DAY 3. Takeaways from SXSW 2017 Day 3. March 15, 2017

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1 Takeaways from SXSW 2017 Day 3 DAY 3 1) The Fung Global Retail & Technology team is attending the SXSW Conference in Austin, Texas, this week. 2) Designers are still struggling to integrate apparel and technology, but artificial intelligence (AI) will ultimately lead designers to new insights regarding garment construction and fashion. 3) It is now possible to add electronics to garments, but an apparel item s uniqueness and function are still key, and consumers still love to tell the story of how they found a special item. 4) Several companies demonstrated mixed-reality experiences that combined virtual reality (VR) headsets with physical motion and stimulation of the senses to create a more immersive virtual experience. 5) At the SXSW Accelerator Pitch Event, 10 startup winners were chosen from a field of 50 finalists. The participating startups are creating solutions in a number of areas, including VR, smart data, entertainment, health and wearables, payments, social and culture initiatives, sports, and transportation. 6) Throughout the conference, there were recurring discussions of how important it is for businesses to demonstrate ethical values if they want to attract millennial consumers, as millennials place a high priority on expressing their values through their everyday lifestyle. 1

2 Takeaways from Day 3 Fashion and Apparel 1. AI Could Someday Provide New Insights into Fashion Source: Fung Global Retail & Technology AI has not yet been adopted in apparel manufacturing and supply-chain management. However, it could be used to help apparel designers be more mindful of the people wearing the garments they design and the wearers of those garments could benefit from the storytelling aspect that well-designed products present. AI, though in its infancy, could provide new insights to designers in terms of garment construction and fashion. 2. Designers of Wearable Tech Need to Focus on Function, not Technology Although technology can now be added to garments, apparel designers typically seek to make garments more streamlined and simple. Given the increasing penetration of smartphones, tech-enabled apparel must be able to connect to mobile devices and to the cloud. A recently released Rochambeau smart jacket, for example, includes an NFC chip that provides exclusive connections for the wearer. Ultimately, the usefulness of any garment is still of paramount importance. Technology 3. Immersive Reality is the New Virtual Reality We saw several demonstrations of mixed-reality experiences that combined VR headsets with physical motion and stimulation of the senses to create a more immersive virtual experience. Sensiks is a Netherlands-based company that designed a Sensory Reality Pod in which users can feel temperature changes, rain and wind, and even smell various scents while a video plays on a VR headset. Birdly, which was initially designed as a research project at a Swiss university, is a full-body flying experience that relies on VR and robotics technology to enable the participant to fly. A number of Japanese companies also demonstrated VR applications and immersive gaming equipment at SXSW. 2

3 4. Communities and Feedback Encourage Product Storytelling Retail is sometimes considered dead, but there are plenty of new opportunities in discovery and storytelling in the retail space. The future will be about specialty products and products that include an experience. In terms of e-commerce, the emphasis is on helping consumers discover what to buy, and then enabling them to tell the story of how they acquired certain treasured products. 5. Most Software Has Bugs and Vulnerabilities Deal with It Software vulnerabilities range from exploitable points (weaknesses in software code) to backdoors (undocumented passwords), and all software has bugs. Most bugs, however, are not critical. Companies need to effectively handle vulnerability reports, but must take proactive steps, such as encrypting report submissions to keep them safe from hackers, even when not faced with a known vulnerability. There is a coming explosion in the number of devices that will be connected to the Internet of Things, which means that many new platforms are likely to have vulnerabilities. 6. Winners of the SXSW Accelerator Pitch Event This year s SXSW Accelerator Pitch Event included startups that are focused on VR, smart data, entertainment, health and wearables, payments, social and culture initiatives, sports and transportation. There were 10 startups selected as winners out of 50 finalists at the conference. The winning startups included Kymira, Laugh Radio, CNote and Deep 6 AI. Kymira is a UK-based smart garment company that uses infrared technology to harness excess energy from the human body in order to improve performance. Laugh Radio s Laugh.ly is an on-demand mobile app that allows users to listen to the best comedians in the world. CNote is an Internet-based personal finance company that enables savers to also contribute to the community. Deep 6 AI is a smart data company that applies natural language processing to read medical records. Brands and Marketing 7. Brands Need to Maintain Their Identities as They Embrace Real-Time Social Media Channels Marketing happens in real time now due to the ubiquity of both digital devices (such as tablets, smartphones and smartwatches) and impactful social media offerings such as Facebook Live, Snap and Instagram. Live events offer brands the opportunity to connect with consumers while generating a positive return on investment. Still, brands must remain true to their core identity. 8. Emotion Detection Helps Brand Marketing The Human Behavior Laboratory at Texas A&M University revealed its latest study on the emotional aspects of the brain and the implications they hold for different industries. For the first time, there is technology that can measure the biometrics that reflect people s emotions. For example, facial recognition technology can detect facial expressions and determine one s emotional state. Heart and respiration rates can point to excitement and stimulation. Eye-tracking technologies can determine people s interest levels based on how long the pupils dilate. This kind of emotional detection technology enables marketers to obtain consumers real-time reactions to their marketing campaigns. Some marketing strategies focus on certain aspects of human emotions. For example, some brand logos can be interpreted or presented in multiple ways, providing consumers with an element of surprise when they discover those different ways of 3

4 viewing the logos. Marketers could use such strategies to further engage with and draw more attention from consumers. Ethics and Social Initiatives 9. Ethnography Helps to Derive More Insights from Retail Data Analytics Source: Fung Global Retail & Technology Ethnography, or the study of people and cultures, can help companies find blind spots in data and reveal additional insights. Henri Jeantet, the founder of Unknowns, a digital transformation consultancy, argues that data are limited by the elements that can be observed by the predesigned framework, which might miss important behavioral insights. Integrating ethnography with data analytics has helped consumer product companies and the grocery industry better understand their business challenges. For example, periodical, shadowed visits to stores revealed how important the associatemanager relationship was to associates performance. This helped retailers design better work management processes. Another example shared by Jeantet centered on the study of people s offline grocery preferences in France. The study s results inspired online grocers to create functions on their websites that simplified the online shopping experience. 10. To Serve a Growing Socially Conscious Customer Base, Businesses Across the Consumer Sector Must Consider Ethical Values The values that businesses represent play a huge role in attracting millennial consumers, whether in the restaurant, fashion or personal finance sector. Millennials place high importance on expressing their values through their everyday lifestyle. Entrepreneur Kimbal Musk shared his experience of creating farm-to-table restaurants across the US and working to support local organic farms via his businesses. His restaurants have attracted a loyal millennial customer base. Several ethical fashion brands share a similar view that millennials are drawn to brands that are doing good. Bloom + Grace is an ethically sourced jewelry company that donates part of its revenue to help vaccinate children in Africa. Raven + Lily is an ethically sourced fashion brand that has helped create jobs for women in Africa. In terms of personal finance, there are several mobile banking apps available that contribute parts of their revenue to communities in need. 4

5 Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: Hong Kong: China: John Harmon, CFA Senior Analyst Jing Wang Research Associate Hong Kong: 8th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: London: Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0) New York: 1359 Broadway, 9th Floor New York, NY Tel: FungGlobalRetailTech.com 5