September 24, 2020

Industry Deep Dive: New Rules in Fashion

In this post, team member, Bjarni, aims to take a closer look at recent innovations within FashionTech and highlight some of the trends and startups that are disrupting the fashion industry. Based on this, he will make some predictions as to what is to come.

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Industry Deep Dive: New Rules in Fashion

Three months ago, I started my internship as an Investment Analyst with the early-stage VC fund byFounders. From day one, I’ve been exposed to a range of different topics and industries where I’ve supported the investment team in startup evaluations of Nordic and Baltic startups. It did not take long before I started recognizing some trends — one of them being to “reinvent fashion.” I decided to do some research, gather our in-house knowledge, and leverage the knowledge of our outstanding byFounders Collective members, Nicolaj Reffstrup, Frederikke Schmidt, and Aslaug Magnudottir.

Startups Push the Boundaries

Fashion is one of the oldest industries. We have always worn clothes. Fashion trends come and go (we all know the “YIKES, did I wear that”-feeling when looking at old photos), yet the business model in fashion has been more or less stable for decades. You have a designer, a place for production, a physical or e-commerce store, and finally, a closet with hangers. That has, unfortunately, been the fate of most clothing pieces for the past centuries.

Only those brands that accurately reflect the zeitgeist or have the courage to “self-disrupt” will emerge as winners.”

Have we reached the fashion industry’s time to be disrupted? I would say yes. Consumers are demanding more on a range of issues. They expect a more substantial digital presence, faster speed to market, that brands take a stance on social issues. Lastly, consumers expect transparency from brands on supply chains and sustainability. Today, there seems to be a discrepancy between consumers’ expectations and what the current fashion powerhouses are delivering — hence founders do what they do best: spot the gaps and fill them elegantly and swiftly.

I have spoken to and learned about various startups in the FashionTech space, ranging from niche marketplaces, circular economy innovations, virtual showrooms, blockchain technology in the fashion supply-line, live-stream video shopping, and digital clothing. Based on these chats, conversations with experts, and my research, I’ve decided to share some of the most promising opportunities that I see in the FashionTech space today.

*PS: do check-out our“FashionTech Start-ups” map on Notion.*

It covers fashion-tech startups globally — do let us know if we missed any!

Tackling Problems with Authentication and Transparency

Recent global developments, especially with the significant economic growth in China, luxury fashion has experienced a global rise in popularity in recent years. Unfortunately, this has resulted in a parallel increase in the issue of counterfeit goods. These developments have led to the rise of platforms specializing in vetting fashion-items for originality.

Look at theRealReal, a marketplace for authenticated consigned luxury goods, which, according to Crunchbase, raised $358M before IPO’ing in 2019. Another solution to the authentication issue is what VeChain and Arianee are doing with blockchain technology.

Their technology is leveraging the peer-to-peer validation principles of blockchain, allowing for a range of benefits for companies, including anti-counterfeiting, channel management, and finally, larger transparency into companies’ supply chains.

British Monochain is, in addition to tackling the counterfeit issue, using blockchain technology to empower brands to “ adopt a sustainable Circular Economy-driven practice.”

Finally, Danish TrueTwins is positioning itself even more assertively on the supply-chain transparency issue. In addition to using blockchain technology to solve counterfeit problems, it is solving for the case of brands’ current “greenwashing.” Sustainability-minded consumers much appreciate this focus.

Circular Economy

On the topic of sustainability, it’s not a secret that the fashion industry alone stands for 10% of global carbon emissions and nearly 20% of global wastewater.

There is a range of different startups aiming to tackle this complicated issue. Some are pushing the transition from fast fashion to more sustainable modes of consumption through subscription services; some are innovating second-hand marketplaces. Others are developing new smart fabrics; others again help consumers in their online decision processes with virtual fitting rooms, and more. This area truly is buzzing with activity.

Fjong co-founder Sigrun Syverud

Subscription-based rental services in fashion have been a hot topic in recent years. The model plays nicely into the changing consumer behavior of less ownership while being an appealing model to sustainability-conscious consumers.

Within subscription-based rental in fashion, Rent the Runway is a front-runner and has achieved a dominating market position today. A range of Nordic startups currently appears, many offering similar models. Norwegian startup Fjong’s model is slightly different, in that it’s more focused on the peer-to-peer rental aspect, leveraging the dynamics of the sharing economy. The Swedish startup Hack Your Closet offers a platform that lets people subscribe and receive clothing-pieces in return monthly.

Jacob Key, co-founder and general partner at Luminar Ventures, invested in Hack Your Closet in 2019. Here are some of his thoughts on the investment:

"We all know that the Fashion Industry is not sustainable today, including consumers. We believe that Lisa and Mikaela, the founders of Hack Your Closet, have a great solution to this problem. They pick, style, wash, and deliver second-hand items to people’s doorsteps every month, allowing people to have “new” outfits every month without any effort whatsoever, and with just a fraction of the carbon emission and water waste. Just brilliant. It’s the way of the future."

Other exciting developments within the sharing-economy include second-hand market places.

Vestiaire Collective collective is a second-hand luxury marketplace for authenticated luxury goods. Norwegian tise is a company that functions as a cross-over between Instagram and Craigslist for second-hand products, including fashion.

Swedish ReRobe targets premium second-hand goods, and Danish Reshopper is a second-hand marketplace targeting families with children.

Innovative Fabrics

A pressing issue in the fashion industry today is the overproduction of clothing. Studies show that in today’s fashion industry, approximately 30% of all clothes produced are never sold. This is not sustainable, and the fashion industry is under pressure to solve this issue.

I had a chat with our byFounders Collective, Frederikke Schmidt, the designer and founder of Copenhagen based shoe brand, roccamore. At roccamore, they have recognized the sustainability issue. They have committed to making their production process more sustainable, e.g., by recycling the water used in their production process and powering their tanneries by solar panels.

Citing Frederikke Schmidt, directly:

"From the beginning, we have opposed overproduction and waste, and instead worked on making our processes sustainable. We have spent years finding the best factories to work with, that is the ones who have the same sustainable vision as us — and commit to it by continuously reducing the environmental impact."

Another approach to sustainability is optimizing the very material from which clothes are made. I asked Nicolaj Reffstrup, Co-founder of Danish fashion-brand Ganni and also a member of our byFounders Collective, on his thoughts on tech-related changes in the fashion industry:

"There’s a built-up demand for innovative solutions to reduce and mitigate the environmental impact the industry is having globally. At the moment we are seeing big advancements, in particular in terms of innovative fabrics, which typically account for more than two-thirds of a product’s carbon footprint. Predominantly the new fabrics on the market are bio-based alternatives that utilize technology and waste to create textiles."

Nicolaj specifically mentioned a few companies he thinks are interesting in the space: Circular Systems, which incorporates regenerative agricultural methods to support textile production. Evernu engineers fibers by disassembling textile waste, allowing it to be re-used multiple times for new clothing. Finally, he mentioned MakeGrowLab, a company he praises for developing “a super crazy transleather material created by microorganisms digesting vitamins and sugar.”

Other notable Nordic actors in the area include Beyond Leather and Ioncell. The former is a Copenhagen based company making leather-like material from fruit peel.

The latter (Ioncel) is a Finish university project spin-out that turns used textiles, pulp, or even old newspapers into new textile fibers sustainably and without harmful chemicals. Over in the US, VitroLabs (co-founded by Icelandic Ingvar Helgason) is also doing some exciting work, as they are developing lab-grown leather through tissue engineering.

Katla — a Holistic Approach to Fashion?

I also had a chat with another byFounders Collective member, Aslaug Magnusdóttir (co-founder of Moda Operandi). She recently launched the fashion-brand Katla (yes, just like the giant Icelandic volcano).

Katla is an exciting company, as it addresses many of the concerns and trends that I have mentioned in this blog post. The company only uses sustainable material in their production. They buy into the circular economy model by providing customers with “return for credits” options. On their website and through smart tags, they provide customers full transparency of the supply chain and production cycle. Finally, they solve the pressing issue of overproduction by only doing on-demand production.

I find that Katla’s model encapsulates many of the issues that the fashion industry is facing today, and I would be excited to see non-high-end brands adopt a similar sustainability-focused model, as well.

Aslaug Magnusdottir, founder of Katla and co-founder of Moda Operandi

The Challenges of E-commerce and Returns

Here, in our backyard, Danish company EasySize provides white-label solutions for companies to help consumers with size and fit recommendations for apparel, shoes, and recently also beauty products. WANNABY is a Belarus-based company with a mission to allow consumers to try-on shoes, jewelry, and clothing. In the mean-time, Amazon has acquired Body Labs, a 3D modeling startup, likely as a part of their strategy to play a more significant role in the fashion industry.

Other Interesting Tendencies

There are a few other developments within FashionTech that I found interesting.

While consumers might enjoy the benefits of online-shopping, creative industries still appreciate physical meetings so they can feel the fabrics, meet the designers, and other essential ingredients of fashion weeks and fairs. Norwegian ModaResa makes software that helps clients schedule physical and virtual meetings at the often busy and complicated fashion weeks.

As a continuation of the innovative leaps that founders such as Aslaug Magnusdóttir did on the fashion runway with Moda Operandi, live-stream shopping apps are now allowing influencers and brands to have their own “runways.” ShopShops is an interactive app where brands and brick-and-mortar stores host live events streamed over the internet, hosted by sale representatives who sell to viewers in real-time.

In China, live-stream shopping apps are becoming incredibly popular amongst Chinese consumers. Should this innovation follow the same international trajectory as Chinese TikTok, then we “in the West” can expect to see more of live-stream shopping apps shortly. Some Western companies are indeed catching onto this trend. For example, Swedish brand Monki, an H&M subsidiary, is also betting on Livestream shopping.

A last notable invention in FashionTech is the emergence of digital clothing. Last year, LVMH made a deal with Riot game to feature Louis Vuitton “skins” in the League of Legends — World Championship Final. Additionally, startups like The Fabricant are allowing people to try-on and purchase digital clothing so they can take pictures in them, post on social media, and more without the clothes ever physically existing.

Looking Ahead

I think we’re reaching the end of the era of the “fast fashion” and that even the fashion industry is approximating the “sharing economy.” Participating in shared wardrobes will become all the more common, and consumers will grow increasingly aware of — and require more insight into — sustainability efforts by brands. Blockchain and other technologies will enable this shift. I also foresee smart-fabrics and garment recycling to be an inevitable part of the future for the fashion industry.

The traditional fashion-powerhouses will face increased competition from challengers in the coming years. As of 2019, 20 companies in the fashion industry account for 97 percent of the economic profit in the sector (McKinsey report). With the emergence of “Shops on Instagram” Shopify and other “Shopify for influencer apps” such as Settr and Courate, such numbers are likely to shift drastically in the future, with an increasing number of smaller brands setting up their shops.

These smaller shops may not have the same level of knowledge and insight that more prominent firms have. Hence they will need intelligent software to help them keep costs down and customer satisfaction up. Examples of companies providing such services include the Swedish startup Yayloh, a post-purchase and return management platform that assists stores in optimizing their return processes. Also, Swedish startup Centra, an e-commerce platform that offers complete B2B and B2C services for fashion and lifestyle brands, tackles this problem.

Finally, improvements to the virtual showroom and fitting room will improve the online shopping experience, combatting the pressing issue of endless returns, further allowing fashion-lovers to be inspired and shop online.

Bjarni Rasmussen joined us as a Summer intern in 2020 on the Investor team.

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