As Japan faces the accelerating challenges of a declining birthrate, aging population, and shrinking population, the apparel industry is implementing a variety of initiatives aimed at enhancing customer experience and improving operational efficiency. Digital transformation (DX) is one such initiative, and today many companies in the apparel industry are pursuing its use. This has created business models that weren’t possible before the spread of the internet, which has led to significant transformations in the way people shop.

This article will discuss DX in the apparel industry, including why it’s important, the advantages it can offer, key points for success, and relevant case studies.

What’s in this article?

• What is digital transformation?
  
• Why digital transformation is important in the apparel industry
  
• Digital transformation initiatives in the apparel industry
  
• Benefits of digital transformation
  
• Steps for implementing digital transformation
  
• Key points for successful digital transformation in the apparel industry
  
• Digital transformation success stories in the apparel industry
  
• How Stripe can help
  

What is digital transformation?

DX stands for “digital transformation,” referring to initiatives that use digital technology to create new value and improve people's lives.

For example, for a business, this could include improving operational processes or creating new services. At the individual level, it involves achieving a richer lifestyle through the use of digital devices and services provided by companies. Thus, DX is based on the idea that if companies promote digital transformation, the way society functions will change, and individuals’ lives will also improve.

In fact, DX has already become deeply ingrained in our daily lives. Some familiar examples include:

• Online school
  
• Online meetings
  
• Subscription services
  
• Online supermarkets and food delivery
  
• Smart home appliances
  
• Cashless payments
  
• Unstaffed stores (self-checkout or authentication gates)
  
• Internet banking
  

Why digital transformation is important in the apparel industry

The need for DX in the apparel industry is driven by the challenges the industry is facing.

Escalating labor shortage

The apparel industry is facing a serious labor shortage. When there aren’t enough sales staff, the workload per employee increases significantly, raising concerns about issues such as:

• Excessive pressure to meet sales quotas
  
• Decline in customer service quality
  
• Increase in complexity of work
  
• Health risks due to increased overtime and prolonged standing work
  

For apparel store staff, the workload tends to be heavy while wages remain comparatively low. This often results in talented staff leaving their positions. According to a 2023 survey by WWD Japan on the current state of sales staff shortages among apparel retailers, as many as 80% of companies reported having a shortage.

Against this backdrop, using DX to address labor shortages can improve operational efficiency, making it possible to run stores smoothly with a smaller workforce. This is also expected to reduce the workload on store staff.

One concrete example of digital transformation is the adoption of RFID (Radio Frequency Identification). RFID is a technology that enables the instantaneous, contactless reading of data from RFID tags using radio waves. Using RFID makes the following possible:

• Simplified checkout process: Placing items on a designated area at the register allows for instant scanning of product information and prices, even with multiple items, enabling quick checkout. This also makes it possible to use unstaffed registers and self-checkout registers.

• Efficient inventory management: By attaching RFID tags to products during the manufacturing process, it’s possible to instantly confirm which stores and warehouses have inventory and how much is available, even after shipment from the factory. Additionally, because the contents of a box can be scanned without opening it, inspection and inventory tasks can be performed efficiently. Improved inventory management can lead to an overall increase in the inventory turnover rate and help prevent excess inventory due to unsold goods.

Changing customer needs

Now that having a smartphone has become the norm, we can access information anytime, anywhere through social media. In the apparel industry too, a variety of information about trends and the latest collections is distributed via social media and ecommerce sites, and new trends can sometimes emerge from the information exchanged online. For example, on social media, trends can form in the following ways:

• Influencer-driven brand and product promotions
  
• Trending hashtags
  
• Voting features and opinion sharing on social media
  

Information received through the internet also significantly influences individual consumers’ interests. Against this backdrop, apparel companies that embrace DX can use more precise data collection and analysis to gain a better picture of customer attributes and needs in real time. Furthermore, based on analysis results, they can implement promotional activities such as increasing the variety of products with designs and styles that are in high demand.

Digital transformation initiatives in the apparel industry

What kinds of DX initiatives are being implemented in the apparel industry right now? Let’s look at a few, including RFID.

• RFID: Technology that uses radio waves to contactlessly read information from RFID tags attached to products.

  • Example: Inventory checks and stocktaking can be performed without inspecting each item inside the box one by one.
    

• AI-based analysis and prediction: Collecting customer data using AI technology.

  • Example: By digitizing and analyzing user behavior patterns on ecommerce sites and social media, it’s possible to predict the needs of different customer segments and forecast trends in color, design, and style.
    

• Smart factory: Making manufacturing and production processes smarter through the use of AI (artificial intelligence) and IoT (Internet of Things—the network of physical objects embedded with sensors, software, and other tech).

  • Example: By connecting machinery and systems within the factory via a network, production and inventory status can be monitored, enhancing efficiency and productivity.
    

• One-to-one marketing: Personalized information delivery and product recommendations based on customer attributes and behavioral history data.

  • Example: Information about sales for previously searched or favorited items, and recommendations for similar products.
    

• Live commerce: Streaming live videos to consumers, introducing and selling products in real time.

  • Example: Live commerce on social media conveys the texture, feel and sizing of products, aspects that photos on ecommerce sites cannot accurately communicate on their own.
    

• Virtual try-on tools: Using VR (virtual reality) and AR (augmented reality) technology to provide an immersive shopping experience that gives customers the sense of actually trying a product on.

  • Example: By offering virtual try-on experiences without setting foot in a physical store, it's possible to reduce return rates as well as lost sales opportunities resulting from the inability to try on products.
    

• OMO (online-merge-offline): By integrating physical stores with online shops, the barriers between online and offline channels can be eliminated and overall service convenience can be improved.

  • Example: By implementing OMO strategies that maximize the strengths of both online and offline channels—such as systems allowing customers to pick up online purchases at a physical store—a comfortable and fulfilling shopping experience is possible.
    

Benefits of digital transformation

Adopting DX offers the following benefits for apparel companies:

Streamlining operations

The greatest benefit of digital transformation in the apparel industry is its ability to streamline operations. For example, the RFID technology mentioned earlier can significantly reduce the workload associated with tasks such as quality inspections and taking inventory.

Improving customer satisfaction

Using DX to collect more precise and detailed data, such as purchase and search histories, it becomes possible to develop products and provide services that are tailored to customer attributes and needs. DX also makes it possible to share information on social media more effectively.

Improving customer satisfaction in this way can help increase customer acquisition rates and boost sales.

Contributing to sustainability

Using DX to improve inventory management, you can reduce the likelihood of excess inventory. Furthermore, by using analytical data to improve inventory turnover rates, you can avoid wasting resources. This sustainable approach will also contribute to broader society.

Steps for implementing digital transformation

When an apparel company pursues DX, it's important to follow the steps below and implement systems conscientiously, rather than haphazardly:

• Define challenges and goals: After clearly identifying the challenges your company is facing, determine the goals you want to achieve. To do this, consider the diverse concerns and opinions across departments, then clarify what you aim to achieve through DX.

• Identify solutions: Next, determine how those challenges can be met. Seek advice from the payment processor you’re considering using and other experts, and establish a dedicated DX department and personnel.

• Plan for implementation and verification: Begin the implementation process only after developing a budget plan and securing the necessary funding. After implementing DX, it’s important to establish a support system and document operational procedures, know-how, and rules in manuals. Additionally, regularly review operational efficiency and outcomes. If areas for improvement are identified, revise the processes accordingly.

Key points for successful digital transformation in the apparel industry

The key points for successful DX in the apparel industry are as follows:

Building multiple sales channels

To survive, apparel companies must build not only physical stores but also multiple channels, such as apps and ecommerce sites, and implement strategies that can maximize the synergistic effects between the channels. One example is the use of omnichannel retailing in the apparel industry, which has been gaining attention. Omnichannel strategies enable effective sales activities based on integrated data, which can lead to improved customer satisfaction and increased sales opportunities.

Using the latest systems and tools

The systems and tools provided by payment processors often enable centralized management of customer information and sales data. This allows for operational efficiency across multiple sales channels, including physical stores and ecommerce sites. For example, by integrating and analyzing big data collected from each sales channel using these tools, you can extract valuable, detailed information to inform future marketing strategies and help with new product development.

Comprehensive security measures

The move to DX does involve an increased risk of online data leaks. To reduce this risk, solid security measures should be implemented immediately. If a data breach or other security incident occurs, it can not only damage a company's reputation but also lead to a significant loss of customers. Therefore, when adopting DX, consider systems that employ comprehensive security measures using the latest technology.

Get input from store staff

Before implementing DX tools, it’s important to talk to the staff on the front lines. First, understand what problems are occurring in the stores, and then determine which tools are best suited to solving those problems.

Improve the digital literacy of store staff

Even if you introduce high-performance DX tools, they won’t be practical if store staff can’t fully use them. Therefore, it's advisable to consider tools designed with ease of use in mind, so that staff can fully use them on the job. Devices that can be carried while working, such as smartphones and tablets, are more convenient and efficient.

Digital transformation success stories in the apparel industry

Next, let’s take a look at some case studies of apparel companies that have successfully implemented DX initiatives.

Fabric Tokyo: Implementing an OMO strategy

Fabric Tokyo is a Japanese custom-order apparel company specializing primarily in suits. Fabric Tokyo has introduced a system where customers can have their measurements taken at a physical store and then easily place orders online later.

Traditionally, purchasing a custom-made suit involved numerous steps—getting measured in-store, selecting fabrics, requesting additional options—making the actual purchase time-consuming and labor-intensive. However, the shift to remote work during the pandemic led to a decline in suit purchases, which also revealed a change in customer demand, specifically a desire to avoid spending a lot of time selecting a suit.

Fabric Tokyo implemented an OMO strategy to meet these new consumer needs. Once measurements have been taken, customers can confidently place custom orders from their smartphone. Additionally, the ability to accommodate even detailed requests online, such as "double-cuffed hems," has transformed the traditionally complex and high-barrier experience of ordering a custom suit into a more convenient one, which is a key factor in its success.

Fast Retailing: Using RFID tags

Fast Retailing, a leading Japanese apparel company operating brands like UNIQLO and GU, has adopted the use of RFID tags. RFID tags enable instant, bulk automatic recognition of merchandise, eliminating the time and effort required to scan each item individually at the register. By adopting RFID tag technology, Fast Retailing has not only significantly improved checkout speed but also eliminated checkout lines.

Furthermore, with RFID technology, product information inside a box can be recognized all at once by scanning the outside of the box with a dedicated reader. This significantly reduces the workload associated with delivery inspection work and enables faster replenishment of merchandise in physical stores. Similarly, inventory counts can now be performed more accurately and in less time in physical stores, helping to avoid lost sales opportunities due to lost or missing stock and reducing the risk of carrying excess inventory.

How Stripe can help

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