In 2021, fashion companies invested between 1.6 and 1.8 percent of their revenues in technology. By 2030, that figure is expected to rise to between 3.0 and 3.5 percent. Behind the predicted increase is a conviction among many that technology could create a competitive edge--in customer-facing activities, where companies have mostly focused to date, and, more increasingly, in operations. Technologies such as robotics, advanced analytics, and in-store applications may help streamline processes and support sustainability, as well as create an exceptional customer experience (exhibit). This report is a collaborative effort by Imran Amed, Anita Balchandani, Achim Berg, Holger Harreis, Manuel Hurtado, Saga af Petersens, Roger Roberts, and Carlos Sanchez Altable, representing views from the Apparel, Fashion & Luxury Practice.

The world is heading fast towards digital transformation. The fashion industry is also going through significant transformation changing the retail landscape. Artificial intelligence is shaping the manner of purchasing clothes. From 3D avatars to closet consultants, implementation of AI has made purchasing of products more personalized with chatbots helping the consumers. Big fashion brands like Myntra, H&M, Tommy Hilfiger, Amazon, and others are successful in using AI and data analytics to figure out clothing designs.

The year ahead will be an awakening after the reckoning of 2018--a time for fashion companies to look at opportunities and not just at surmounting challenges. The ones that will succeed will have come to terms with the fact that in the new paradigm taking shape around them, some of the old rules simply don't work. Regardless of size and segment, players now need to be nimble, think digital-first, and achieve ever-faster speed to market. They need to take an active stance on social issues, satisfy consumer demands for radical transparency and sustainability, and, most important, have the courage to "self-disrupt" their own identity and the sources of their old success to realize these changes and win new generations of customers. They also need to invest in enhancing their productivity and resilience, as the outlook is uncertain.

In our view, 2018 will be the year leading innovators begin to reveal -- and revel in -- the possibilities offered by Artificial Intelligence (AI) across all parts of the fashion value chain. Over the past couple of years, the potential of AI -- computer systems able to perform tasks normally requiring human intelligence -- has expanded considerably as a result of increasingly large and diverse data sets, advancement in key algorithms, and unprecedented levels of mathematical computing power. Although fashion has not thus far been a leader in this sphere, we expect to see fashion companies on the digital frontier demonstrate this potential as they start to deploy breakthrough AI innovations. Pioneers in this field will realise palpable returns from these efforts and demonstrate the potential advantages for companies that successfully marry creativity and AI. Many fashion executives regard AI as too mechanical to capture the creative core of fashion, and so are uncertain of what exactly it can do for them.

If you think you run a fashion business, you're wrong. Anything else and you may as well wave the white flag, because the rules of the rag trade are changing. You're either leading that change, or you're a sitting duck ready to be picked off by a sharp-shooting tech juggernaut. Since Amazon first started peddling books online, Jeff Bezos never once saw his company as a retailer. "Amazon is a technology company. We just happen to do retail," said Amazon CTO Wagner Vogels in 2011.

There's no denying that the technology world is obsessed with fashion. Amazon, Apple and Google, three of the biggest names in tech, are all trying to carve their own path into the fashion space. Apple's doing so with fancy smartwatches, Amazon with a shopping platform and voice-controlled cameras, and Google with conductive fabrics embedded in a smart jacket made by Levi's. And the interest is mutual. Fashion designer Karl Lagerfeld, Chanel's creative director, has expressed his love for tech by experimenting with partially 3D-printed pieces and runway shows that simulate a rocket launch.