This article was written in partnership with J.P. Morgan Payments. To receive the Vogue Business newsletter, sign up here.
Over the past two decades, the luxury fashion industry has been transformed by personalisation, and many brands are seeing just how powerful a tailored online retail offering can be for the customer experience. Almost every fashion retailer now collects data on its customers to personalise marketing materials or homepages, and many are forging even further ahead with exciting innovations.
2023 saw brands experimenting with AI chatbots to deliver hyper-specific product recommendations; rolling out 3D styling technology; integrating blockchain into customer loyalty accounts; and making investments in technology to help customers pick clothing of the right size and fit.
This has all happened as the fashion industry increases its focus on sustainability, which many shoppers now expect brands to be addressing by default. According to the latest Vogue Business Index, the majority of luxury consumers worldwide check the sustainability credentials of brands before they shop. That is particularly true of younger shoppers, applying to 65 per cent of under-35s.
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However, while some retailers are demonstrating clear efforts towards sustainable practices, others need to consider boosting their efforts in sustainability by making the most of the fast evolution in personalisation and having the right payment solutions in place.
“Ethical commerce is growing in importance. When someone buys something, they want to know what the origin story is — did it come from the right resources? Did people along the way get a fair share of the value created?” says Adit Gadgil, global co-head of e-commerce and technology, media and telecoms at J.P. Morgan Payments.
Circular payment solutions
One of fashion’s major sustainability challenges is the excess waste created during production. Less than a quarter of the 5.2 million tonnes of clothing waste generated each year in Europe ends up being recycled, according to the European Commission.
A growing zero-waste movement has found favour among consumers and legislators. European lawmakers have set out “extended producer responsibility” rules on textiles, which, if enacted, would mean producers covering some of the costs of managing textile waste. Similar laws on packaging have come into force in multiple US jurisdictions.
The circular economy approach — which for fashion includes rental, resale and repair in an effort to extend the lifecycle of products — is widely viewed as a major part of the solution to textile waste.
One-fifth of luxury fashion brands operate a direct resale service for previously used products, according to the latest Vogue Business Index, while partnerships with dedicated secondhand marketplaces, including Rent the Runway, Ebay and Vestiaire Collective, have also become commonplace.
“Consumers want to see brands move beyond the surface level of a ‘circular’ offering and not only expand towards an ecosystem of offerings but also embrace ‘circularity’ as a way of life in their operations,” says Lucia Li, global payments advisory, consumer goods and retail at J.P. Morgan Payments.
In practice, even though circular models typically come with some added complexity, brands need to ensure the customer journey remains smooth and the payment process simple. Clothing rental, for example, might work based on a regular subscription payment that varies month-to-month based on usage.
Retailers looking to launch a resale platform could also consider launching a digital wallet at the same time. Consumers submitting pre-loved goods to the platform would be rewarded with funds delivered directly to their digital wallet. This would mean it would be easier for consumers selling pre-loved goods on the platform to then spend that same money on the platform, keeping it within the brand’s ecosystem. In turn, funds can then “become a lever that the C-suite, business lines and functional leaders across an organisation can use to help with their respective objectives”, Li says, to help achieve sustainability goals. And brands should remember to communicate this back to consumers, who have had a hand in creating that positive impact.
Using the data from personalisation
The importance of data to luxury fashion brands has never been clearer. Hugo Boss recently set aims to become a “tech-driven fashion platform” for millennials and Gen Z, including the construction of a €15 million data campus in Portugal and big push into data science and, in turn, personalisation and insights. The insights that personalisation has provided as brands scale up their digital operations mean that some are even realising their remit now extends beyond clothing alone. For example, H&M CTO Alan Boehme was recently reported saying the brand “will move from being a fashion company to becoming a data company”.
A crackdown on cookie collection by leading tech companies and legislators has reduced the volume of data that marketers are able to buy from third parties. Data gathered through the direct interactions a consumer has with a brand has therefore become significantly more important.
The potential power of this data is sizable. Data around purchasing can help brands understand popularity in certain markets and what this might mean in terms of the inventory or raw materials they need.
These types of insights, combined with a strong payments system, help brands to get closer to achieving both financial and environmental goals. For example, a payments provider can manage foreign currency exposures when a brand decides to alter its supply chain after insights from personalisation show that consumers are more willing to buy clothes using recycled materials.
If there are several manufacturers that could supply those products, then a payments provider might also be able to tailor remittances so that the suppliers that behave the most sustainably are suitably rewarded, encouraging others to improve their operations.
These capabilities are likely to advance even further with the fast development of artificial intelligence (AI) and machine learning (ML). In addition to customer insights, these technologies can assist with many different elements of a retail business. These include fraud prevention, cash-flow management, personalised payment options, like instalment plans and biometric payments.
“Retailers adopting these technologies gain a competitive edge and show their commitment to a seamless and secure shopping experience, making the future of retail payments biometric, personal, and AI/ML-powered,” says Ebby Abdul, executive director, applied AI / ML at J.P. Morgan Payments.
Sustainable payments innovation
Gen Z has been a driving force in pushing the fashion industry to think more about the sustainability of their product offerings. Sportswear brand Puma has even gone as far as to invite representatives from the age bracket (commonly said to be those born between 1995 and 2012) to spend a year reviewing its supply chain and sustainability strategies.
While Gen Z is a generation that stands out for a commitment to the climate, this cohort is also notably price-sensitive and keen to follow fashion trends. Research shows that younger consumers will pay a price premium for sustainability, but there is a clear limit to how much extra they are willing to spend.
One payment innovation that has gained traction in recent years and might help with this problem is buy-now, pay-later. The latest Vogue Business Index shows that most luxury fashion brands now offer this as a checkout option. It could be an attractive option for younger consumers put off by the high up-front price of environmentally-friendly items, allowing them to break payments down into smaller instalments. Li says this is particularly relevant given the economic conditions expected in 2024 and persistently lower-than-average levels of consumer confidence. “It reduces another friction for consumers to decide to purchase sustainably,” she says.
Chinese payment platform Alipay demonstrated another way to infuse payments with sustainable values through its Ant Forest campaign. Users were invited to log whether they had made environmentally friendly lifestyle choices within their day-to-day spending, such as taking public transport to work or rejecting disposable utensils when ordering food online.
Each action taken helped the user grow a digital tree, which, when fully grown, would lead to a real tree being planted or alternative conservation steps being taken by the company. Ant Forest and its NGO partners have planted around 122 million trees in China through the campaign, which won the UN Champions of the Earth award in 2019.
Digital wallets like Alipay also offer the added benefits of encouraging paperless receipts, reducing plastic usage and creating a data trail that can help brands understand their consumers more deeply. Just like Alipay, these wallets could be used to assess the sustainable buying behaviours that consumers are open to and even offer rewards to those who choose rental, resale or repair.
As Petra Gillis, EMEA solutions lead, consumer goods and retail at J.P. Morgan Payments, explains: “If in addition to [a] seamless carbon-friendly payment experience, you equally feel good about the sustainability choices you have made, it will likely encourage you to come back making more sustainable purchases aligned with your eco-conscious values.”
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