1. Introduction

The fashion and luxury industry refers to the luxury goods market characterised by high value, high quality, and unique designs. Etymologically, the term 'luxury' finds its origin in the Latin word 'luxus' [1]. Defining ‘luxury’ proves to be a challenging endeavor. Cabigiosu [2] in his paper states that there is no single, universal definition of luxury; rather, it assumes diverse meanings and forms based on the temporal, spatial, and analytical perspectives. Due to how closely the idea of luxury relates to human necessities and how its definition changes depending on the period, culture, and circumstances being considered, there may be variations among these aspects. In the present day, due to the globalization of the economy and growing consumer demands, the fashion and luxury industry has arisen as one of the most dynamic and promising sectors worldwide, distinguished by exceptional quality and design [3-5]. As a consequent, major brands are actively pursuing innovation to meet the rapid growth and competition.

With the rapid development of the fashion and luxury industry and the continuous growth and change of consumer demands, the applications of artificial intelligence technology are gradually extending their reach across this domain. Being an industry characterized by competitiveness and high innovation, the fashion and luxury factor has consistently dedicated itself to delivering personalized and diversified products and services to meet the changing needs of consumers. AI technology, equipped with capabilities including data analysis, recognition of images, modeling predictions, and natural language processing, can rapidly process massive amounts of data and extract valuable insights, thus bringing new business perspectives and opportunities to the fashion and luxury industry. The purpose of this article is to explore how the technology of AI is applied in the fashion and luxury industry, including personalized customer experience, market promotion and sales strategies, product design and innovation, as well as inventory and supply chain management. In addition, this article aims to analyze the primary existing problems and challenges posed by these applications.

2. The Applications of AI in the Fashion and Luxury Industry

The fashion and luxury industry are undergoing a significant transformation with the incorporation of AI. This study explores how AI is being applied in customer engagement, marketing strategies, product innovation, and supply chain management within the sector.

2.1. Personalized Customer Experience

The customer service and overall experience were significantly influenced by the application of AI in the area of fashion and luxury goods. This influence extends to a variety of dimensions, contributing to the refinement and optimization of customer overall satisfaction and interactions. Artificial intelligence is applied in customer service and experience through intelligent customer support and virtual reality, powered by natural language processing and machine learning algorithms. One of the notable implementations of AI in this context is the integration of AI-powered chatbots and virtual assistants, which efficiently and effectively answer consumers’ queries, offer product information, provide personalized recommendations, and thus enhance customer services in luxury fashion retail [6].

Brands are increasingly deploying chatbots on their official websites, such as the 'LV Virtual Assistant' by luxury brand Louis Vuitton, which offers services including Store Availability, LV Assistance, Product Discovery, and Contact an Advisor (see Figure 1).

Figure 1. LV virtual assistant (LV official website).

Furthermore, through Virtual Reality (VR) technology, AI exhibits the capability to offer the fashion and luxury industry the potential to provide consumers with highly immersive product experiences and interactions. This not only enhances brand image but also significantly boosts user satisfaction. Balenciaga, for instance, introduced its autumn/winter 2021 collection in a unique way by hosting a virtual reality runway show using Oculus glasses, which was made available to 330 guests worldwide. Alongside the fashion event, they also launched a video game titled "Afterworld: The Age of Tomorrow". This also marked the first time a fashion brand has ever created a video game (see Figure 2).

Figure 2. Balenciaga Fall 21 (videogame.balenciaga.com).

To sum up, personalized experience can bring many advantages to business operations in the fashion and luxury industry, such as increasing customer engagement and building brand loyalty.

2.2. Market Promotion and Sales Strategies

The application of AI in the fashion and luxury goods industry plays an essential role in marketing and promotion. Customer preferences and demands can be identified by the AI- driven analytics and predictive algorithms, which enabling businesses to create targeted and effective marketing strategies. For example, by analyzing social media data and user behavior patterns, precise targeting and personalized recommendations can be achieved [1]. Furthermore, AI can identify user emotional tendencies through natural language processing and sentiment analysis, enabling more effective brand communication and marketing activities [7,8].

The fashion and luxury goods industry can greatly benefit from AI in marketing and promotion, leading to the implementation of highly accurate and efficient marketing strategies. This, in turn, contributes to the improvement of brand awareness and sales performance. Through intelligent market research and data analysis, businesses can accurately grasp market trends, identify potential consumer groups, and conduct precision marketing. Moreover, AI supports automated advertising management and the monitoring of performance, helping businesses to improved advertising investment optimization, cost reduction, and enhanced ad effectiveness for brands [9].

With the assistance of AI algorithms, businesses can establish personalized marketing push systems, delivering customized content and promotions based on consumers' interests and purchase history, thus increasing user engagement and conversion rates. Additionally, AI can support predictive analysis and intelligent decision-making, enabling companies to develop more data-driven marketing strategies and optimize product pricing and promotional tactics for enhanced effectiveness.

In conclusion, the application of AI in marketing, promotion and sales within the fashion and luxury goods industry enables brands to achieve precise targeting, deliver personalized recommendations, and conduct intelligent marketing, ultimately enhancing brand influence and competitiveness in the market.

2.3. Product Design and Innovation

AI enables the transformation of design and creativity. AI, as a supportive tool for designers during the creative process, can be utilized to generate design concepts and patterns [5]. This integration enables the industry to produce competitive products while satisfying customers’ demands for personalization and innovation. The combination of human intuition and AI- powered pattern generation brings a new vital relationship to designers and the industry, as well as enriching the creative journey and expanding the horizons of design possibilities. The collaboration between designers and AI technology results in a creative way that redefines the boundaries of design innovation.

In addition, AI algorithms plays an important role in the domain of trend analysis, which offers brands a potent tool to forecast and adapt to shifting consumer preferences. The fashion industry relies on trend analysis, which can be time- consuming and costly. However, a study suggests that AI can streamline this process [10, 11]. By training an AI model on diverse fashion images, it can detect and classify clothing attributes, making trend forecasting more efficient and cost-effective. This enables brand to align their product offerings, marketing strategies, and overall business approaches with customer demands and desires. As a result, this comprehensive approach not only enhances brand-consumer engagement but also forges deeper connections between brands and their target audience.

Furthermore, fashion designs can be created and showcased virtually without physical production by adopting AI technology. This aligns with sustainable practices and contributes to reducing environmental impact. The digitalization of the design process and virtual runway shows, exemplified by Balenciaga’s use of AI and virtual reality, not only enhances efficiency but also minimizes the carbon footprint associated with traditional fashion events.

2.4. Inventory and Supply Chain Management

AI plays a vital role in inventory and supply chain management. AI technologies have the functionality of forecasting demand, helping brands optimize inventory levels, and ultimately enhancing efficiency and sustainability. One of AI’s primary contributions lies in demand forecasting. AI-driven algorithms empower brands to predict customers’ demands more accurately [3]. This predictive capability allows companies to efficiently manage inventory levels, reducing the risk of overstocking or stockouts. As a consequent, this efficient resource allocation minimizes costs and promotes supply chain sustainability.

In addition, AI has the potential to enhance supply chain logistics by predicting shipping times and optimizing distribution routes, leading to reduce costs and minimize fuel consumption and emissions [8]. Overall, AI fosters a more environmentally friendly supply chain and generates cost savings for businesses within the fashion and luxury industry. With the ongoing advancement of technology, AI’s role in shaping the future of supply chain management remains crucial.

3. The Challenges of AI in the Fashion and Luxury Industry

AI has made a significant impact on various industries, including fashion and luxury. It has the potential to transform the industry by enhancing customer experiences, improving marketing strategies, refining product design, optimizing supply chains, and more. However, the integration of AI in the fashion and luxury industry also presents several issues that need careful consideration. This study explores three major challenges, including data privacy and security, social acceptance, and ethical considerations, as well as the limitations of AI technology.

3.1. Data Privacy and Security

The implementation of artificial intelligence in the world of luxury and fashion raises significant problems regarding data security and privacy. With the extensive collection and analysis of data, personal privacy breaches and data security have been serious issues to focus on as sensitive information are evolved in this industry, such as consumers’ personal details and purchasing behaviors. Preserving the privacy and security of such data poses a considerable challenge. In addition, the application of artificial intelligence algorithms needs data support. Therefore, a facing issue of conducting data sharing and mining while upholding data privacy and security needs to be solved.

There are numerous relevant regulations and laws designed to strict and protect personal data, which can have both benefits and drawbacks to the fashion and luxury industry. The purpose of data protection law is to safeguard people's autonomy, identity, and privacy [12]. For example, the generation data protection regulation (GDPR) became the data protection law across EU member states since 25 May 2018. It grants all EU people access rights to their data, including data portability, the right to be forgotten, and the right to know when their data has been compromised [10]. However, these regulations present a complex challenge for fashion organizations aiming to utilize AI. To adhere to GDPR and similar regulations and laws globally, fashion businesses are not only required a deep understanding of these legal frameworks, but also the ability to adapt to evolving regulations. Therefore, it is vital for fashion companies to navigate this intricate regulatory landscape to guarantee that their AI systems uphold individuals’ data privacy rights.

Alongside these challenges, the escalating interconnectivity of AI systems presents a growing cybersecurity risk. AI- powered platforms that accumulate and process vast amounts of personal data become attractive targets for cyberattacks [12]. Thus, ensuring the security and confidentiality of data within AI-driven fashion ecosystems remains an ongoing challenge. To protect against potential data theft and manipulation, fashion businesses should allocate resources and invest in implementing strong cybersecurity measures. This includes continuous monitoring for system vulnerabilities and staying agile in response to the ever-changing strategies employed by cybercriminals.

3.2. Social Acceptance and Ethical Considerations

The use of AI in the fashion and luxury industry raises concerns about social acceptance and ethical considerations. As AI becomes widespread in fields such as recommendation systems and customer services, AI-driven decisions have the potential to affect the relationship between individual customers and businesses. For example, within recommendation systems, AI algorithms may prioritize high-priced luxury products to consumers to maximize the profits, without taking into account their actual wants and financial capabilities [4]. This practice can lead to consumer feelings of being misled and can gradually erode the trust in brands. Moreover, it is important to acknowledge that AI algorithms themselves are not immune to biases and error rates, which can result in unfair decisions or misleading behaviors [6]. For instance, if algorithms rely solely on historical purchase for making product recommendations while ignoring individual consumer preferences and changing needs, it can cause discomfort and frustration among consumers.

Therefore, prioritizing fairness and transparency in AI applications has become a significant concern. To address this issue, it is essential to establish relevant ethical guidelines and regulatory mechanisms. These mechanisms are designed to guarantee the transparency of AI algorithms’ decision making processed, enabling consumers to understand and assess the basis of these decisions and allowing for evaluation and oversight. In addition, initiatives to enhance the accuracy and resilience of AI algorithms, diminishing biases and error rates, are crucial for fostering fairness and trustworthiness in decision-making.

However, the advent of AI in fashion also raises concerns about job displacement. As automation and AI-driven processes become more prevalent, certain roles within the industry may become redundant, potentially resulting in job loss for workers. Balancing the potential benefits of AI in terms of efficiency and innovation with its societal impacts, such as job displacement, is a complex ethical challenge. Fashion businesses must navigate this delicate balance, ensuring that the benefits of AI do not come at the expense of livelihoods and socioeconomic stability. Overall, the adoption of AI in the fashion and luxury industry represents significant progress but it also introduces a range of vital social acceptance and ethical considerations. Addressing bias and fairness, providing transparency in AI usage, and carefully managing job displacement are critical steps in harnessing the potential of AI while upholding ethical integrity and securing the trust of both consumers and industry stakeholders.

3.3. Limitations of Artificial Intelligence Technology

Although AI can bring many advantages to the industry, it still comes with technical limitations. AI algorithms still exhibit limited capabilities in handling complex situations and making judgments. While there have been significant advancements in areas such as image recognition and natural language processing, when it comes to fashion design, AI may struggle to fully replace human aesthetic discernment and creative abilities. The fashion and luxury sector places high demands on sophisticated aesthetic judgments and innovative creativity due to its unique visual and cultural attributes, which currently pose technological limitations for AI. AI algorithms still face challenges when dealing with complex, ambiguous, or subjective fashion design tasks.

Furthermore, the process of training AI algorithms requires a substantial amount of well-annotated data to enhance their accuracy and forecasting capabilities. However, in the fashion and luxury industry, data annotation is costly and often requires professional human annotators, posing challenges in data acquisition and processing. In contrast to other industries, fashion and luxury datasets are typically smaller in scale and inadequately annotated, limiting the application scenarios and effectiveness of AI technology in this industry.

Therefore, overcoming the limitations of AI technology and further enhancing its value in the fashion and luxury industry is an ongoing research and exploration task. On one hand, deep learning algorithm research can improve AI's understanding of fashion aesthetics and creativity. On the other hand, exploring new data annotation methods and technologies can reduce data annotation costs and establish more comprehensive and rich fashion and luxury datasets. Additionally, integrating data from multiple sources and utilizing techniques such as machine learning and natural language processing can enhance the effectiveness of AI in marketing, product recommendations, and customer services. In conclusion, AI technology holds immense promise in the fashion and luxury industry, but it faces certain limitations. Through continuous research and innovation, it is believed that these limitations can be overcome, further enhancing the application effectiveness and commercial value of AI in the fashion and luxury sector.

4. Conclusion

This paper explores how artificial intelligence (AI) is being used in the fashion and luxury industry, and analyzes its applications in personalized customer experience, market promotion and sales strategies, product design and innovation, as well as inventory and supply chain management. AI-generated fashion collections, personalized virtual shopping experiences and sustainability initiatives are poised to redefine the industry. Furthermore, AI’s capabilities can make the industry more sustainable, such as optimized production processes and waste reduction. However, there are still issues with the application of AI in this sector that require discussion and resolution. Data privacy and security have risen as critical concerns, with the challenge of ensuring the safety and privacy of user data. In addition, social acceptance and ethical issues were also highlighted, as the application of AI technology can raise ethical and moral questions that necessitate the establishment of corresponding standards and regulatory mechanisms. Furthermore, the limitations of AI technology present challenges to its application in the fashion and luxury industry, demanding ongoing research and breakthroughs.

In conclusion, AI technology in the fashion and luxury industry presents vast potential and significance. Still, it is accompanied by a range of challenges, including data privacy and security, ethical considerations, and technological limitations. By addressing these issues and continually innovating, AI can play a more substantial role in the industry, offering new opportunities and innovations. Future research should explore deeper integration and adaptation to evolving technological and industry trends.