Investing.com - The retail world may be underestimating how quickly clothing and luxury brands are introducing artificial intelligence into their daily operations, according to a new benchmarking study from UBS.
While many investors in 2023 believed the "Softlines" sector was moving at a snail's pace, the bank's analysis of 45 major companies found that a staggering 96% of them are now actively using AI. The gap between public perception and actual usage suggests that the market is currently overlooking a significant "bull case" for retail stocks.
UBS noted that many companies, including heavyweights like Ralph Lauren Corp Class A (NYSE:RL) and Tapestry Inc (NYSE:TPR), have become increasingly "sensitive" about disclosing their specific AI tools. The secrecy isn't due to a lack of progress; rather, firms are likely protecting their new competitive advantages in inventory management and hyper-personalized marketing that are already starting to show up in their financial results.
Efficiency over hype: The path to higher margins
The bank argues that the market is currently too focused on the "bear case", which is the fear that AI will disrupt traditional shopping, while ignoring the immediate efficiency gains. By using AI to better predict what customers want, brands can significantly reduce the need for aggressive discounting. Since heavy markdowns have historically been a major "profit killer" for the industry, even small improvements in full-price selling can lead to significant margin expansion.
The shift towards embracing AI is expected to drive higher Return on Invested Capital (ROIC) across the sector. UBS believes that as more companies prove that AI tools lead to tangible dollar gains, valuations for clothing and luxury stocks will likely be rerated higher.
Beyond the back office: Design and speed to market
AI's impact isn't limited to spreadsheets and logistics. The report highlights how AI is being used to compress the design cycle, allowing brands to respond to fashion trends in real-time with less physical waste. The speed-to-market advantage is becoming a critical differentiator for top-tier players.
While the "hype" around generative AI has cooled in some sectors, UBS maintains that for fashion retail, the technology is moving into a more mature phase of "tangible value creation." The bank suggests that investors who remain on the sidelines due to disruption fears may miss out on a period of tech-driven profitability that is already well underway.