The fashion divide: Metaverse shops versus internal digitalization lags

While attending various industry events such as the May 2023 INSEAD Future Forum: How will Web3 Transform Luxury & Fashion, I was once again reminded of the dichotomy that exists within luxury fashion companies. The panelists were enthusiastic about the endless potential of Web3 and the (new) customer segments it could create for luxury & fashion firms. And this made me curious:

Is all that shines gold? In other words, do luxury & fashion firms have digital storefronts, but their back end (operations) aren’t as digitally advanced?

Conversations I conducted with professionals from that industry seemed to confirm some of these hypotheses. So what are the issues? And how can luxury fashion firms tackle digital transformation? When done right, digital transformation is a powerful catalyst for both operations and customer engagement.

Luxury fashion companies face unique challenges in fully embracing this transformation — with cultural resistance, the notion of brand exclusivity, technology integration, the looming risk of cyberattacks are the forefront.

Interestingly, despite the industry’s forward-facing image, many fashion houses lag behind in internal digitalization, starkly contrasting their cutting-edge digital storefronts and Metaverse shops.

Look no further than luxury fashion brand Gucci for that.

It has made significant strides in creating immersive digital experiences and leveraging advanced technologies to engage customers: its website and app feature seamless e-commerce experiences, like virtual try-ons supported by AR (Augmented Reality). It has launched virtual stores and virtual pop-ups in the Metaverse. It is also active in the NFT universe (non-fungible tokens). Internal digitization lag is a Gucci reality: Supply chain processes are still partially handled manually. The company does not sufficiently leverage IoT and AI to improve real-time inventory tracking and demand forecasting. Most crucial are legacy systems and internal digital skill gaps.

Photo by Shubham Dhage on Unsplash

What are some of the other challenges fashion companies face when going digital?

1. Cultural Resistance: Cultural resistance is one of the most significant barriers to digital transformation in luxury fashion. Many fashion houses are run by individuals who have spent their careers in a pre-digital world, making them wary of integrating technology into their traditional practices. Think high-touch customer service and the value of in-person experiences at Chanel. Convincing artisans, designers, and executives to adopt new digital tools can take time and effort. A good example is Chanel’s slow gradual digital adoption, leading to its launch of an e-commerce platform for beauty products.
2. Maintaining Brand Exclusivity: Digital platforms have revolutionized access to fashion, which can be a double-edged sword for luxury brands that thrive on exclusivity. Striking the right balance between wide accessibility and maintaining an elite image is delicate. Brands fear that going digital might erode their aura of exclusivity and craftsmanship, emphasizing the importance of this challenge in the digital era.
3. Technological Integration: Another challenge is integrating new technologies into existing processes without disrupting the workflow. Many luxury fashion companies rely on legacy systems that are incompatible with modern digital solutions. Transitioning to new systems requires significant investment in time, money, and training.
4. Data Security and Privacy: High-profile luxury brands are prime targets for cyberattacks. Ensuring robust data security measures while handling sensitive customer data is critical. The luxury clientele values privacy and any breach can severely damage a brand’s reputation.
5. Sustainability and Ethical Practices: Digital transformation must also align with the growing demand for sustainability and ethical practices. There is (consumer) pressure on luxury brands to adopt technologies to support sustainable production. Introducing the latter can be complex and costly.

Luxury fashion houses: Apply your digital savviness to your operations and back office

Luxury brands have been quick to capitalize on the Metaverse, creating virtual stores and experiences that offer a new level of customer engagement. Think Gucci’s shop in Sandbox, an online gaming platform that offers an immersive experience. These digital spaces allow customers to explore collections, attend virtual fashion shows, and interact with the brand in innovative ways. Such initiatives showcase the brands’ ability to blend tradition with modernity, attracting a younger, tech-savvy audience. However, the internal digitalization of these companies tells a different story.

Many luxury fashion houses still rely on manual processes and outdated systems for supply chain management, inventory control, and customer relationship management (CRM). This internal lag curtails their ability to respond quickly to market changes, optimize operations, and provide seamless customer experiences.

Photo by Vitaly Gariev on Unsplash

Solutions: Internal digital capabilities and customer-facing innovations

1. Invest in Training and Development: Companies must invest in training programs that equip their employees with digital skills. This skill set emcompasses digital project management (including using tools such as Asana and Trello) and agile was of working to leveraging digital supply chain management tools and relying much more on data to forecast demand. Encouraging a culture of continuous learning and digital literacy can help bridge the gap between traditional practices and modern technology.
2. Adopt Integrated Digital Solutions: Implementing integrated digital solutions that streamline operations across the supply chain, inventory management, and CRM can significantly enhance efficiency. Advanced analytics and AI can provide insights that drive better decision-making and personalized customer experiences.
3. Foster Collaboration Between Departments — lessons from Burberry. Collaboration between creative and technological departments is a reality at Burberry. As part of the “Burberry Snapchat Show”, the brand showcased its new collection first on snapchat, thus prioritizing a digital collection that had originated in its digital lab before showing it on the runway. The “Burberry Acoustic” initiative was all about embracing digital advancements: creative designers and tech experts work together to generate unique digital content. Other digital-first campaigns, such as “The Art of the Trench” give customers an opportunity to act as brand ambassadors, letting them share user-generated content of themselves wearing their trenches. Burberry uses AR and VR to enhance the customer experience in their app (AR) or in the store (VR). All of these examples show: Cross-functional teams can ensure digital initiatives align with the brand’s core values and business objectives.
4. Focus on Data Security: Prioritizing robust data security measures is essential to protect the brand’s reputation and customer trust. Implementing advanced cybersecurity protocols and regularly updating them can safeguard sensitive information.
5. Align Digital Transformation with Sustainability Goals: Integrating digital solutions that support sustainable practices can help luxury brands meet ethical standards and customer expectations. Technologies such as blockchain can enhance transparency in supply chains, ensuring ethical sourcing and production.

Making a conscious effort to become digital yet maintaining the exclusive and aspirational edge

By overcoming cultural (= internal) resistance, integrating modern technologies, and aligning digital initiatives with their brand values, luxury fashion houses can do both: (1) enhance their customer experiences and (2) streamline their internal operations. Bridging the gap between their impressive digital storefronts and their behind-the-scenes processes will be key to sustaining their legacy in the digital age.

Sources:

Forbes magazine, contributor Bernard Marr: “Gucci enters the Metaverse”. Published on November 30, 2022. Link.

G. & Co: “Gucci, an e-commerce strategy” (case study). Published in October 2023. Link.

Angela Ahrendts, for Harvard Business Review: “Burberry’s CEO on Turning an Aging British Icon into a Global Luxury Brand”. Published in the magazine January / February 2013. Link.

Sarah Kent: “Does Chanel’s Stance on E-Commerce Make Sense?”. Published on 18 June, 2021. Link.

Vogue Business: “Gaming boosts Gucci and Burberry’s innovative edge”. Published in June 2023. Link.

Petey S., Harvard University: “Burberry’s Digital Transformation”. Posted November 18, 2016. Link.