Blockchain Concepts to Revitalize the Fashion Industry

bitcoin mining server center

It seems in every industry, we develop our own language.  We bury ourselves, creating our own ways of doing and optimizing.  We forget other industries may have found solutions to similar problems and ideas.  In this case, the blockchain community is developing ideas that are applicable as frameworks in other industries.

Consider, Lawrence Lenihan's article in his recent op-ed for The Business of Fashion.  He argues for continuing to build a platform to enable small brands to move quickly and competitively. He says, "enabling creators to build brands with focus means transforming how product is made, allowing small companies to produce one single item at a time as affordably as large companies making huge production runs."[1]   Drawing from web development, Lenihan describes the approach as "Full Stack Fashion."   To dive a little deeper, this new approach to fashion may have more in common with  blockchain-protocols than the original web.  It's a call for the decentralization of power in the fashion industry.  Decentralization could replenish creativity and distribute resources.

The Web & The Current Fashion Industry

The way that the web is configured is in some ways similar to the way that the fashion industry is.  The Web sits on top of a thin protocol layer.  Most of the value in the system is being captured by the applications layer.  An example of an application is a website, like Facebook or Google, which is built on top of underlaying protocols that make it work.  [2] [3]

web and fashion value capture graph

These websites are, of course, brands. Much like in fashion, the major players in web tend to dominate the market.  As an effect of their size and power, they have the ability to constrain resources.  This takes away from smaller more niche platforms, dwarfing creativity, and monopolizing user data.

To be clear, it's not that the fashion industry is a completely centralized industry.  In fact it is made up of a lot of independent merchants.  However, because the industry is optimized for mass production, the power in the current model is centralized.  Large brands are able to place large orders, reach minimums, and invest in technologies that small brands cannot.  That is changing, more and more suppliers are stocking popular materials and accepting small orders.  Subscription softwares are allowing small brands to take risk with new platforms.  Whereas the old model requires purchasing expensive proprietary software licenses.  

Blockchain's Fat Protocol & The New Fashion Stack

In contrast to the web, blockchain-based protocols require shared data and access.  By definition the blockchain is a distributed system. [4]  

Joel Monegro coined the phrase “fat protocols” in a blog post, just over 1 year ago on blockchain value.   This idea is that the protocol layer is the layer that captures the most value in blockchain technology.  It's also the area that the most development and investment is required early on.  The structure is set up to "reduce the barriers to entry for new players and create a more vibrant and competitive ecosystem of products and services on top." [5]  

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In fashion, retailers like Zara, fast and vertically integrated, disrupt the entire ecosystem. The fast fashion model knocks the creators out of the market by ripping them off before they can even hit stores. It has snowballed with many new business models entering the fashion industry. For example, 2016 saw the launch of "see-now-buy-now."[9] Fast fashion has killed the creativity that fuels it, but their businesses are dominating the market.  So what can we learn from Zara and the blockchain?

Small brands struggle for several reasons. The most imminent being the high costs of small batch manufacture. The fashion system is structured for manufacture in large batches. The majority of garment factories still use batch manufacturing techniques instead of just-in-time manufacturing (JIT) or other methods of lean manufacturing. [7] It doesn't have to be that way, companies like Zara, gain a huge advantage, not only by owning their own manufacturing, but by using lean manufacturing techniques to control inventory. 

Because they can't compete with companies like Zara, small brands and designers have begun to target hyper-niches. By winning over these niche markets, they develop stronger relationships with customers. [6] The designer is the human element and connection between the goods and the customers.  These brands inch closer and closer to customization.

Enabling components in the new fashion stack allow independent designers to start businesses at a lower capital investment. E-commerce platforms like Shopify and Squarespace are low cost to set up and maintain. In textiles, customization is becoming more accessible through services like Wovns and Spoonflower. Even factory sourcing is more accessible than ever before through resources like Maker's Row. These companies contribute to a pool of resources for small brands, but also create value of their own.

The future of fashion brands will be a thinner, personal layer at the top of the stack.

Investment Strategy

Because of some of the speculation around the fat protocol structure, the investment strategy in blockchain tends to congregate heavily around protocol technologies.  These protocols are to serve as the infrastructural components for future businesses to build applications on top of.

In fashion, the investment strategy has often been at the applications layer, the fashion brand itself, leaving investors disappointed by performance in this sector. [8]  The fashion industry needs to build entirely new infrastructure to progress forward and realize the vision not only for individualization, but optimization for sustainability and other values.  Yet executives in fashion are 30 years behind still claiming, in 2017 that "Digitalisation and E-commerce" is their #1 biggest opportunity. [9]

Some investments are being made in the new fashion stack, but the effort does not appear to be a concerted one.  Companies like Avametric, SoftWear Automation, TechPacker, and Body Labs will shape the future of this industry; each company owning its particular component in the stack.  Hopefully, these players will keep opportunities open for smaller players and optimize for change.

[1] https://www.businessoffashion.com/articles/opinion/lawrence-lenihan-resonance-how-small-will-beat-big-and-save-the-fashion-industry

[2] A longer explanation of web protocol: http://fab.cba.mit.edu/classes/961.04/people/neil/ip.pdf

[3] A shorter explanation of "What is Web Protocol?" https://www.techwalla.com/articles/what-is-web-protocol

[4] http://www.usv.com/blog/fat-protocols

[5] https://medium.com/@VitalikButerin/the-meaning-of-decentralization-a0c92b76a274

[6] https://www.businessoffashion.com/articles/opinion/op-ed-end-1-billion-fashion-brand

[7] https://www.businessoffashion.com/articles/fashion-tech/the-robotics-opportunity-manufacturing-efficiencies

[8] https://news.crunchbase.com/news/vcs-temper-interest-apparel-startup-exits-disappoint/

[9] http://www.mckinsey.com/industries/retail/our-insights/the-state-of-fashion