The Fashion Tech Bubble Myth

Several articles have come out recently regarding this idea that a “Fashion Technology Bubble” is forming, or has formed, or might form, etc. such as this article out of Business of Fashion on Monday.

As a person who lived, thrived and suffered with the rise and failure of the real technology bubble, I think that this conjecture is pure absurdity. Let’s look at the facts;

•  According to Gartner, the manufacturing and natural resources sector will lead the vertical markets with total spending expected to reach $478 billion in 2013, up 2.3 percent from $467 billion in 2012.
• Gartner predicts that, though manufacturers (of which Fashion is a segment) have been reducing their IT purchases since the recession, IT spending is expected to bottom out in 2013 to become resilient over the long run, with renewed business confidence and adoption of new technologies such as social media, mobile, big data and cloud.
• Gartner predicts that the banking and securities sector will have strong growth in 2013 and expect it to reach $460 billion, up 3.5 percent from $445 billion in 2012.

So when you break down the numbers, what you really see is that overall, Fashion technology spend works out to a growth rate of about 1.2%, far below the overall rate and lagging even behind manufacturing as a sector. 

I know this is a little dry, but the point of it is this…

Fashion technology spend lags, has lagged, and will continue to lag.  Indeed, the ONLY area of fashion in which technology spend even seems to be approaching parity with other industries is the investment being made by many organizations into ecommerce, mcommerce and omnichannel retail.  Most other areas are stagnant. 

In the BoF article, the writer quotes;

“There is no fashion-tech bubble. The fashion industry needs more tech investment, not less,” said Robin Klein, venture partner at Index Ventures and non-executive director of Farfetch. “Some substantial fashion tech companies have been built, demonstrating the value that can be created online; companies like Asos, Net-a-Porter, Nasty Gal and Farfetch [all of which have been backed by Index at the venture or growth capital stages]. Valuations may seem high, but all of these companies are growing extremely fast. Asos sales are up 37 percent — which high street store can claim that? There are a lot of new tech fashion start-ups that aren’t going to succeed. But that’s true of all venture [investments].”

I couldn’t agree with this statement more.  The fashion industry is in desperate need of a technology overhaul in order to bring about the same type of effective IT partnerships enjoyed by other manufacturing sectors.

Whether investment by venture firms tends to slope upwards or downwards, there is absolutely no indication of the type of spending patterns present in a bubble scenario, and neither the financials of the industry, nor the practical experience of those involved, bears that out.

To be plain, in the two years leading up to the tech bubble burst in 2000, there were very few amongst the ranks of technologists who weren’t remarking, joking, yelling and laughing about the obscene amounts of investment and ridiculous sale prices of the companies benefitting from that trend.  None of that is present here, and the failure of a company like Luxup, whom it is well known has been on the skids for some time, and has finally given up the ghost, is no indicator of such a thing simply because they happened to take a technological approach to fashion retail.  Indeed, Gilt, Net-a-Porter and Nasty Gal could all fail simultaneously and a bubble would not be indicated. 

What we are seeing is proper valuations, performed in a responsible manner, by venture and other investment capital firms, in support of viable business plans with teams that can execute.  This is simply responsible investment.  And will some of these investments fail?  Of course! That’s the whole point of venture capital, to take the big risks and reap the big rewards.

So if you were planning to run out tomorrow to short stock in Abercrombie and Fitch in anticipation of this ‘great collapse’…

Don’t.