00:00:07 Importance of technology in the fashion industry.
00:00:35 Jan Wilmking’s background in management consulting and fashion.
00:02:58 Low adoption of technology in the fashion industry.
00:04:46 Challenges with traditional enterprise software in fashion.
00:07:30 Overstock issue and waste in the fashion industry.
00:10:06 The hit or miss phenomenon in the fashion industry.
00:12:01 Embracing risk and quantitative trading in fashion.
00:13:09 Challenges in adopting modern forecasting methods.
00:15:22 Using technology to support improvements in the fashion industry.
00:17:25 How technology can free up people from repetitive work in the fashion industry.
00:19:28 Addressing various challenges and problems in the fashion industry.
00:22:58 Innovations and transformations in fashion, such as agile supply chains and virtual garment creation.
00:24:30 Closing remarks.
Summary
In this Lokad TV episode, host Kieran Chandler interviews Jan Wilmking, ex-SVP of Private Brands at Zalando, and Joannes Vermorel, Lokad’s founder, about technology in the fashion industry. Wilmking emphasizes his passion for fashion’s mix of data-driven elements and artistic aspects. They agree on the need for technology to tackle issues like waste, consumer preferences, and production processes. Overstock and waste are major problems due to poor planning systems and misaligned incentives. Wilmking and Vermorel suggest improving forecasting and supply chain management with technology. They also discuss balancing technology and traditional practices while addressing bureaucracy and “empty suits” in the industry. Wilmking anticipates platforms connecting producers and brands, increasing data transparency, and virtual garment creation.
Extended Summary
In this episode of Lokad TV, host Kieran Chandler interviews Jan Wilmking, former Senior Vice President of Private Brands for Zalando, and Joannes Vermorel, the founder of Lokad, to discuss the current state of technology in the fashion industry and its future prospects.
Wilmking shares his background in management consulting, working at McKinsey with a focus on consumer goods and retail. He explains his passion for the fashion industry due to the combination of rational processes and data-driven elements with artisanal and artistic aspects. Wilmking also highlights his experience in scaling Zalando’s private label business.
Vermorel notes that, in general, fashion brands have been slow to adopt technology, with most advancements coming from e-commerce leaders such as Zalando, Veepee, and Zappos. Despite the fashion industry being worth trillions of dollars, it remains largely fragmented and artisanal, relying on relationships and experience. Both Wilmking and Vermorel argue that there is a growing need for technology to address issues such as waste, consumer preferences, and production processes.
The fashion industry has not fully embraced technology due to the inadequacy of existing enterprise software solutions, which often do not cater to the unique needs of fashion. Traditional software systems, designed for long-lived FMCG products, struggle to capture the seasonality and substitution patterns common in fashion. As a result, many fashion companies resort to using Excel spreadsheets for planning, finding them to be a more rational and common-sense-based approach compared to ill-suited enterprise software.
Overstock and waste are identified as major problems in the fashion industry, primarily due to poor planning systems and misaligned incentives. The guests discuss the reluctance of brands and retailers to address overstock, as admitting to it may reveal inefficiencies within their organization. The need for better technology to optimize forecasting, reduce waste, and improve supply chain management is emphasized as a crucial factor for the future of fashion technology.
Wilmking highlights that brands and producers have no incentive to talk about overstock, as it implies that consumers do not love their products or that they are producing too much. However, the output of the fashion industry is estimated to be around 150 billion pieces per year, with 20-30% of that production never reaching consumers. This results in a massive waste of materials, working time, profits, and CO2 emissions. Wilmking argues that consumption will be difficult to curb, especially in emerging middle-class countries, so more accurate forecasting and flexible supply chains are needed to avoid overstock.
Vermorel notes that the fashion industry, like other cultural products, is subject to a hit-or-miss phenomenon. To capture the risks involved, more advanced technology is required, such as dealing with probabilities rather than just providing a single number forecast. To avoid overstock, the fashion industry needs to embrace risk, as finance has done for decades. However, most fashion brands do not have the technical expertise to execute this vision.
Wilmking suggests that one of the solutions to the overstock problem is to improve forecasting approaches and gain a better understanding of how much stock is needed. However, this is challenging because individuals working in the fashion industry have typically risen through the ranks using traditional methods like Excel and have developed certain rituals for planning and reviewing seasons. Introducing new technology and ways of working can be disruptive and may require a change in identity and sources of pride.
According to Wilmking, the biggest challenge in adopting technology in the fashion industry is finding ways to position it as a support that gives more freedom for individuals to excel in their areas of expertise. The fashion industry has many manual processes, such as sketching designs, sending physical samples, and fitting models, which could be disrupted by new technologies. However, there is a beauty in these rituals, and finding a balance between technology and traditional practices will be crucial in addressing the overstock issue.
Vermorel suggests that there is a significant amount of bureaucracy in the industry, with many employees acting as “cogs in the machine” rather than providing innovative contributions. He believes that many of these tasks could be automated, freeing up employees to focus on more interesting and valuable work. Vermorel refers to Nassim Taleb’s concept of “empty suits” to describe people whose jobs lack substance and could potentially be replaced by technology.
Wilmking adds that while there has been some degree of digitalization in the front end of the fashion industry, such as in advertising and marketing, the back end (supply chain and production) is lagging behind. He sees tremendous value in digitalizing the back end, as it would save time and improve efficiency.
In response to Chandler’s question about prioritizing which problems to tackle first, Vermorel says that companies should focus on issues that have the most significant impact. One example he gives is the transition from brick-and-mortar stores to online sales, which has not led to a corresponding decrease in physical retail spaces. He also highlights the issue of high average discounts offered by many brands, which can lead to wide fluctuations in product value throughout the year.
Another problem Vermorel mentions is the lack of stock rebalancing, where unsold products are either destroyed or liquidated at a massive discount. He expresses surprise that more agile solutions for managing inventory are not yet widespread in the industry.
When asked about the most exciting innovations and transformations in the fashion industry, Wilmking shares his enthusiasm for the “kitchen,” or the supply chain aspect. He predicts the rise of platforms that connect producers and brands, providing data transparency and allowing for better decision-making. He also mentions the shift from physical to virtual creation, with companies like Brows Wear and Clo 3D developing tools to create realistic garments digitally.
The discussion highlights the potential for technology to revolutionize various aspects of the fashion industry, from supply chain management to product creation. By addressing these areas, companies can improve efficiency, reduce waste, and create more value for consumers.
Full Transcript
Kieran Chandler: Today on Lokad TV, we’re delighted to be joined by Jan Wilmking who’s going to tell us a little bit more about why this is changing and what we can expect from the future of fashion tech. So, Jan, thanks very much for joining us today. Perhaps to start off, you could just tell us a little bit more about your background.
Jan Wilmking: Yes, sure. I have a background in management consulting, so I worked for McKinsey for quite a while and was doing work in consumer goods and retail. My last projects and a number of projects were in fashion, and I really liked that industry because it’s a combination of very rational processes and a lot of data on one hand, but on the other hand, it’s very artisanal, very artistic, and it’s really where the rubber hits the road when the two meet. That’s where I find a lot of enjoyment. So I started getting more into the fashion thing, did my MBA, returned to McKinsey, and later on went to Rocket and then joined Zalando. I was with Zalando for around about six years, responsible for running the private label business of Zalando. In that case, we scaled from about 200 million to more than half a billion and massively increased the SKU counts, growing to more than 15,000 options on stock every season. So, quite interesting times. And I’m happy to be here.
Kieran Chandler: Great, and today our topic is all about the future of fashion technology. Joannes, what’s your approach and how do you view the fashion industry’s current approach to technology?
Joannes Vermorel: My casual observation is that most fashion brands are still doing very little compared to other verticals. Some people are getting it right, mostly in e-commerce. You have the e-commerce leaders that are driving these sorts of things with tech, like Zalando in Germany, Veepee in France, and other leaders in other countries, like Zappos in the US before being acquired by Amazon. But although I would say there are a few digital leaders, most companies are still doing little. That’s my perception.
Kieran Chandler: Jan, Joannes mentioned the idea of combining fashion with technology. From your perspective, why do you think that rationale is so important?
Jan Wilmking: Well, I think even independent of one single company, it’s very important. Joannes also mentioned the sheer size of the industry and the low degree of technology there. Fashion is one of the largest industries on this planet, a trillion-dollar industry, and it’s highly fragmented. It’s very artisanal, very much relationship-based, very much experience-based, and we have done it the last 20 years like that, so why should we change? It still kind of works. Now, I think my observation is that people are getting a little bit uneasy about the level of waste that is created by fashion. In my observation, it can only be tackled by changing ways of working in the fashion industry, and the technology angle is something that has to come in because only then can we actually tackle two things. The first thing is to better understand and anticipate what consumers actually want, which is currently, in most cases, still a backward-looking Excel kind of magic with a lot of gut feel and executive decision-making. At the same time, you have crazy companies like Google, Amazon
Kieran Chandler: Out there when it comes to the use of data, on the other hand, we have the whole, should we call it, quote-unquote, the “kitchen of fashion”, the whole production side, the topic of design, the topic of creating products, physical products which are also very, very artisanal, which is very manual in many cases. I mean, literally 99.5% of everything that we wear, that’s in the market, is made by humans that have to learn recipes. So the technologies that we have in our pockets have not arrived in the value chain yet, and I think that’s something that’s going to happen. Yeah, I need people for that. And Jan, you mentioned it’s a trillion-dollar industry. I mean, the money is obviously there, so why do you think there’s such a hesitant tendency to kind of invest in technology?
Jan Wilmking: The interesting thing was the enterprise vendor, you know, the classic enterprise vendors like SAP to name one. The mental model that they tried to project to fashion was completely inadequate. I mean, you literally ended up with enterprise software that was from the perspective of, I would say, long-lived FMCG products where you expect many things are supposed to be like a given. First, your system expects that you have products that are going to live literally multiple years so that you can capture seasonality. But in fashion, that’s kind of tough. You very rarely have a product that has five years’ worth of history in fashion, maybe for underwear, but otherwise, it’s rare.
Again, if you look at products, you have everything as a substitute. I mean, given that you have the right size, obviously, you can choose pants that are black, dark grey, dark brown, this fabric, that fabric. I mean, it’s all possible. So again, if you apply enterprise pieces of software that were designed for entirely different industries, and that’s what I believe has been happening, a lot of fashion apps in a lot of companies are using systems that are completely driven by time series forecasts that are completely inadequate, that are driven by the fact that if you double the number of products, the demand forecast would actually double, which is kind of super bizarre because you’d think that because you have twice as many products, you’re going to sell twice as much. But you have safety stocks, and again, other supply chain recipes that just don’t really work for fashion, etcetera.
So I believe that all of that put together has created a small series of catastrophes, where people have literally decided that Excel was safer. And it’s not because people are using Excel because they are dumb; from my perspective, it’s just because, let’s be honest, the most classical enterprise software is just so inadequate that it’s a very rational, intelligent decision to go back to an Excel spreadsheet that, even if it’s very crude, it is at least roughly aligned to common sense, which is a starting point and which is very good.
Kieran Chandler: Yeah, and you kind of mentioned that it’s an industry where you see a lot of wastage, and that results in a lot of overstock. I mean, why is that such an issue for the industry?
Jan Wilmking: First of all, I think it’s a dirty secret of the industry because not so many people really want to talk about it, and the incentives are actually misaligned. Why would you ever talk about overstock, right? If you are a retailer or a brand and you’re producing way too much, what are the reasons why you produce too much? Number one is either your planning systems are completely bad,
Kieran Chandler: Systems are completely bad, and your people in the merchandising department are not smart, so you don’t have a good team. Option number one: you have a very good plan and your product was great, but the consumers don’t love you. And I mean, who would love to say consumers don’t love me? You’re a fashion man; you should be able to touch exactly what the consumer wants and provide exactly that. So brands have no incentive whatsoever to talk about overstock.
Jan Wilmking: Secondly, producers, would they ever talk about overstock? Also not, because they are basically paid by the piece. So the more that is produced, the more they can make money. So why would they ever say, “Hey, I want to produce less. It’s bad for the environment if I produce more.” So also, no incentive. At the same time, pressure has gone up in media, and we’ve seen now more and more coverage on the topic of overstock.
A couple of numbers here, and I didn’t invent them; it’s what you can get from various statistics out there. The output of the fashion industry today is estimated at about 150 billion pieces produced every year for an Earth population of around 8 billion. So that means 18 to 20 pieces per person on the planet, and that’s just garments. That’s not including shoes, accessories, sunglasses, and all that kind of stuff. So a massive amount of product is being produced, and at the same time, we know that around 20 to 30 percent of that production is never reaching a consumer. It’s never being sold because it sits in the wrong store, because it is maybe not matching the taste, or maybe there’s a quality problem, whatever it is.
20 to 30 percent, and if you multiply the one with the other, then you get to a shocking amount of clothing, like a pile of clothing of around 30 billion pieces that are just going to waste straight away. Which means there’s a lot of waste of materials, a lot of waste of working time, a lot of waste of profits for the companies, and a huge number of emissions of CO2, but also like basically materials that have to go into landfill, which is massive. And I’m pretty sure that this can’t go on like this.
So now, what are the solutions to that? People are now saying we need to recycle more, we need to reuse more, or just buy less. And my perspective is it’s going to be very hard to force a world of an emerging middle class income in places like Southeast Asia and Latin America to basically say, “Oh, sorry, you’re not allowed to consume. The Western world was able to do it, but you’re not allowed to do it.” And I think consumption will be very hard to be curbed. So we need to really think smart about how to better forecast and how to be more flexible in our supply chain so that we can avoid a lot of that overstock.
Kieran Chandler: Yeah, I mean, some really shocking numbers there. And we’ve spoken about it before, the way in dealing with all this overstock is that retailers have sales and massive price slashing. Does it make sense for prices to fluctuate that much?
Joannes Vermorel: One of the things is that, back to technology, we have this phenomenon where, and I think Jan is very insightful, but very interesting what you say: you launch a product, and the market doesn’t love you. And it turns out that, for me, it’s a very statistically known hit or miss phenomenon. You have that for movies, for songs
Kieran Chandler: I believe all cultural products suffer to some degree in fashion as well. I mean, stock cultural products have the same pattern, and you need a way to be able to capture quantitatively the risks that you’re taking. What I see is that it’s very difficult in terms of technology. It’s not easy; you need to deal with things like probabilities. It’s not your average forecast where you just give a number and say this is it. So, the fashion industry has also been kind of late to adopt technology because their technological requirements to have anything that can replicate human intuition in this area are more difficult to execute. Thus, if you want to be able to estimate and do risk estimation instead of just saying we don’t take risk, we go for a very high service level and we are going to be fine, you know that’s how you end up with overstock. You just say we don’t take the risk of not having the goods, thus we overshoot all the time and end up with large sales and overstock. But if you want to avoid this situation, you need to embrace the risk, which finance has been doing for decades, but it becomes very technical in an industry where most fashion brands don’t have anybody who looks like a quantitative trader in terms of profile. So, it’s very difficult to execute this sort of vision.
Jan Wilmking: You mentioned one of the solutions to solving the overstock problem was to improve approaches to forecasting and improve the understanding of how much stock you actually need. How do you go about instilling that more modern, sophisticated approach?
Joannes Vermorel: It’s actually very hard because, typically, in very successful fashion companies like Inditex and Next in the UK, you have people who have risen through the ranks from an assistant buyer to buyer, to senior buyer, and eventually leading a category of products. They have lived in a world of Excel for most of the cases and have very clear recipes and rituals of how to go through a season and plan a season. It’s very hard to just suddenly say, “Okay, there might be better ways to do it, and why don’t we use technology in a different way?” Think about designing fashion right now. It’s still a lot manual; it’s about touching and feeling a piece of fabric, creating a sample based on a sketch, and sending the sketch to a Chinese supplier that sends a physical sample to your office. When you’re lucky, you get it in two to three weeks, and you make a decision or not. All these things will be disrupted by new technologies, but there’s also a beauty in these rituals. It’s learned, and it’s a reason for being. For example, a fit session or a season review, but if I had a perfect dynamic plan, why would I need to do a season review? I can look at my dashboard, and there’s my season review. You don’t need to have 50 people doing a crazy Excel pyramid to come up with a magic number. It’s a lot about changing identity and changing sources of pride. The biggest topic about technology adoption in fashion is finding ways to position technology as support that gives you more freedom to be better in where your real value can be provided.
Kieran Chandler: The concept of using technology as a support is really interesting. Other than the overstock issue we’ve already discussed, what are the other areas you can see for improvement where we can use technology to support?
Joannes Vermorel: Whenever you have people that look a bit like a broker, it probably is to some extent. I mean, are those people truly delivering added value with their human capabilities? Are they doing inventive work? I would say, do they do something where you would say it’s not just cogs in the machine but doing things that we have no hope whatsoever to actually do with a machine? Now, with a much casual observation, that’s frequently a portion of bureaucracy. When you try to look at it coldly, yes, they are white-collar workers, but they are actually blue-collar workers in the guise of the IT system. By the way, I believe this is also kind of depressing because it means that the job they do on a daily basis is not interesting. I mean, do you want to do your entire career manually defining budgets line by line for dozens of categories and revising that on a monthly basis? It’s such an empty job.
Jan Wilmking: Nassim Taleb has the keyword “empty suits” for that. The point is, there are so many problems to be solved in any fashion and retail company, and there are not so many people of really high caliber who want to work there. They could go to Google, Facebook, or investment banks. Why would a top software developer go to a retail company if they can make much more money working in finance? But, ultimately, this is a case that needs to be very similar. Technology will help people free up from repetitive work that always has to be done and focus on the more interesting stuff, like moving from the front end side, where we’ve seen a fair degree of digitalization already. Think about the move from scattered advertising in fashion to now performance marketing that has been done right. Retargeting, highly efficient stuff has been done, very interesting. I believe that the whole back end of fashion is the next thing that will become very much digital. There’s tremendous value, and there’s tremendous time that can be saved.
I have a hope because we all have cell phones in our pockets already, and we use them to go from A to B. We are not even asking the question if we want to use that technology to optimize our own personal lives. I see a huge gap in what we use in the fashion industry as tooling for industry professionals versus what we use at home, like streaming media, navigation, and using technology to make better and more efficient life decisions. I believe that this gap is going to be filled because now, I think people have understood that technology can provide tremendous value. But again, it’s a slow process.
Kieran Chandler: You both mentioned there are so many different problems, and how do we prioritize which is the best problem to attack?
Joannes Vermorel: Naturally, you prioritize the problems where Lokad is most relevant. That’s my completely unbiased opinion on the question. No, I think that depending on the company, there are things that are very obvious. For example, let’s take a classical fashion brand that has its own retail network. A very large portion of the market has already moved online, and yet the footprint of those physical retail networks has barely started to diminish, especially in Western Europe.
Kieran Chandler: So, Jan, I’m curious to hear your thoughts on the current state of the e-commerce industry.
Jan Wilmking: Well, they were 20 years ago, I mean, yes, the population has increased marginally by three percent, but mostly it’s stable. So obviously, it begs the question, will you still have like 30 percent yearly growth on e-commerce forever without having any counterpart of diminishing footprint for the physical network? That’s maybe one elephant.
Joannes Vermorel: Another elephant is that I’ve seen many brands where the average discount given to customers is just staggering. I mean, for many brands, especially those that are not in the soft luxury spectrum, we are talking of over, I would say, over forty percent, an average discount given over on a yearly basis. So that’s huge. It means that, depending on whether you’re buying a piece one day or another, because if you want to have like forty percent average, it means that you need to have a lot of people who buy at minus fifty or may even be in minus sixty percent discount. So depending on the day of the year, one product will be worth either one euro or 40 euros. And my perception is that it’s very bizarre. The only area where I would expect to assist in those enormous fluctuations, I would say, would be something like Bitcoin, you know, something that is completely irrational that can fluctuate widely for no reason whatsoever.
Jan Wilmking: Also, the fact that right now, again, that’s a quick survey on most of our customer base and the brands we are discussing, rebalancing stock is very non-existent. So it means that you still have this pure forward mindset where things are going to be produced in maybe regional warehouses, national warehouses, and then stores. And if it doesn’t sell, then you just liquidate, destroy, or do something. But the idea that you could be more agile in just rebalancing to stock is almost non-existent, which is kind of a better project. I know that the economics of fashion make it very difficult, but still, it’s a bit surprising to think that.
Kieran Chandler: There are a lot of innovations and new technology coming into the fashion industry. What are those innovations and transformations that excite you the most for the future?
Joannes Vermorel: I personally am most excited about the supply chain. I believe that we will see the rise of supply chain platforms that are connecting producers and brands in more agile ways, creating data transparency about what is currently in production, and what’s coming up. This will ultimately help fashion companies make better choices about what to put in which stores or channels, and at what point in time. We are really missing that last bit, which I think will be a massive change.
Jan Wilmking: I agree with Joannes, and I think another area where we will see a lot of change is in the way stuff is being created. We’ll see a shift from physical creation to virtual creation. There are some very cool companies like Browzwear and CLO 3D, which are pushing the boundaries of creating tools for people to design realistic garments on their screens. I think this natural hesitation to say “I always need to touch and feel something” is going to move more into the virtual space. We’re at the very beginning of it, so I don’t expect it to be mainstream in the next two years, but I’m pretty sure that the digitization of the supply chain, as well as this whole topic of creating more digitally, will actually happen because it has happened in many other industries already.
Kieran Chandler: Thanks both for your time. That’s it for this week. Thanks very much for tuning in, and we’ll see you again in the next episode. Bye for now.
