The Key Trends Driving the Fashion Industry to Get *Connected*
A mix of regulatory pressure and consumer trends are propelling this industry shift
In the last edition of this letter, I introduced the concept of Connected fashion — explaining what it is, exploring potential use cases, and envisioning what a Connected future could look like. If you missed it, catch up here.
To many, a Connected future may seem very far off. Industry insiders, however, know that isn’t the case. A confluence of regulatory shifts, consumer demands, and other industry trends are brewing the perfect storm for technological innovation in an industry that is often lamented as the most stagnant on the planet (unless you consider Shein to be truly innovative, of course).
But what could persuade an industry, notorious for producing 97 million tons of waste annually, relying on crude oil for synthetic fibers, unveiling new runway collections twice yearly (and a year in advance), and barely keeping up with social media trends (let alone adopting “advanced” technology like virtual try-ons) to … start embedding NFC chips in garments and get Connected?
As in many such instances, it’s a combination of sheer necessity (read: desperation, think: soaring customer acquisition costs and an ever-widening gap between brands and consumers), mixed with a sprinkle of regulatory pressure, that is propelling both the fashion and beauty industries towards this inevitable change.
Below, I’ve expanded on the key trends driving us towards a Connected future.
The European Commission is Making ‘Connected’ Fashion Mandatory as Early as 2026
I will keep yelling into the black hole that is X about this forthcoming regulation because it’s not getting nearly enough airtime otherwise.
The tl;dr is that new regulation from the European Commission mandates a ‘Digital Product Passport’ for all fashion goods as early as 2026.
The legislation, which has been provisionally approved and is already in pilot stages with leading fashion brands, aims to offer consumers transparent insights into sustainability and supply-chain practices. The data, including materials, garment workers, and more, must be accessible through a ‘data carrier’ on the products themselves — typically an NFC chip or QR code.
This move will see all fashion products becoming Connected by 2027. But that’s just the tip of the iceberg in terms of industry momentum towards this shift.
Customer Acquisition Costs Have Increased by 222% Over the Past 8 Years
Read that again. The cost of acquiring new customers has sky-rocketed an astonishing 222% — cutting into even the most robust of contribution margins.
This surge has been driven by a mix of factors, including increased competition on social media platforms as well as market dominance of Facebook Ads, for instance. However, nothing has had quite such an effect as Apple’s privacy crackdown in 2017, which has made consumer ad targeting far less precise and far more expensive. Double whammy.
Thus, Community Engagement and Retention Are More Important Than Ever
In light of these rising costs, brands have shifted their focus from chasing new customers to retaining their existing ones — and for good reason:
Repeat customers are 3x more likely to make a purchase
And spend up to 67% more when they do
It’s 5-10x more expensive to acquire a new customer than sell to an existing one
While existing customers are 50% more likely to try new products
Whoever rebranded this as ‘community engagement’ deserves a medal.
Targeting, attributing, and engaging a community is made exponentially easier when a brand is able to effortlessly target their existing consumers via the products they sell them. This is precisely the future that Connected products unlock.
Increasingly Sophisticated Counterfeits Pose Continued Threats to the Luxury & Resale Markets
With the resale market set to outperform the primary clothing retail sector by 9x over the next 3 years, counterfeits remain a massive burden on the industry - to the tune of $500B in 2022, to be precise.
Manual authentication of secondhand goods is costly, labour-intensive and fraught with error, leading to razor-thin margins in the (already challenging) secondary market (not to mention fraudulent products that slip through the cracks).
Connected products offer a seamless solution by enabling straightforward authentication with just a tap of an NFC chip, thereby streamlining the resale process and ensuring product authenticity.
Finally… The Girls Just Want to Buy From Their Friends
This is the new Peer-to-Peer (P2P) economy. The data on Gen-Z purchasing habits are clear:
82% say peer recommendations are central to buying decisions
81% rated their friends as a top purchase influence
63% of product discovery for Gen-Z happens on socials
These trends are fueling the explosive growth of the social commerce market, projected to expand at a 48.6% CAGR through 2030, with the P2P segment gaining more increasingly more market share year over year. Let the girlies buy from their friends!
NFC chips/Digital IDs (IRL) and Digital Twins (URL) unlock a new era of social commerce, whereby consumers can purchase any Connected good ‘via’ their friends, with curators receiving revenue share in return. This is a fun example!
The Fashion Industry is Getting Connected
As these trend drivers converge, it’s clear why a recent report by the Business of Fashion & McKinsey named NFC chips as a ‘core technology’ for the fashion industry between 2019-2025.
The industry is steadily moving towards being fully Connected, unlocking unprecedented opportunities for supply-chain transparency, better brand-community engagement, and new era of social commerce. The Connected future is just more fun.
We’re building for that future at TATA Bazaar. :)
Really great article! Would you mind sharing the source for the 222% Acquisition Costs increase?
Thanks Aleks… wonderful writing