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The European Union’s landmark AI Act was greenlit by the European Parliament in mid-March, setting a global precedent for regulating artificial intelligence. While the period leading to full enforcement could stretch for up to three years, fashion retailers across Europe — and beyond — are now faced with the task of adapting their strategies and practices involving the technology.
The EU AI Act seeks to leave no stone unturned and applies to all industries operating within the European Union as it serves to “protect fundamental rights, democracy, the rule of law and environmental sustainability from high-risk AI”.
It defines artificial intelligence as a “machine-based system” operating with various levels of anonymity and has the ability to adapt itself after deployment and infer from its received input how to generate different types of outputs such as predictions, content, recommendations or decisions that can influence physical or virtual environments.
In a nutshell, the Act categorises AI applications into four risk levels: unacceptable risk, high risk, limited risk and minimal risk, with a complete ban on anything deemed “unacceptable”.
Where do brands stand?
Izzy Tennyson, associate at Simmons Simmons LLP, says that the EU AI Act’s provisions regarding high-risk levels are particularly pertinent to the fashion and retail sectors. “High-risk AI may include applications like virtual fitting rooms that require body measurements and clothing or wearable devices that monitor physiological data,” she says.
Tennyson also highlights the mandated transparency obligations across certain AI applications, such as chatbots, which require brands to inform consumers about their interactions with AI and ensure that their AI systems are transparent about consumer data usage. “These obligations are designed to ensure that users are aware of when they are interacting with an AI system and to understand the capabilities and limitations,” she says.
Although many brands will not be developing their own AI models, large numbers of businesses in the fashion sector are already employing the technology. Anthony Lupo, chairman of Arentfox Schiff law firm, says most fashion companies will be categorised as a “deployer” under the Act, rather than “providers” or developers.
The Act defines deployers as “any natural or legal person, public authority, agency or other body using an AI system under its authority except where the AI system is used in the course of a personal non-professional activity.”
Deployers have obligations ranging from assigning human oversight to AI activities within a company, to keeping the logs automatically generated by a high-risk AI system.
Lupo cautions that the “devil will be in the details” for brands. It will be essential to make sure that their obligations as deployers are met — it’s not enough to lean on the developers — or else face the prospect of hefty consequences under the penalty provision.
The penalty provision allows for heavy fines to be administered for non-compliance. Depending on the severity of the infringement, that might amount to millions of euros or a percentage of a company’s worldwide earnings in a given time period.
“One of the big issues with the Act is the penalty provision,” Lupo says. “I understand why there could be massive penalties, but there’s so much room for things to go wrong that are not material per se — that’s where I’m most concerned, and [brands] have to be careful in the adoption of this.”
Tennyson says her firm recommends businesses begin by conducting a thorough audit of their current AI technology use. This should include understanding the data being used, the decision-making processes involved as well as the potential risks associated with these processes. “From there, implementing robust compliance programmes and training for staff on the legal and ethical implications of AI will be key steps in preparation for the EU AI Act.”
Staying ahead of the curve
Although the Act may take up to three years to be fully implemented, some fashion brands and fashion-tech companies are already taking action.
These companies include Intelistyle, an AI-powered personalised styling solution used by brands such as Dolce Gabbana, Max Mara and Tommy Hilfiger. CEO Kostas Koukoravas says the company is prioritising transparency and flexibility in the use of customer data to allow brands that work with them to be in control of how their customer data is used for AI training input.
“Brands can choose what customer data will be used for personalisation, allowing them to customise the AI accordingly,” Koukoravas explains. “This allows them to manage legal risk without slowing down AI adoption, which is crucial to compete effectively in the current market conditions.”
Intelistyle is also working on “explainable AI”, which entails a set of processes and methods that allow human users to understand and trust the results and output created by machine-learning algorithms. Koukoravas says this will allow brands to better customise AI to their needs while staying “legally compliant” with the Act.
The approval of the AI Act has been likened to the EU’s introduction of its General Data Protection Regulation or GDPR back in 2016, after which companies rushed to update their practices in order to comply with the standards.
Koukoravas says that similarly to GDPR, for the majority of e-commerce and marketing use cases, there will be a big wave of companies trying to comply just before the regulation comes into effect. “This will primarily result in additional compliance work without real structural impact in the way AI for fashion is utilised.”
Michael Musandu, founder of the AI-powered digital model studio Lalaland, says he has seen brands be less proactive and more reactive to legislation — they often wait for something to go wrong before making changes.
He advises retailers to be “more critical” in terms of how to deploy this technology and recommends companies create internal AI governance strategies to determine how they want to deploy AI and according to what principles. “I think these are conversations that brands need to have already.”
Ranjan Roy, VP of strategy at intimate apparel brand Adore Me, says the Act has prompted his company to be much more meticulous in documenting what models and datasets they use in any externally operationalised process. “Seeing the EU AI Act is helping push the importance of this, but it’s a practice that we assume will become normalised in the months and years to come,” Roy adds.
A global ripple effect
The EU’s AI Act is likely to set a global standard for AI regulation. US and UK brands, retailers and tech companies are already taking note. While the specifics of their own regulations might differ, the core principles of responsible AI development and deployment are likely to be mirrored in both regions.
Tennyson of Simmons Simmons has already noted increasing recognition among UK businesses around the Act’s implications, prompting them to revise their AI strategies in line with the EU’s regulatory framework. “Further to this, the Act has a notable extraterritorial reach, affecting not only businesses within the EU but also those outside the bloc that provide AI systems or use AI outputs within the EU,” she says.
Roy says the new regulations could “temporarily” slow the pace of AI innovation, “but this is the exact moment where this could be a good thing… As brands have been inundated by the onslaught of new announcements and surface-level innovations, this is a moment where everyone in every industry should be thinking through how to build the systems and datasets to build a truly sustainable next generation of customer and business experiences.”
Everyone agrees that the EU’s AI Act marks a big moment for AI in fashion retail. “It’s a stepping stone and it’s going to take time,” says Lalaland’s Musandu. “It’s not a solution for everything, but it is a good way to start.”
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