How AI is changing the Sustainability and Circularity in Fashion industry?

AI is on everyone’s lips and it has entered into many business strategies and visions in hopes for more productivity and process efficiencies. With all things happening in (generative) AI and industries it is impacting, how is AI likely to transform the way we shop and consume fashion? Can AI help and facilitate the transition towards more sustainable and circular fashion industry?

First of all major technical developments such as digital IDs, augmented reality, machine learning models etc that are impacting the way we consume and buy fashion have been under way for some time already and AI can be expected to just accelerate the speed in which some of these developments are brought to us.

Generative AI has the opportunity to transform the entire value chain of fashion but in sight of sustainability and circularity, lets dig into few of the current trends :

Reducing returns:  According to Shopify, the cost of Ecommerce industry returns is 101 billion USD yearly, so it has considerable financial implications as well as environmental ones; every return means extra transportation impact and costs and in addition there is always a risk for the returned item not being returned to the sales cycle.The most quoted reason for these returns is size misfit or style misfit and with AI brands will be able to create more sophisticated size and virtual recommendations, both while shopping online and in-store. With help of AI brands will be able to empower the data they have collected to make better, more accurate size recommendations and this should finally help us in reducing sizing related returns and also empower product exchange options tailored to individual shopper. We should also see more innovation in this space and startups being able to support brands towards better solutions. Overall these intelligent data driven services, can create a real styling service layer to delight the shoppers which i would hope, can also make us wear and rewear the items we have purchased with higher frequency, which essentially is one of the most important sustainability KPIs.

Managing demand and supply in more intelligent ways is perhaps the most attractive opportunity with generative AI. Evidence suggest that up to 40% of Fast Fashion items are never sold and end up as waste, which is suggests a massive environmental and also financial risk. We are already getting better at forecasting trends and consumers tastes more accurately but AI can be a superpower in making more accurate predictions to match production levels with real demand. The key value in Ultra Fast fashion giants like Shein and Temu is exactly the technology that has enabled them to step up their game in shorter delivery times to meet customer demand while reducing stock levels. While these companies are unlikely to be real references of sustainability due to their business model that is still purely based on volume and cheap prices, these technologies being more wide spread and more accessible, we have hope that more brands can benefit from these tools to build better, more positive companies, with less impact on environment and without social exploitation. The challenge will be the distribution and access of these solutions for wider audiences and competences to apply the best practises in small and medium sized companies.

Supply Chain transparency and data collection : There are two forces driving for greater control and data collection in Fashion supply chains : firstly, brands can no more ignore the changing legislative landscape; EU Green deal and similar initiatives in other regions are calling for sustainability reporting obligations, DPP (digital product passport)/ Digital ID implementation and increased Producer responsibility frameworks. These developments mean increased pressure for actions towards more transparent and fully traceable supply chains. Secondly, brands can not ignore consumer awareness and increased requirements for greater transparency and real sustainability actions. There is much more scrutiny towards greenwashing and any false or light claims around sustainability are being looked at with critical eye. These 2 challenges are putting pressure on brands and this is where AI and more advanced technology application can truly give brands an edge to be on top of the game. For example what is expected with the European digital passport initiative is to require businesses that sell consumer products in the EU , to trace the origins of any materials used in the products that are sold to the consumers in the EU with access to trace the products journey from factory to shop shelves. These requirements are transformative for fashion industry as they require new technologies to upgrade current system as well as new mindsets for managing complex supplier networks.

Towards Circular practises and new ways to consume. With the above opportunities impacting the way fashion businesses can drive more environmentally and socially positive future, the game-changing opportunity lies also in the way these businesses generate revenues in the future. The fully digitalised, AI supported supply chains can better support innovative circular business models. Once the whole life-cycle of a garment is being traced and brands can be in full control of the way their products are used, re-used, rented or repaired, they will have more opportunities to build service based business models. These models and programs allow products to stay in active use for longer, generate revenue in multiple touch points and hopefully delight us consumers in completely new type of retail experiences – with potentially less new garments being produced.

This article is contributed by Riikka Olli. Every week ESG News delivers smart commentary from ESG practitioners and experts to unpack issues of the day. Submit an article for editorial consideration for the ESG News Sustainable Fashion series here: [email protected]

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