Latest / The Interline Podcast / Clothing Destruction, Cybersecurity and AI, Affordability, And UK-EU Politics
Transcript
- speaker-0: Welcome to the edit from The Interline, the show where we run a quick fire analysis on our pick of the most important fashion and beauty technology stories from the last seven days. I'm Grace, the social editor, and I'm joined by Ben, the editor-in-chief. And together we have less than 25 minutes to give you our analysis on the stories that we think really matter. speaker-1: Hello Grace, good to see you again. I am still travelling, ⁓ hence the kind of air pod setup rather than the dedicated standalone mic and everything. ⁓ travelling to a quieter place than I was ⁓ for last week's show. So hopefully people can pick up a difference in the audio. ⁓ excited to get into the five stories that we've picked between the two of us. I think there's some interesting crossover, there's some interesting divergence. We've got a bunch of ground to cover, so let's roll. speaker-0: So one of the biggest topics and one of the biggest news stories this week was the new ban on large companies destroying unsold new product. So the measure has been introduced by the Eco Design for Sustainable Product Regulation. And in summary, it requires large businesses to keep products in use wherever possible. So this could be by selling them, including through discount stores or alternative markets. Donating them to charities or social enterprises, or preparing them for reuse through repair, refurbishment or remanufacturing. Now, from my understanding, a lot of big fashion brands do rely on being able to destroy product. So I really wanted to know: like, do you think these new regulations will make big brands think about their buy more? Both in terms of the actual products they're planning, but also the units behind them, so that they don't over forecast and overproduce products that they can't sell, or do you think big businesses will still find a way around this new rule? speaker-1: So I I think over over forecasting over production is a very, very difficult thing to solve using the methods that fashion traditionally relies on. Right. So your your typical lead time for developing a new product is something like nine months if you look at it from a category agnostic, like aggregated average point of view, which means that the the plans that you're putting in place, whether they're like margin and financial plans, ⁓ Building slot plans, building assortments, ⁓ whatever you're determining to make, you're making choices the best part of a year in advance of actual market conditions. Now, those choices are made at the the the product and the style level and the color level and everything else. You're determining how much of something to make across all of those. It's also made at the size level. Like that's that's the thing that people don't often talk about when it comes to overproduction, is that size ranges, size ratios and things are quite out of whack for a lot of companies. And what they end up with is a lot of main kind of sizing, like reference sizing that mediums and so on get sold out quickly and then they struggle to replenish them and then they end up with a lot of excess inventory in smalls and larges and extra larges and so on because for whatever reason they've overproduced in those. So There's a big challenge in demand prediction, demand sensing, but also size understanding. ⁓ I had a fascinating podcast interview with ⁓ Mikhaila Vassels, who's the CEO of Style Arcade a couple months ago. And I'd recommend anybody who's interested in the sort of sizing side of this to to give that one a listen. Now, the reason that those products that are overproduced, overdeveloped, and overstocked end up being destroyed rather than making their way into outlets or ⁓ kind of markdown, like successive markdowns and so on, is usually like brand protection. ⁓ so you'll see this more at the luxury end of the market. Your burgeries and so on have been, I believe, criticized for this in the past, which is if you want to maintain the value of something, the the perceived value of something, y it cannot be seen to be oversupplied, ⁓ and it cannot be seen to be discounted too much because all of a sudden it no longer earns its premium price point. What we're talking about here is a big mess of size predictions, ⁓ style forecasting, pricing and margins and planned markdowns. ⁓ there's there's a lot to unpick in terms of actually solving this. And to me, this strikes me as one of those areas where regulation is leading in a noble and a sensible way, but it's quite separated from market reality. It's quite separated from just how primitive and rudimentary a lot of the tools are that brands have to actually solve and address these things. So I suspect in the short term at least you'll see more people trying to find inventive ways to shift inventory to invisible channels at the very least, like alternative markets and so on. Then you will see them actually trying to take meaningful steps on addressing overproduction, overdevelopment, ⁓ miscalibrated size ranges and so on. Now I I need to refresh my memory on what the provisions of the SPR are. ⁓ but I believe there's still a way for people to say, well, I'm gonna shift these to alternative markets. I'm gonna I'm gonna move this excess inventory to where it doesn't harm my brand perception domestically and in the places that I care the most about. That seems like an easier lever for a lot of people to pull than like radical rethinks of how they forecast and build. speaker-0: So this week we've seen a major story that, depending on your perspective, is either a piece of guerrilla marketing or the cybersecurity event or maybe the AI capability event of the year. So I'm gonna let you explain the full story, Ben, because it is quite messy and subjective. But the reason I wanted to address this one was because we've seen so many cybersecurity and ransomware attacks in retail lately. So there was a big wave of them in the UK last year which you'll remember, so MNS, Harrods and also the co op were affected, but also major luxury conglomerates and mass market groups were also affected, even though there's still little out there to confirm like who paid the ransoms. So I wanted to know what's changed this week with AI that makes this story worth revisiting. speaker-1: Okay, I'm gonna r work really hard to compress this one into a couple of minutes. ⁓ I will say, ⁓ I'm writing a news analysis of this at the moment, which we'll publish ⁓ on the day we record this. So by the time you listen to this, it will have been out for a couple of days. I I'd recommend reading it. Now, the you're correct that retail has seen a huge amount of cybersecurity and ransomware incidents. The ones you mentioned last year came from two kind of named groups, ⁓ so Scattered Spiders was one of them, and ⁓ Shiny Hunters, I believe, was the other. ⁓ they were very kind of social engineering y hacks. People like to use kind of hacks and attack ⁓ to mean the same thing. Those were much more of the kind of letting me find an individual working for a vendor for ⁓ either kind of SAS or something for one of these brands that gives me a wedge that I can then drive into finding vulnerabilities and building exploitations in their systems. They were they still count as as cybersecurity incidents because they still are expressed as an external party intruding into internal systems and taking a lot of sensitive data in the case of retailers because they have a lot of sensitive information about customer names and addresses and email addresses and payment methods and personalization in particular. ⁓ Really weird to talk about and really weird to ⁓ to analyze. So the main catalyst is OpenAI announced that they were testing ⁓ a un currently unreleased model alongside a released model. So the one that we know about is 5.6 Sol, the unreleased one is presumably GPT six. ⁓ and they were testing those in what's referred to as a sandbox, so like a closed environment that is ⁓ for all intents and purposes like you call it like air gapped from from the wider internet. ⁓ and the point of that that evaluation was for those models to get scored on a benchmark that I believe is ⁓ I forget the name of it now, ex exploit gym is the name of it. ⁓ and the point of that benchmark is to set the model a task to say, ⁓ here is a known vulnerability ⁓ in w in a in one or more systems, it could be JavaScript, it could be anything else. Your task is to Build an exploit on this. And that's the sole way that you will that success will be determined. What happened was those models apparently found a vulnerability in the sandbox environment itself. So they were able to connect to the wider internet. When they connected to the wider internet, they determined that the most eff efficacious way to solve this benchmark was to go and just directly find the answers. They inferred that the answers might be housed on ⁓ Hugging Face. So Hugging Face is the big open open source, open weights ⁓ AI community. So the models performed a bit of kind of combined ⁓ in kind of probing, intrusion testing, and so on, and social engineering to obtain ⁓ login credentials that allow them to get into Hugging Face systems and then to move laterally across those to find the answers to this benchmark and then score a hundred percent. All of that sounds weird and and super scary to anybody who's not ⁓ deeply immersed in AI. For me, the big takeaways from this are ⁓ yes, there is an emerging frontier in AI cybersecurity. ⁓ and a lot of what I've just described is kind of wild to to think about. the key things for fashions to remember though is that AI models do what they're told. So what you have here is an instance of something of an AI model being set, a very specific goal, going out and pursuing it through a lot of different ⁓ kind of adjacent and lateral means. The real threat to fashion, this is there. And I would recommend that people invest in shoring up their security ⁓ and looking at alternative models as a way of doing this. The real threat is still the social engineering stuff. The real threat is still people looking to extract data and then extract ransoms from companies. And they're tending to drive those wedges using much more traditional like social engineering and person to person things. But I will say AI capability in general and cybersecurity is on a massive upward trajectory and ⁓ I do think it's something fashion needs to keep tabs on. speaker-0: I think the next story is actually tied to the one that we just tackled, because it involves some of the same key players, so like OpenAI and Hugging Face, like you mentioned, but it also extends out to the open weights AI community, especially to Chinese AI labs that produce model series like Kimi, GLM, Minimax, Deep Seek, and so on. I feel like we've been hearing a lot about the threat. of AI developed outside of the US for a while now. But it's back in the news in a big way. So tell me why and tell me how this is gonna affect fashion. speaker-1: Yeah, so you and I have talked before about the anthropic Fable V Mythos situation where the US government stipulated that that model had to be withdrawn from serving and distribution and had to undergo a lengthy process. ⁓ the follow-on to that, which you and I haven't talked about, ⁓ is that the US has now instituted a policy where all frontier AI models need to undergo a 30 day ⁓ kind of pre-inspection process from ⁓ from government officials. So prior to being made publicly available, they need to be made quietly available to ⁓ to the American government and to, I believe, like a pre-selected list of like kind of US enterprises and so on. So we have quietly already found ourselves in a situation where American companies and American providers are at least 30 days ahead of ⁓ what the AI that is broadly available outside of the US or to like your general purpose US enterprise. Now, what's been particularly interesting this week is that the story we just talked about, so the the Hugging Face intrusion by the Open AI models that broke containment, the CEO or the CSO, I forget, of of Hugging Face, ⁓ said that they initially tried to solve what they thought was an attack coming from somebody. Outside, they had no idea at the time, but it was it was it was by OpenAI. They initially tried to solve it by using the models that are available to every company in the US, the closed source ones. So your Chat GPT, your GPT series, your Claude series, and so on. Then they quickly hit the guardrails and the classifiers of those, which is ⁓ that that's what the US government has required to be put in place for those models to hit broad availability. If you try to talk to Fable Five about cybersecurity matters, it will punt. And it will pass that to a lower capability model. ⁓ that's just just what's built into it. So what ended up happening was that the team at Hugging Face turned to OpenWait's Chinese models, I think it was GLM 5.2, to solve the intrusion as it was happening at the time. Now, this also coincides with the release of ⁓ Kimi K3, I believe it is. Minimax M3 has been around for a while, Deep Seek f before. Pro. There's a whole bunch happening in kind of Chinese AI, which is ⁓ primarily open weights, because Xi Jinping has made that a ⁓ a priority of ⁓ Chinese AI development. Now, open weights in this case is not the exact same thing as open source, but it does mean that you can take these models and you can run them yourself if you have the hardware to do it, or you can partner with ⁓ cloud and inference providers to do it for you and actually serve those models. They're not they're not locked down in the way that closed source models are. And there's a big risk here, as the kind of closed source AL labs see it, that near frontier capabilities are becoming available outside of the closed ecosystems of ⁓ of Claude and ChetGPT and so on. Now, in in the sense this isn't really news because if the ⁓ if you refer back I did an interview with ⁓ Francesco Bottignero from ⁓ Brunello Cuccinelli last year or earlier this year I forget ⁓ and he was talking about their use of open weights and open source models for a bunch of the stuff that they do. What's interesting is if you're as a company, as a fashion tech company, currently very much like a Chat GPT house or a Clawed house, you may find sooner rather than later that you can get similar capabilities, open weights, open source for ⁓ potentially a fraction of cost. ⁓ and this is a very interesting emerging frontier. ⁓ it hasn't quite resulted in a huge amount of like ⁓ stock value loss in the way that I think people expected that it did or that happened with the first sort of deep sea V1. But Chinese AI, OpenWays AI, ⁓ is is moving really quickly and companies that are reliant on closed source, US AI should be keeping their horizons open. speaker-0: So the next story is actually something that both you and I flagged this week, and it's the news that Apple has teamed up with Klana to offer a new lease-to-own program for devices like iPhones, iPads, and Macs. Now, last week we talked about some of the new rules here in the UK about FinTech companies that spread the cost of purchases. But this feels like something a bit different because Especially when we weigh it up with two other stories that you sent me, so about Indatex launching a value first brand in the UK for the first time, and also Sheen targeting an IPO that's way down from what it may be expected to be. So I wanted to know why these stories related and why we talking about leasing iPhones on a fashion technology show. speaker-1: We're talking leasing out transitive fashion technology show for two reasons. One is as anybody who's listened to these shows week over week will know from from our previous conversations, I'm not nuts about technology being deployed in service of encouraging people to buy things they can't afford. ⁓ and this is very much a manifestation of that. ⁓ the the regulations that being put in place, ⁓ just as a quick refresher, they apply the same standards to ⁓ Klana and similar kind of ⁓ BNPL providers that are applied to traditional credit lending, ⁓ to avoid like usury situations. At least here in the UK, that is the up that is the objective. And you and I have talked before about what I see being a risk, which is the the more AI acts as an intermediary in buying ⁓ in product discovery and buying decisions, the more people end up having persuasive interactions through text and voice that then lead them to transactional interactions that have their impact softened and spread by ⁓ technology or for technology providers who are effectively doing ⁓ kind of relatively high APR ⁓ lending and and putting people in uncomfortable positions. Now, the interesting part to me is that it's not but you can lease an iPhone, fine. You've always been able to get on an iPhone upgrade program. There's always been multiple ways. A lot of technology is based on on on upfront subsidies and things. It's more that it's very clear the value market is where the competition is. If you if you provide a premium good, your way Of getting across that and trying to hedge against that is to make your premium good affordable by spreading the cost of it. The value market, though, has been like Sheehan and Timu's to own for the last couple of years, right? France, the the the EU, a lot of places have tried to regulate the model away, ⁓ and they tried to close loopholes and things. But the reason that value brands have been performing exceptionally well is that people don't have the money to buy more expensive things, people like ⁓ cheaper stuff. There's there's a whole behavioral situation there. ⁓ now the fact that Sheehan is looking to debut ⁓ its ⁓ kind of an initial public offering at something like half of the projected valuation from 2022 is almost a good thing to me because it shows how much competition there actually is in that value space. ⁓ and and a prime example of that competition is Is Zara sorry, Inditex, the parent company of Zara launching its lefties brand, I believe it's called, ⁓ which is like ⁓ it really emphasizes value and it emphasizes value at the product level, but also at the ops and ⁓ kind of store level. So there's a lot of like ⁓ RFID tagging, self checkout, robot sorting, like it there's a lot of technology deployed in Surface in service of decreasing the operating costs of running these kind of brand and retail operations to then drive the the price for the consumer down. to me, I don't think I think there's a huge amount of innovation that's coming in a place that people don't expect. I think people look at this kind of fintech stuff and they think, ⁓ that's the future. You know, we spread costs, we try to make these premium goods as affordable as we can be, and that's how we respond to the cost of living crisis. To me it's far more interesting to s to look at the value space and to say, well, people li like buying cheap stuff for a reason. And one of those reasons is that they don't have the discretionary income to buy more expensive stuff. What if we innovate in how we deliver cheap goods in order to actually create greater competition in the value market as well? That might be a leap from why we're talking about iPhones, but that's what I was driving at. speaker-0: Now, as you'll know, the UK has a new Prime Minister, Andy Burnham, and with him now in power, there has already been discussions about the country's future relationship with the European Union, including some suggestions that closer ties could be pursued over time. Now, for those who don't know, the 2016 Brexit referendum. Did have a significant impact on trade between UK and EU fashion businesses. For example, the wholesale platform JAWS data shows that EU retailers reduced UK brands from 17% of their total buy in 2017 to under 7% in 2025. Over the same period, EU brands more than tripled their gross merchandise value, while the UK's share of that transaction volume fell from 12% to under 4%. So with the new government in place, a lot of fashion industry leaders are calling for policies that will help restore the UK and also specifically London to the position of being a leading global shopping destination. So for instance, the Burberry CEO has urged the government to reinstate tax free shopping for international tourists, and similarly the BRC's chief executive, Helen Dickinson, has Has argued that cumulative costs and fragmented policy decisions are actually holding the fashion industry back. So my question to you, Ben, is do you think Burnham will make fashion retail a priority? And what should large fashion businesses be focusing on during this time of political and economic change? speaker-1: As you and I have talked about before, you're based in London, I'm based in Manchester. ⁓ Andy Burnham, former mayor of Greater Manchester, now exported down to ⁓ to London to be Prime Minister. So ⁓ I'm technically do have something of a horse in this race in that ⁓ I live in a city that has benefited quite a lot from ⁓ the leadership of Andy Burden, not exclusively. ⁓ that Manchester is the fastest growing city region in the UK, and I think it's it's it's up there in Europe as well. So there's a lot of policies instituted here that I think he's looking to extend across ⁓ across the UK. all that aside, ⁓ I think you have to remember, and I certainly have to remind myself, Every successive prime minister we've had, and we've had a lot of them in the last kind of five years or so, they're bound by what it's actually feasible to accomplish, and they're bound by a lot of the policy objectives set by their ⁓ predecessor who was the one who was actually elected. So in this case, Keir Starmer, who won a general election. So I think the British Retail Consortium, the BRC is right to be campaigning this way. I think Burberry are right to be campaigning this way. I question what kind of power empty gun actually has to to take the c sort of action that they're looking for here. I think the Taurus Tax thing is within his remit. I think broadly kind of catalyzing retail and putting retail on a on a better footing is harder and bigger. ⁓ that's a it's a more complicated test. ⁓ for people outside the UK, the biggest kind of ⁓ announcement to have come from the Urban administration ⁓ for ⁓ kind of hospitality and retail has been focused on pubs, ⁓ live music venues and I believe bars, but not restaurants. And it's come in the form of like business rate relief for for those sectors. Something like two percent. It's not it's it's marginal, but it but potentially kind of ⁓ valuable for those sectors. What ends up happening inevitably is that you then have restaurants who complain about ⁓ that side of things, like why can this these business rate reliefs not be applied across the board? ⁓ I think we might see some preferential treatment of fashion a little bit further down the line on the basis of wanting to restore the UK's place as a shopping destination is one. ⁓ and I Do you think the Manchester connection has some bearing here because as a seat for the textile industry and everything else, ⁓ and and also being a place where a lot of brands and tech companies are currently based, I think Andy Byrne will be aware of the export side of things when it comes ⁓ when it comes to fashion. Now, nobody's gonna unwind Brexit. ⁓ I think there's no political capital to do that. There's very little will to ⁓ to do that. I do think we'll start to see. more in the way of export posture and positioning from the UK, how receptive the EU will be to it, how receptive kind of ⁓ your big like luxury stockists in France that I assume are where some of this drawer data is coming from, Gallery Lafayette and so on. Are they are they suddenly going to want to bring in more British luxury brands? Not in the protectionist mode that France in particular is in at the moment. I I d and I could I could be wrong about all of this. I'm not a politician or a political analyst, but It's an interesting space to watch at the very least. speaker-0: Amazing that's all the stories. speaker-1: Grace, thanks as always for doing this. ⁓ looking forward to checking to you again next week. Let's see how many of these threads continue.