Shopper Experience
04 May 2022
5 ways tech will push fashion forward
A new McKinsey report says the fashion industry is set to double its tech investment by 2030.

The next wave of fashion is tech. (Photo by ThisisEngineering RAEng on Unsplash)
A new McKinsey report says the fashion industry is set to double its tech investment by 2030.
The next wave of fashion is tech. (Photo by ThisisEngineering RAEng on Unsplash)
Welcome to Data File. In this weekly feature, The Current shares key findings shaping the ecommerce landscape. At The Current, we comb industry, analyst and economic sources for the data that matters to ecommerce professionals, and include it throughout our work. This feature is one of the ways we’re sharing what we find.
Style trends may come and go over the next decade, but investment in fashion technology will see steady gains all along the way.
A new report from McKinsey says fashion companies are set to roughly double investments in technology over the next eight years.
In 2021, companies invested between 1.6 and 1.8% of their revenues in technology. By 2030, that will roughly rise to between 3 and 3.5%, according to the management consulting firm’s State of Fashion Technology Report 2022.
This is coming as a result of a pair of converging trends, the report states.
For one, technology is advancing rapidly. Improvements in AI, cloud computing, automation of work functions and 5G networks are creating new capabilities for companies. It is also affecting bottom lines.The McKinsey analysis states that the fashion companies that are already embedding AI into their business models could see a 118% cumulative increase in cashflow by 2030. Those who start now stand to see a 13% increase in cashflow, per McKinsey. By contrast, there’s risk of a 23% decline over the same time period for those that are slower to invest.
At the same time, shoppers are turning to digital channels as they seek to stay on trend. They are finding fashion there, as 72% of customers said they interacted with brands online in 2021, though that figure is expected to stabilize to 66% in 2022. They are also doing so because of the many benefits offered by ecommerce. Of customers who turned from in-person to digital shopping in 2021, 48% did so because of the pandemic, 27% cited convenience, 11% cited product availability and 11% cited promotions.
Ecommerce already receives 55% of tech investment, and technology investments will be directed toward further improving shopper experience. Yet the coming investment will also be a result of fashion companies making technology-oriented upgrades to operations, and harnessing these capabilities to follow through on sustainability commitments, the report states.
The report said the tech expansion in fashion will be driven by the following five key areas:
Digital goods and NFTs are on the rise, and a focus on the metaverse could help brands generate 5% more revenue over the next 2-5 years, McKinsey found. But brands will need to “separate hype from the concrete opportunities” to turn virtual interactions into sustainable business offerings, the report states.
One of the more thoughtful early strategies is coming from PacSun, where CEO Brieane Olson thinks its metaverse presence will help not only with sales, but also sourcing of new products.
About 70% of customers want personalized experiences, and around three-quarters are disappointed when they aren’t offered, the report states. Brands can use big data and AI for one-on-one experiences and loyalty. We're already seeing how machine learning is meeting the fitting room through solutions like those made by Vue.ai.
Digital tools can be used to improve in-store experiences, and physical assets can help to expand opportunities in quick commerce, the report states. Those who use digital technology in a store are likely to spend up to four times longer shopping, the report states. It's a big reason why retailers are making big moves to scale software teams and invest in startups.
Brands and retailers can bring together digital tools and analytics to more fully integrate technology offerings. This will be a top-five priority for more than 60% of executives in the coming years, the report states. It's why Levi's Chief AI Officer Katia Walsh is thinking across the organization as she considers uses for machine learning.
Tracking software and data will power sustainability initiatives, enabling a better understanding of product lifecycles. More than 50% of fashion decisionmakers believe this will be a top-five enabler to reduce emissions in their supply chains, the report states.
We're already seeing an example of this from Higg, a startup that just raised $50 million to expand tools for sustainability measurement that the company says already have 50,000 brand and manufacturer users.
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Macy’s CEO Jeff Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.