How can artificial intelligence be used in the luxury retail sector?

I spoke previously about how the use of artificial intelligence (AI) and natural language processing (NLP) can be used in the fast fashion industry to optimize supply chain, automate logistical processes and minimize waste and pollution, this week I thought I'd address how similar AI algorithms can be used in luxury retail with high end brands.

Believe it or not, fast fashion and high-end luxury brands serve the same people. Buyers will often compare an inexpensive item they got from a cheaper brand to a higher end brand if they found the quality to be 'surprisingly' good or if it exceeded their expectations (given the low price point). Often times, the patterns and designs seen in high end pieces are often replicated in fast fashion at a more accessible price.

Besides the obvious high price point being a deterrent for majority of the population, the ever changing landscape of trends in today's world means that people are investing less in staple pieces and more in trendy ones that will become out of style in a matter of months. This means that before a consumer buys a $500 purse for example, not only are they wondering if it's worth it, but they will also be considering it's stylistic longevity: how long will this purse be in style? How many outfits will go with it? Will this purse remain relevant as my style evolves? Basically, is it a 'for now' piece or a staple? And if so, is it worth the hefty price tag?

There are 3… no 4 solutions to this dilemma:

  1. Bite the bullet and buy the bag

  2. Jump into the resale market and buy it second hand

  3. Jump into the counterfeit market and buy a fake online

  4. Search fast fashion sites to find a dupe

The counterfeit market is booming, which evidently can be a problem for high end brands. In 2019 it was reported that the total sale of knock-offs was around $1.75 trillion. Louis Vuitton, the world’s most valuable luxury brand, dedicates $17.5 million each year on anti-counterfeit legal action. Burberry currently uses an AI-empowered image-recognition technology to determine if a product is real or fake.

Using advanced AI-powered algorithms when it comes to supply chain management is synonymous to both fast fashion and high end retail. However, the latter has more to lose when it comes to stock optimization. To have too much stock in a specific item would cost Louis Vuitton more than that it would Forever21 for example. AI is also beneficial in brick and mortar stores to help in monitoring customer shopping behavior. By analyzing their sales and returns for a specific location, brands are able to get a better idea of what pieces customers enjoy and which have a high return rate. Knowing this, it is much easier to gage what items should be promoted better at the store and what product needs to be in stock at a specific location.

AI can also be used to understand where a physical store is needed most. Unsurprisingly, if buyers were to see an item that they really liked in front of them physically, they'd be more convinced to buy it in spite of the price. Luxury brands can take advantage of this by using location intelligence software to understand where resale of their products are high or even where counterfeit products are mostly shipped to. By placing a physical store in areas with these types of consumers, they'd have a better chance of attracting new buyers.

In this same vein, we saw 'digital Fashion Week' take off this year due to the Covid-19 pandemic. Brand were forced to get creative using both digital and real life models to show off their clothes for the new season using hyper realistic garments and animations to mimic a runway. This also spurred the wave of digital try-ons for customers, as a means to increase digital clothing sales and decrease e-commerce returns. (See: Gucci and John Lewis).

[Could this be what speeds up augmented reality (AR) clothing try-ons?!]

The leveraging of technology during Fashion Week allowed consumers to have a front-row seat on what's trendy and new, and also allowed them to filter what they are and aren't interested in. This all ties back to what I said about supply chain optimization - it's important for brands to keep up to date with market demands as a means to have up-to-date inventory. In a perfect world, what goes in will go out, thereby reducing the cost of goods sold (COGS) and limiting the waste from the unsold goods. When customers are able fully experience fashion week to get an idea of what they're interested in, then are able to actually try on the clothing items virtually without ever having to come to a physical location, what you have is a more immersive and targeted experience that would enhance customer experience, improve online sales (while decreasing returns) and strike a balance between supply (inventory) and demand (purchases). Of course the brands in question would have to find the balance between being accessible for new customers using emerging technology, while also upholding the allure and grandeur that surrounds their brand.