In the fashion industry, innovation sells. But it’s not the sort of innovation that most people might expect.
For the wider public, innovation means technical innovation – new materials, new applications of existing technologies and the like. Gortex and Velcro, for instance, were major examples that have since entered the language. People particularly expect to see technical innovation in sporting goods. But Pictet Asset Management Thematic Advisory Board members argue that there’s not actually very much technological innovation in the sector, and what there is is expensive and not that differentiating. Instead, the real innovation is in design and, particularly, marketing and distribution.
The difficulty for firms at the top end of sports footwear and clothing – which one would expect to be at the cutting edge of innovation – is that the products are expensive and not particularly differentiated. Recent waves in technical innovation have focused on the environmental performance of materials and components, but this has not been a decisive success factor. Such ESG aspects have shown limited consumer appeal and have had a limited impact on economic performance.
The lack of true technological innovation means companies have to innovate elsewhere. Getting the market strategy right then becomes critical – which is to say optimising the combination of function and style and then marketing and selling it effectively.
Success is driven more by anticipating fashion trends and leveraging creativity. Striking the right balance between function and style is particularly important. Another success factor is employing the right go-to-market strategy to engage consumers. Finally, excellence in operations is critical.
Here, Chinese companies have an advantage. Their operations strategy, with short supply chains and low stock levels, is an advantage, allowing them to respond to shifts in taste and demand much more quickly than Western companies, which tend to hold excess stocks. Chinese enterprises understand that what consumers are looking for isn’t necessarily a technological big bang, but, rather, just something new. For established sports brands, the cost of that renewal can be staggeringly expensive because consumers expect it to come with new materials and performance-enhancing designs. But sometimes it can just be a matter of looking backwards – as in the case of Adidas, with its retro-inspired Samba shoe.
Innovation, in the eye of the consumer, is simply offering something new. Perceived newness makes a brand attractive, in particular in China and Korea where consumers are obsessed with newness. This is enabling smaller, newer brands to attack the market position of incumbent brands simply based on the newness factor.
The lack of technological innovation leaves scope for second-tier brands to gain a foothold by focusing on marketing and design or, at the other end of the scale, for personalised equipment, tailored to customers’ specific needs and preferences. Chinese consumers in particular are increasingly prioritising quality, functionality and technical innovation, when it’s available. Brands can potentially meet these needs by applying new technologies such as AI, 3D visualisation, 3D printing and human body database construction.
Where there’s been innovation during the past couple of decades has been in distribution platforms, and this landscape continues to evolve. However, some business models are struggling. For instance, multi-brand platforms that act as retailers with extensive stock, have struggled following the Covid era as consumers have re-discovered physical stores and, at the same time, have made aggressive use of returns policies. Premium brand products have some 50 per cent customer returns, in part because of influencer-driven impulse sales, or because people buy several – for instance – expensive bags to compare at home before deciding. At the same time, platforms’ costs have risen substantially, not least the sophistication of presentation, marketing costs and paying to place as high up as possible in search algorithms. Very soon, this business model becomes unviable.
One way around is where a platform has exclusive relationships with the brands. This exclusivity allows them to boost margins. Some platforms also sell their own branded products, which allows them to keep the total margin of the goods.
For all the talk of innovation in premium brands, most of it doesn’t involve cutting edge tech. Instead, it’s in marketing and being responsive to shifts in customer preference in fashion and in how they shop.
