer/operator company I had always been amazed by the tremendous inefficiency of apparel retail stores.
Just look at the numbers: average conversion rate ranges between 10 and 20%, unsold goods rate is around 30%. The return rate is 5 to 10% for something bought in-store and 25 to 40% for goods bought online.
IHL Group estimates worldwide losses by apparel retailers come to $600bn simply because it is more costly to process and resale goods than to destroy them. Managing returns turns out to be a complex set of operational challenges and is not often a priority for management.
This results in the mind-blowing 100m tons of apparel ending at the landfills every year. The fashion industry is the second largest polluter after oil and also responsible for 20% of global wastewater.
Personalization in fashion retail includes the styling service experience during interactions with the brand: before, during and after shopping.
Purchasing clothes became too easy thanks to e-commerce, fast fashion brands, credit card issuers and same-day delivery operators.
Sustainability recently became a buzzword among most apparel retailers. There have been a number of great initiatives from brands all over the world. H&M even introduced a second hand service RE:WEAR in Canada to increase the usability of clothes. Most brands focus on sustainable design and production from recycled materials and to be recycled or upcycled afterwards to achieve potential circularity of fabric and components. And for a good reason!
According to the World Bank the fashion industry is responsible for 10% of annual global carbon emissions, more than all international flights and maritime shipping.
Climate consciousness gives room for new opportunities. For example Sheep Inc. claims to be the first carbon negative clothing brand with hoodies made from 100% Merino wool sourced from regenerative New Zealand farms knitted at factories completely powered by solar energy. Of course such “green” approach is impossible to scale fast for large companies and they try decarbonization initiatives along their supply chain.
A good example is Allbirds building a sustainable supply chain and its collaboration with Adidas with an ambition to reduce the amount of carbon in an athletic shoe below 2kg, for instance. The industry norm is 13kg.
While the supply chain emission issue is becoming a focus of emerging Sustainability executive positions holders, distribution being responsible for waste levels ranging stunning 30-50% of produced volumes (returns + unsold goods) still lags behind. And here I see a variety of affordable proven technology solutions to make sound quick fixes.
First of all this is production volume. If 30% of stock never sells then reducing this amount counts towards decreasing 10% of global emissions. This is possible by redesigning the retailers buying system changing from reactive data analysis (what did we sell + what buyers think our distribution channels will sell) to proactive (what haven’t we sold + what we would never sell) with the help of local data on customers body metrics, preferences and buying behaviour. Namely AI having such local data (from in-store and online customers) recommends which collections and sizes in what mix to deliver to which geography. Such data is easy to collect by enabling retailers apps with omnichannel styling solutions (like 7Looks, Stylyze) where customers just provide this data in exchange for an omnichannel white glove personal styling service.
Second factor is returns. McKinsey research (below) is identifying 3 major shopping tools to improve the issue.
Adding just 2 features to a retailer’s app would make these tools work efficiently to benefit both customers and brands. One is a sizing tool (like 3DLook, Alvanon, etc) and the second is the AI personalized looks stylist (like 7Looks, Stylyze). Such tools not only reduce returns but also increase sales (as they sell complete looks) and improve brand experience.
Chess players think several moves in advance. Likewise in fashion retail leading firms like Nike and Lululemon are swiftly employing new tech, gaining market share, and creating lasting value as is obvious that in 5 years such solutions will be common for buying clothes as they naturally fit the consumer customer journey, solve retailer’s pain points and help reach sustainability goals.
About the author:
Mike Merkulov holds several Board Member positions, is an angel investor in sustainable tech projects.
Currently holds various board positions in DCH Infrastructure and Real Estate, Agartha Fund, ADG logistic development group, Blackshield Capital.
Is a sustainable retail tech enthusiast, angel investor in Sheep.Inc, 3DLook, 7LuckyLooks, SolarGaps, RetargetApp, etc.
Has 20+ year of commercial real estate financing and operations experience in CEE: 5 years as a CEO in Arricano Real Estate (ARO, listed on LSE, shopping malls developer/operator), 8 years as top executive in Erste Group Bank (commercial real estate financing), 9 years in top management positions in McDonald’s Corporation.
