Embracing AI: Enhancing Luxury Retail and Sustainability

The barriers between physical and digital—how do you make the physical store, um, you know, how to bring the human interaction that is unique to a physical store and elevate it through technology?

Because if you go to a store today, it's the same as experiences in the 90s. You just have a contactless maybe payment, but you still—it's, you know, the salesperson still disappears to try to find your size and comes back, "Sorry, sir, don't have it. Let me call another store," etc.

So there's even basic things like that, you know, payments. You still queue up to make your payments, or maybe if it's a more elevated store, they will bring the machine to you. But, you know, it wasn't touched. It's one of those areas in our lives that wasn't touched by technology. Everything else—even Starbucks, you can order on an app, right, and just show up and pick it up.

And luxury really hasn't fully embraced this digitization, and for a good reason, because it can sometimes kill the customer experience, and they don't want that. But how can we apply technology to elevate the human experience in stores?

And that's what we've done with Browns here in London on Brook Street, with a company we acquired five years ago—very iconic, 50-year-old retailer. We invested in technology to make it the shopping experience of the future with Chanel in France.

And now with Rich, our model plan is to bring this what we call Luxury New Retail Vision. So for me, actually, it's quite simple. The next big frontier is how do we digitize not just, you know, pockets of the industry, but how do you unify the entire experience, both online and offline, and bring that together?

And that's where the biggest opportunity is, without losing that kind of exclusive cachet that goes with luxury.

And what role would AI play in that? I think it plays a really important role, but always in terms of assisting the human. It's actually one of the most complex problems in AI—fashion—because it changes all the time. It's driven by creativity, which is something that machines don't deal very well with.

And it deals with cultural trends, with the zeitgeist. Just because everyone is using polka dots doesn't mean that you should continue producing and designing polka dots. That's probably the other way around, right? And it can change from one season to another or from one week to another, and this is extremely difficult for computers to predict.

So it's really—if you speak to the real experts, AI people that have focused on solving the fashion problem through AI, they'll tell you that this is really about assisting the human. The role of curation and the role of creativity will be, you know, human-led, I hope forever, but at least for many, many years to come.

For that, really interesting. I'm just going to look back to the AI question because we've had a question come in from the audience: How can you use AI to make the fashion industry more sustainable?

That's an excellent question. I think, first of all, the fashion industry has huge sustainability issues. It's very polluting, and there's a lot of overproduction. I think actually overproduction is the lowest hanging fruit and the biggest impact that we can have.

If we can just predict better what people are going to buy, produce less—ideally even produce on demand. I'm an investor and on the board of a company called Platforme—pardon the publicity—that works on on-demand luxury and works with companies like Ahmed's, companies like Dr., where the items are not actually produced until you buy them. So you have zero overproduction, and that's very powerful.

The other thing is companies like The RealReal, etc., that are in the circular economy, right? So if you can buy something that was pre-owned, that certainly extends the life of the product. I think, you know, that's one concrete area.

But there are many other applications. I think, you know, sustainability is a vast, vast topic, and we're very active with clear sustainability goals at Fairfax for 2030. One of them is to be more circular than linear, and we've invested in pre-owned.

And what about creativity? Another question has come in on the question of creativity and AI—whether AI enables creativity within the luxury space or, in fact, degrades that, and there's a risk to creativity if you start to pull in AI.

I don't think so. I think it enables creativity. If a company wants to replace creativity with AI, they will fail very, very fast. AI is really not—certainly not in fashion. I don't know about other areas, but it's certainly decades away.

If you're an optimist, if you're an AI maximalist that believes that computers will do everything better than humans, I fundamentally disagree with that. But what do I know? I'm not an AI expert. But even the experts that are AI maximalists will tell you we're 10 to 20 years from removing the creative function and soul of humans in an industry like fashion.

So if a company attempts to do that, it will fail very fast. However, let's not dismiss it because, I mean, the amount of stuff that gets produced industrialized and ends up in the landfill just because people are not using data at all and not using AI at all to apply it around sustainability—it's a huge missed opportunity.

We shouldn't dismiss AI. Let's use AI so that we can predict trends and have a more sustainable industry.

Okay, I want to talk about deal-making. We've got a chart I think we can throw up that shows how active you've been in terms of partnerships, deal-making, investments—like the likes of Alibaba, JD, Reebok, of course, and most recently, arguably your most significant, which is the 47.5% stake in YNAP, or Net-a-Porter.

Talk to us about the rationale behind that deal, where it positions you, how it positions the company, and whether you're going to be taking over all of those shares ultimately.

So the rationale is really about our vision for the future of luxury, as we call it Luxury New Retail. For us, it's the convergence of physical and digital, and that captured the attention of the luxury industry. A few years ago, we had a conference in 2016 where we laid out this vision, and we've developed technology that really brings those worlds together.

The group really loved everything we were doing with other—not in high luxury, but in fashion. We worked very closely with the Cartier management team to see how this could be applied to luxury, and they came to the conclusion that the next step in the digital strategy and advancement for Cartier, and then socializing it with the Adam, is also at the Richemont group, was the Firefetch vision and the Firefetch technology.

So it actually came from the technology side. At that point, we said, "Well, if we're going to do something really big and strategic with all the maisons, we should also re-platform YNAP." But of course, if we do that, then how do we align interests between the two companies? And that naturally evolved to the deal we have today.

Do you take full control at some point?

So right now, there's regulatory approval to go through. After the successful regulatory approval and completion of the deal, we will own 47.5%. So no one will have a controlling stake in that company, so it will be joint control.

We're very excited to work with the Richemont group in the transformation of YNAP from a luxury retailer—a very prestigious luxury retailer—but still a retailer, into a platform—a true platform where brands can sell directly. This is transformational for the industry because there are more than 1,500 brands and designers, some of them small emerging designers, that use those platforms and sell on those platforms.

It's a very important part of their business, and we can enable them to go directly through those platforms.

Okay, we're running very short on time. In fact, we've run out. One last question I have to ask you: The dollar at record highs, the Euro at 20-year lows, the pound, of course, front-page levels we haven't seen since the 1970s—good or bad for a company like yours, listed in New York, dealing with European luxury?

From an accounting and reporting perspective, bad, because we're reporting in dollars. So even though we're growing in euros and in certain areas of the business, growing very fast in euros, you then translate it to dollars, and it's much lower growth or even dips into negative growth.

So we reported negative growth—small negative growth—but it was actually positive growth in constant currency. But this batch, the translation, it just—sophisticated investors read through that and understand that the underlying business is incredibly strong.

Of course, we have the war in Ukraine, the COVID-19 situation in China, which have materially impacted our growth this year. But the rest of the world, the underlying business is extremely strong.

Okay, José Neves, CEO of Farfetch, thank you very much.