Artificial Intelligence, the disruptive, smart technology once popularized by dystopian sci-fi art has settled in quite comfortably. It is swiftly changing the way businesses operate and has shown promise in a variety of industries and business functions.
For far too long, artificial intelligence had been villainized and has been portrayed as a technology that replaces human dependencies entirely and wipes out jobs. Leaders in creative fields were quick to dismiss it on the ground that AI is incapable of capturing and expressing the human condition.
This is not the case.
As AI makes its presence felt in industries like banking, insurance, logistics and so on, it becomes clear that it is here for good and here to help. The future is humans living and working in an AI assisted world, not in an AI dominated one. In a digital first world, AI is rebuilding processes in the fashion industry too – be it in terms of design, production, shipping, or sales and marketing. In 2022, the market value of AI in fashion worldwide stands at $861 million. By 2027, this figure is predicted to reach $4.3 billion.
AI is going to help businesses in the fashion industry remain competitive. Here’s the value proposition behind an AI-enabled photo studio:
Reason 1: A Quick Time-to-Market
Starting with a trite observation, consumer tastes and preferences are changing faster than ever. In order to remain competitive, a business must meet these expectations and quicken their go-to-market strategy and operations without compromising majorly on the quality of the products or experience.
Fast fashion hegemons such as H&M and Zara acknowledge these rapidly changing trends and deliver on them too. Unfortunately, because fast fashion has become the new default, competitor brands find themselves racing to get to market faster with newer styles. Interestingly, Zara has the capability to launch one new collection fortnightly or 24 a year, H&M is a close second with 12-16 collections launched annually.
Using Data to Optimize Costs
Top performers, with the power of data analytics in their toolbox are able to deliver products to market in less than 6-8 weeks while the typical lead time in the industry is 40 weeks, or 5 times longer and slower in keeping up with changing consumer preferences.
From 2015 till date, for a mix of reasons varying from competitive pressure, internal inefficiencies, or the pandemic, 136 retailers in America declared bankruptcy. Many of these are (were) in the business of fashion.
- Unable to keep up with the likes of Zara and H&M, Wet Seal, a mall brand making apparel for teenage girls declared bankruptcy in 2015 and shuttered in 2017.
- Similarly, The Limited, a mall based women’s apparel brand cited fast fashion competition and declining mall traffic as the main reasons for its Chapter 11 bankruptcy.
- Eastern Outfitters declared bankruptcy in 2017 after facing increased competition, high retail costs, and changes in consumer spending behavior.
But how do you avoid this?
Divesting resource intensive assets is a surefire way to reduce costs and increase profitability. Let us consider a photo shoot, for instance.
If done traditionally, in-house, the following costs are to be expected as a bare minimum.
|Line Item||Annual Cost (Mean)||Cumulative Cost|
|Fashion Image Specialist||$62,630||$490,113|
|Photo Production Manager||$76,137||$566,250|
The sum may be far higher once unaccounted variables are factored in. Data is sourced from Glassdoor, US based mean annual pay in 2022.
This in-house, traditional photo shoot expense is significantly higher than $678k (or $56.5k monthly).
Even if this process is outsourced to save on money costs but still done traditionally, the costs of maintaining an in-house team are reduced but the lead time goes up. With an average turnaround time of 21 days, traditional setups are no longer justifiable in the world of fast fashion where product life cycles are short. Since the inventory is time sensitive, being unable to move it quickly corners a business into the unfavorable situation of offering permanent markdowns.
It doesn’t end there.
Using models of different ethnicities and builds is not just a mere marketing activity focused on the narrative around inclusivity. It has business value, it helps show merchandise on models of different ethnicities and builds to reduce bracketing and returns, however, hiring models of different kinds is extremely expensive in money and time terms. The cost in the table above is for one model, this would have to be multiplied several times for a realistic, more inclusive figure.
An AI-powered photo studio eliminates many costs and dependencies making companies in the business of fashion leaner and more agile in responding to changes in consumer tastes and market conditions. AI in photography uses ML to solve several problems, i.e.
- enhance portrait lighting,
- cull and edit photos faster,
- reduce time to market through
- templatize real models for brands to avoid duplicity while marketing other products;
- terminating the need to find diverse (and difficult to find) models, that are more relatable to people
and offers several other benefits pertaining to the post production phase, directly impacting the bottom line.
Reason 2: Bracketing
Bracketing is a major cause for concern, when accounting for eCommerce product returns. It is the practice of buying the same product in multiple sizes and colors, the customer has a clear intention to return what they do not like. This is mostly a result of size and fit issues that can be easily addressed with better, or easily accessible information.
Customers (especially those under 30 or those buying luxury goods) treat bracketing as normal, and ‘low-risk’ since retailers offer free deliveries and hassle free returns but this practice eats into a brand’s bottom line and is a logistical and environmental pain-point especially for fashion e-tailers, because the process isn’t ‘free’ for the business.
Even from a customer experience perspective, managing returns en masse because of bracketing is cumbersome. It ultimately affects the customer relationship with the brand because of delayed refunds. Companies need to get the merchandise back from customers, determine the condition of the products and decide whether it will be resold or discarded. The company bleeds cash on managing inventory, packaging, order fulfillment, human resources, and the to and fro transport costs. The process can cost $10 to $20 per return, and this does not even include shipping. It should then come as no surprise that sending back unwanted items and potentially re-selling them results in 10 billion unnecessary trips every year”.
From an inventory management standpoint, bracketing also creates artificial SKU shortages. Multiple variants of a product get removed at the same time and companies cannot determine what is likely to be returned, making replenishments, stock and flow management difficult.
According to an NRF survey, “for every $1 billion in sales, the average retailer incurs $106 million in merchandise returns.” These returns tend to spike around holidays and about 5% of the return figure may be written off as ‘return fraud’, further eating into the profitability.
Logistical hassles aside, bracketing is a major environmental challenge as well. A customer may rest assured that their return will be sold to someone else but this is rarely the case, either because of legal reasons, or because of the time cost associated with reselling returned merchandise. Businesses gravitate to the path of least resistance, dumping unsold inventory into landfills. As a solution to this, Optoro, a sustainability driven company. aims to make the retail industry more sustainable by reducing return based wastage. A circular system is not only beneficial to the planet but also to the company top line.
According to their latest report, returns can result in 9.5 billion pounds of waste in landfills. Customers may be responsible for this environmental damage but are often disconnected and unaware of their actions, leaving the brand’s reputation and ESG policies at stake.
There is no absolute fix to bracketing but it can be reduced with an AI-enabled photo studio projecting merchandise on models of different types to reduce size and skin tone based returns. This can be further augmented by coupling it with the new AR enabled ‘online fitting rooms’. Providing (displaying) all relevant product information such as sizing charts, product specifications, photos, descriptions, and reviews can collectively guide the customer to make the right choice the first time around, reducing the load on returns.
Bracketing is also a result of suboptimal purchase experience, a customer will buy in bulk and return what they don’t want because it is easier than making an entirely new order. Introducing swaps and exchanges is a more efficient way to move inventory without running into return based bottlenecks. But its importance cannot be overstated. Reduced bracketing returns lead to reduced secondary transportation cost which in turn reduces companies’ carbon footprint + repetitive packaging cost + labor cost etc.
Bracketing is an industry wide issue but it creates branding problems as well, this is explored below.
Reason 3: Unresearched Markdowns
40% garments are sold at a markdown, often to compensate for overproduction and the bottlenecks it creates in moving inventory.
The rationale behind markdown pricing is clear. It boosts sales revenue by focusing on volume by compromising on the margin on each unit sold. It helps liquidate inventory and match prices of low-cost competitors.
According to a shopify guide, there are three types of markdowns.
- Temporary: These are time based, and create a sense of urgency.
- Competitive: This is meant for price sensitive consumers that will compare offerings before making a purchase. By price-matching, a retailer, in most cases, can avoid advertising the markdown which may reduce a customer’s perception of value associated with the product.
- Permanent: i.e. Season clearance sales or discounts on damaged goods.
However, the markdown sword is double edged. Brands may want to avoid markdowns altogether or delay them as long as they can.
If sales don’t increase after a first markdown, it might be necessary to continue reducing the price of a product until it sells at a profitable rate. There ought to be enough time between markdowns to sufficiently test the impact of the new price. Alternatively, the consumer is forced to act before someone else snags the deal, the FOMO element creates purchase intent that may not have existed earlier.
However, testing lower prices still takes time and warehouse space. To keep up with fast fashion, the item may be pulled off the shelf (digital or physical) entirely and dumped to make room for the new collection that the brand hopes to sell at a premium. Luxury brands prefer to destroy dead stock as opposed to selling it for less in order to maintain their brand’s reputation.
The continuous reduction in price is also a result of a vicious cycle, because goods continue to lose value the longer they are held. Markdowns may be the only way to recuperate on an investment that is plummeting in value.
Keeping vicious cycles in mind, price matching in fashion is akin to a price war waged by fast fashion industry leaders that can absorb shocks better and longer than their competition. Brand loyalty is hard won but easily lost if a customer can get a similar product for less from a competitor’s brand. Engaging in a price matching war becomes inevitable to retain customers and generate buzz in a digital landscape overrun with overstimulation and advertising.
An AI-enabled photo studio reduces overall cost of visual merchandising allowing companies to run with reduced prices. Alternatively, introducing collections faster or earlier than the competition is a suitable strategy to work around price matching since the maximum number of sales of a product happen at the beginning of its season. Even product lifecycle extension (such as finding a new market, or new users) can prove effective in avoiding the need to reduce prices.
Competition in fashion is relentless and moves at breakneck speeds to match paces with changes in consumer preferences. Time is of the essence. Not being able to move and manage inventory fast enough leads to the vicious cycle of permanent markdowns that eat into the top line while bracketing, and other operational expenses erode the bottom line. An AI-based photo studio like FlixStudio, offering reduced cost and time-to-market, is likely to become the new default for companies looking to remain afloat in the fast moving, new, digital first world of fashion retail.