The Role of Tech-Startups in the Fashion Retail Industry


Seminar Paper, 2019
16 Pages, Grade: 4.0

Excerpt

Table of Contents

Abstract

THE ROLE OF TECH-STARTUPS IN THE FASHION RETAIL INDUSTRY

INTRODUCTION
The Fashion Retail Industry
Statement of the Problem
Potential Solutions

AN ECONOMICS OF INNOVATION-RELATED DISCUSSION
Clusters and Networks
Networks Effects
Organization for Innovation
Consumers

HOW SIZING-TECHNOLOGY CAN IMPROVE THE RETURN RATE
Informal Literature Assessment
Identified Issues
Theoretical Framework
Definition of Hypothesis
Study
Data Collection
Methodology
Evaluation
Desired Outcome

CONCLUSIONS & RECOMMENDATIONS

References

Bibliography

Abstract

In this case study, the fashion retail industry its technological adaptability is analyzed in terms of which problems are going to be solved as well as how can startup help to solve the challenges the industry encounters. Through a newspaper article, the four major problems and potential solutions could be identified. A discussion about course-related content and the industry’s problems identified opportunities. The theoretical framework of research about return rates as the identified major problem in the fashion industry analyzes by evaluating the technological product of startups and how it really benefits the fashion brands and retailers.

THE ROLE OF TECH-STARTUPS IN THE FASHION RETAIL INDUSTRY

“Technology is one of the many factors that will continue to shape the way consumers connect and shop with retailers and brands”, according to Patrice Louvet, the chief executive from Ralph Lauren (Chin, M., 2018).

INTRODUCTION

The success of the fashion retail industry is based on dynamic market developments, trends, and ever-changing consumers and their preferences. These factors require constant launches of newness stated in colors and designs and, in today’s fast-developing and digitalized environment, adoptions of new and emerging technologies.

The Fashion Retail Industry

“It is well documented that the retail sector is in decline, so much so that in the US more stores (7,000) closed in 2017 than in any other year, beating even number (6,000), that closed during the financial crisis,” according to John Phillips, managing director EMEA at Zuora (Ingham, L., 2018). The revenue of fashion in-store retail has been declining since 2016 (Statista, 2019). While roughly 90 % of all sales still take place in stores in the United States, the e- commerce channel increases by double digits every year (Dennis, S., 2018). In 2018, the U.S. fashion e-retail generated revenue of 102.8 billion U.S. dollars and is projected to increase to 138.7 billion U.S. dollars in 2022 (Statista, 2019).

These numbers reflect the average and do not give a precise break down by product or brands. They are just plain numbers which, a.o., do not account for the fact that sales that were initiated in-store and made online. This being said is that in-store and e-commerce have to adopt technology and integrate it into their operating business. Both channels have a lock of doing so.

Statement of the Problem

Fashion brands and retailers encounter the challenge of technology integration. According to Seth Porges from Forbes, there are four major problems. The fashion and retail industry spend increasingly on social media and digital campaigns which are the biggest portion of their marketing strategies, but they reach fewer customers due to constant changes in the social media algorithm and organic search. Cart abandonment - at 75 % - and low conversion rates are further challenges which result due to a high diversity of products on the internet and a lack of social experience while shopping online. Only 2 % of online shoppers make purchases. Fashion brands and retailers struggle getting consumer’s attention online as they have 150 and plus ‘micro-moments’ daily. Another problem is the limited e-commerce platform, the retailers and brands are selling their products on (Proges, S., 2019).

Potential Solutions

The New York Fashion Tech Lab connects major brands and retailers to tech startups. The cooperation benefits both parties. Brands and retailers have access to cutting-edge technologies and recently developed ideas which they can examine and test in their stores. The tech startups have the opportunity to work with large brands and retailers and to test and improve their product in a real-world environment. This partnership can potentially help startups to grow.

The fashion retail industry faces four major trends: (1) user-generated content & augmented reality [AR], (2) improvement of online shopping efficiency, (3) interactive video and integration of influencer content within e-commerce apps, and (4) controllable and shoppable social media experience.

(1) User-generated content & augmented reality

“90 percent of the branded content that is being consumed is being produced by the consumer, and their user-generated content is being watched 10 times more often than expensively branded content” (Proges, S., 2019). Fuse.it converts existing branded videos by using augmented reality to user-generated videos. The platform gives the user the opportunity to perform with, a.o., a celebrity and share the experience with its followers. Hereby, Fuse.it turns the passive experience into an active memorable experience.

(2) Improvement of online shopping efficiency

Buy With moves the physical shopping experience to the internet. It adds a social layer on any e-commerce website which allows any customer to share its screen and chat to browse and shop with its family and friends to get their opinions, feedback, and approval. In addition, the service provides the brand and retailer with data about consumers’ shopping behavior.

(3) Interactive video and integration of influencer content within e-commerce apps

The Call List nurtures the customer’s relationship by enabling him/her to experience a one-to-one live interactive video call with a host who can be an influencer or artist and its entire audience. The service is a plug-in on a retailer or brand’s app. Brands can benefit in two ways a) generating revenue by charging admission or displaying products that can be bookmarked or added to the shopping cart, and b) publishing the video across social media channels to double the value of the invested production money.

(4) Controllable and shoppable social media experience

Jumper.AI is a social commerce tool that allows brands and retailers to sell directly from their social feed or through a chat box and provides a conversational buying experience. It is a back-end engine that manages products, orders, inventory, etc. The plug-in proactively interacts with customers that show interest in a product via commenting or clicking on a post on the social networks. The store benefits in two ways a) generating sales from social media or influencer campaigns, and b) getting data insights.

AN ECONOMICS OF INNOVATION-RELATED DISCUSSION

Over the past three months, the course ‘Economics of Innovations’ has been taught at the Harrisburg University of Science and Technology. It has introduced among others the sources and impact of innovation and technological change on the market structure, profit, economic growth, and sustained competitive advantage. In terms of the adoption of new technology in the fashion retail industry, it shows how it relates to the content the course has provided.

Clusters and Networks

According to New York City Economic Development Corporation, New York City has headquarters of more than 900 fashion companies (NYCEDC, 2015) and, according to Built in NYC, there are more than 140 fashion tech startups in New York City (Built in NYC, 2019). Strong clusters as New York’s fashion industry generate high levels of innovation and patenting. The New York Fashion Tech Lab is one example. Brands and retailers in New York benefit from the location in several ways. The high competition leads to high demand for innovations to keep up with the competitors. The huge population and the high average earned income per New Yorker are two major aspects to open a store in New York as well as to generate brand awareness. The city has a disproportional amount of store openings and new startups. Companies that are located in strong clusters often grow faster than the average. New York City is the largest retail market in the United States and generates $ 18 billion in annual retail sales and is projected to grow in the next years (NYCEDC, 2015).

Networks Effects

The direct network effects describe that the value of a product or service depends on the number of users. The impact of Fuse.it’s platform depends on the user of the brand or retailer as well as on the user’s followers. The more users actively produce videos with Fuse.it, the more brand awareness will be spread across the social media channels. In a time, Tik Tok, a video social media platform, is one of the most popular apps for Generation Z in the world, Fuse.it should have a promising future. Buy With too depends on its user base since the purpose of the app is to engage with friends and family members while doing shopping online. The company does not add any value to the brands and retailers if it cannot generate a certain number of users.

The indirect network effects describe that the value of a product or service depends on the number of complementary products. The number of complementary products often depends on the number of users. Startups such as Buy With or The Call List collect data about consumers’ shopping behavior. Brands and Retailers can adjust their assortments and the usability of their websites based on this data. The consumer benefits indirectly from the users on the website.

Today’s consumers do not necessarily make their purchase decisions based on price or quality. Their decisions also depend on the size of the network of others who use the same product. In case of Buy With, friends can speak in a recommendation of a product. Users who connected in a network and buy the same products as their friends and co-workers are called networker. As user start joining Buy With on a fashion website and get attracted to it, the more interesting it gets for their friends and even their friends and the brand or retailer gains attention. It results in a coordinated choice by users which finally leads to a competitive advantage. The fashion company that has built a network successfully and quickly will have a more attractive website to subsequent users.

The brands and retailers have to ensure that the implemented technology is already used by a large network, so users are willing to easily sign up on an app and to engage with the brand. If The Call List provides video calls with major influencers and their massive followerships, more users are willing to sign up on the service and to start looking through the products an influencer suggests. The positive feedback about a clothing piece from an influencer pushes sales.

The Call List can charge an admission fee to selected events. If a popular artist gives a series of events and charges an entry fee. The attending user is locked-in due to so-called switching costs. The user joins the events and the brands have a guarantee of a certain number of attendees which guarantee a certain percentage of purchases.

Organization for Innovation

The Forbes article by Serges Proges addresses the major problem of slow adoption of technology in the fashion industry which often is caused by the large organization structure the fashion brands operate in. Those large organizations are not designed to promote information- sharing or to well adapt creativity. Both are needed to do a radical innovation. Large companies including fashion companies tend to find radical innovations are disruptive or competence- destroying. That is the reason why large organizations as Neiman Marcus or Nordstrom have to rely on startups which bring together a new combination of competencies and invent new beneficial services. Startups do not encounter organizational structures or challenges. They are flexible and can easily develop radical innovation based on changes in the market and trends. Regardless, startups rely on large companies since they have the economies of scale, labor specialization, and incremental innovation that they cannot or hardly achieve.

Consumers

The four solutions presented in chapter 1 expect that consumers are being active in social media channels or at least are open to new features on a retailer’s website. The average person has 7.6 active social media accounts and 98 % or the American society have at least one social media account according to Marketing Tech (Hebblethwaite, C., 2017).

There are six different types of consumers. The fashion industry deals mainly with Veblen Consumer. This type of consumer is characterized by high activity in actual consumption, but he or she may be fairly passive in purchasing. The consumption is influenced by three groups a) peer group, b) distinction group, and c) aspiration group. The most interesting group for the brands and retailers is the peer group which the consumer wishes to share consumption activities and to associate. Besides influencers and artists, family and friends can be part of the peer group.

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Excerpt out of 16 pages

Details

Title
The Role of Tech-Startups in the Fashion Retail Industry
Grade
4.0
Author
Year
2019
Pages
16
Catalog Number
V505688
ISBN (eBook)
9783346070845
Language
English
Tags
role, tech-startups, fashion, retail, industry
Quote paper
Friederike Berg (Author), 2019, The Role of Tech-Startups in the Fashion Retail Industry, Munich, GRIN Verlag, https://www.grin.com/document/505688

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