We Might Have Figured Out What Companies Should Do with Augmented Reality

Updated: July 12, 2025

Key Points

• Virtual twins of fashion apparel can provide operational benefits, guaranteeing better demand prediction, a wider customer base, and lower returns when staged prior to the physical clothes production phase;

• Wearable gadgets, such as smart glasses, enabling the augmentation of physical reality with digital artifacts, can help scale the virtual clothes approach and make it a desired strategy, delivering analytical insights for brands;

• The blending of digital and physical realities creates a new space for commerce, and its profit-generating potential can be unleashed with the additional analytics of consumer data.

"Big Tech and Fashion Think They’ve Finally Figured Out Smart Glasses" is the title of one of the recent BoF (Business of Fashion) articles describing how Meta and Google are striking big deals and announcing new eyewear partnerships on smart glasses after several failed attempts in the past decade. While the tech aspect of it is exciting and the fashion positioning is the key selling point, there might be more to it than just the next high-tech fashionable device everyone wants to have.

In the new research article, "Sell the Virtual Before the Physical Product? Managing the Dual Channels for an Apparel Brand," I discuss how augmented / virtual reality (AR/VR) can help the fashion brands make a profit while predicting trends and optimizing their production cost by reducing the excess inventory and unsold clothes. Stay with me for a short explanation.

Rethinking the Limits of the Showroom with AR

Virtualization is reshaping retail, with immersive tech like AR and VR expected to add $1.5 trillion to the global economy by 2030. Platforms like Roblox, Minecraft, and Sandbox are turning digital fashion – from AR overlays to avatar-only outfits – into the next frontier for consumer engagement.

Brands are taking notice. Nike's CryptoKicks link virtual sneakers to limited-edition physical drops, slashing inventory risks. Burberry's Roblox collabs and Claire's dual-channel digital collections show how virtual items blend with real-world retail.

Far from being a novelty, these virtual touchpoints offer real solutions to fashion's persistent inventory and forecasting challenges. Our research explores how brands can integrate immersive tech into core retail strategies – reaching Gen Z while rethinking the limits of the showroom.

How to Reap the Benefits of AR 

Our research analyzes a hypothetical apparel retailer that releases a digital version of a product first and then uses early virtual sales to fine-tune inventory, pricing, and refunds for the physical launch. This strategy blends quick-response (QR) production with digital-first experimentation – boosting demand while minimizing risk.

We identify four key effects:

• Demand generation: Virtual items attract new consumers – especially Gen Z, who already dominate metaverse spaces and are projected to represent over 50% of the global workforce by 2050.

• Demand sensing: Early sales offer real-time feedback on design appeal, helping avoid overproduction and aligning with circular economy goals.

• Demand conversion: Exposure to the virtual version increases the desire for the physical product – driven by the psychological endowment effect. Some creators, like Twin Atlas, report up to 90% conversion from virtual to physical purchases.

• Valuation certainty: As users see virtual items styled and shared online, uncertainty about the product's value decreases, increasing confidence in buying.

In short, virtual-first strategies aren't just hype – they offer data-driven pathways to smarter design, deeper engagement, and more sustainable retail.

So Where Do Smart Glasses Come in Place

To reap the benefits from the proposed virtual first strategy, there should be a critical mass adoption of the technologies that allow to blend the virtual elements into physical reality, e.g., smart glasses. In other words, the size of the total addressable market that has consumption potential of both virtual and digital copies of twinned products should be attractive for the brands to expand operations and convince investors to develop the needed tech. 

Following the claim above, our results suggest that the virtual strategy would work and deliver on its four promises when there is a sufficiently high conversion rate of consumers who would want to purchase both a virtual and a digital version of the fashion item. Only when this crossover between the consumer segments exists, the brands embracing the virtual realm will succeed in making a return on their investment. One way to support this conversion is for the consumer to embrace the smart tech, such as smart glasses, smart mirrors, VR sets, etc., that extends the physical reality and augments it with digital artifacts. 

Where the Power of Virtual Strategy Lies (In Analytics)

While analytical forecasts underscore the market potential of virtual fashion, and brands across segments continue to experiment with digital offerings, the strategic value of the virtual channel remains largely untapped. To date, most initiatives have been approached through the lens of marketing and brand engagement. However, the real promise of virtual fashion lies in its capacity to generate early, high-quality demand signals that can inform critical operational decisions.

Without undermining the importance and role of cross-channel marketing, the virtual strategy discussed in the paper is the most powerful when leveraged as a source of data. It enables firms to refine demand forecasts, optimize pricing, and reduce refund rates. These improvements directly affect profitability and operational efficiency. Moreover, only through such integration will the marketing investments, aimed at driving conversion between virtual and physical purchases, translate into sustainable performance gains.

In this light, virtual channels should not be seen as peripheral experiments but as mechanisms for aligning digital consumer behavior with more adaptive, resource-efficient business models. Without this shift, claims of sustainability of digital fashion remain superficial, and the potential of virtual fashion will continue to fall short of its analytical promise.

Selected References:

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2. McDowell M (2022) Nike and RTFKT take on digital fashion with first “Cryptokick” sneaker. Vogue Business (April 23), https://www.voguebusiness.com/technology/nike-and-rtfkt-take-on-digital-fashion-with-first-cryptokick-sneaker.

3. McKinsey (2022) Value creation in the metaverse. McKinsey Report (June).

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7. Roblox (2025) Roblox unlocks next-generation commerce with in-game shopping for physical items. Roblox (May 15), https://corp.roblox.com/newsroom/2025/05/roblox-launches-shopify-integration-amp-licensing-program.

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