Bain: AI could help luxury brands reduce overproduction
For luxury brands, durability and impact per wear are intrinsic to business models but cutting overproduction and scaling resale will be important to focus on when it comes to decarbonisation, according to Bain & Company.
In a new report, the consultancy firm said luxury’s high gross margins mean brands tend to overlook overproduction. However, unsold inventory not only erodes margins, but also carries environmental costs which are increasingly under regulatory scrutiny.
The report recommends using AI to help address overproduction and improve inventory efficiency. AI-powered sales forecasting is already in use or being tested by around 60% of fashion brands, it said, enabling more accurate predictions of consumer demand. In parallel, around half of brands are leveraging AI to allocate stock more precisely.
Technology is also enabling new production models, where brands are beginning to pilot made-to-order and made-to-measure approaches that significantly reduce waste by producing only what is needed.
The report finds that second-hand doesn’t add value for brands as most sales take place on third-party platforms. Emissions are only reduced when second-hand volumes grow at the expense of first-hand volumes. Brands must turn second-hand into a profitable, brand-owned channel that provides both customer lifetime value and emissions reductions, said the firm.
Matteo Capellini, a partner at Bain & Company, said: “Second-hand is fundamental to reaching the Science-Based Targets, and Digital Product Passport is a critical element to remove friction and cost to the overall channel. Done right, resale can shift from margin drain to margin growth, and become a credible and scalable decarbonisation tool.”
