What’s Driving Eastern Europe’s Fashion-Tech Boom?

In 2008, the 12 months Milda Mitkute co-founded vogue resale market Vinted with Justas Janauskas in Vilnius, Lithuania, the nation’s start-up scene was mainly non-existent.

“I name it the wild, wild West in Lithuania,” Mitkute stated. “It was like zero start-ups at the moment.”

Vinted was among the many first. In its early years, the corporate operated as a passion challenge for Mitkute and Janauskas, who held down common jobs whereas engaged on Vinted on the aspect. Janauskas did all the net improvement alone. After three years, throughout which the corporate had opened websites in markets like Germany, it wanted to rent its first developer. The position wasn’t straightforward to recruit, Mitkute stated. Folks felt ashamed admitting they labored for a start-up slightly than a giant company.

At this time the state of affairs is totally different. Since changing into the primary Lithuanian firm to seize a $1-billion valuation in 2019, Vinted has launched into an acquisition spree, opened operations in a number of international locations together with Italy and Canada, and swung into revenue. Mitkute, who stepped again from the corporate after having her first youngster a number of years in the past, is now an angel investor in Lithuania’s start-up ecosystem, which she stated is bustling and attracting international venture-capital corporations on the lookout for thrilling alternatives.

The Central and Japanese European area has emerged as a hotbed for fashion-tech companies lately, producing numerous start-ups serving each native and abroad markets. Vinted is an particularly profitable instance, but additionally from Lithuania is Wanna, the augmented-reality and digital try-on supplier that has labored with manufacturers like Gucci and was acquired by Farfetch in 2022.

Estonia has produced companies together with Alpha AR, which makes use of 3D modelling to create content material for AR and try-on experiences, and Suits.me, a digital becoming firm purchased by Japan’s Rakuten in 2015. Past the Baltic states within the wider area, The Nold, a resale market that not too long ago expanded to the UK, originated in Bulgaria, as did Remix, one other resale participant that ThredUp bought in 2021. That’s simply to call just a few.

“The expansion has been wild,” stated Krista Jegorova, who was a challenge supervisor on the Baltic Style Federation and the Funding and Growth Company of Latvia in Riga earlier than relocating to Spain final 12 months. “Now each second Latvian has a start-up.”

Plenty of these start-ups are fashion-tech firms which were lifted by the larger expertise increase reshaping the area. At this time, Central and Japanese Europe has extra data and communications expertise enterprises per 1,000 inhabitants than Western Europe, based on an April report from PwC Poland and the CEE Digital Coalition. Whereas the area’s financial productiveness nonetheless lags its Western counterpart, it punches nicely above its weight in tech expertise.

Though most vogue markets in Japanese Europe are much less developed than these in Western Europe, the area may be very fashion-conscious. Folks place a very excessive worth on their look, stated Boryana Uzunova, co-founder of The Nold.

That surroundings helps to spur the expansion of fashion-tech firms, that are having an impression past their house markets.

“Tech-wise, we’re very blissful and really fortunate to be positioned precisely the place we’re, as a result of we’ve at our disposal all of this energy that we will utilise,” stated Ana Kremenlieva, one other of The Nold’s co-founders together with Uzunova and Teodor Savov, the corporate’s chief expertise officer.

Final 12 months, the corporate raised €1 million ($1.1 million) in seed funding from a consortium of traders from their house nation of Bulgaria and Czechia. It received its begin, nevertheless, in Sofia in 2021 after Uzunova recognised the necessity for a resale market the place prospects may checklist their clothes. Initially it had some issue persuading traders to fund the challenge, however discovering builders was by no means an issue. Savov “received a really succesful staff very quickly and we began to construct our dream platform,” Kremenlieva stated.

Trigger and Impact

The tech explosion in Central and Japanese Europe that has benefited The Nold and others was introduced on by a wide range of elements, based on Pawel Oleszczuk and Julia Otwinowska, senior advisory supervisor and senior advisory affiliate respectively for PwC Poland. A powerful macroeconomic surroundings with GDP progress outpacing Western Europe offered fertile floor for companies to flourish. Accession to the EU for a number of international locations in 2004 contributed to financial progress, created stability and opened the door to institutional reforms.

“Our transition from a socialist to capitalist economic system, which began within the ‘90s, was a place to begin to the event of the ICT (data and communications expertise) sector, however what was actually a turning level was our EU accession,” stated Otwinowska. It helped enhance confidence within the area, resulting in extra international funding.

What’s extra, an schooling system that emphasised STEM (science, expertise, engineering, and arithmetic) matters — a holdover from the Soviet period when Moscow held sway over many international locations within the area by way of the Japanese Bloc alignment — offered a expertise pool with the appropriate skillset. And the area constructed up a very good digital infrastructure, providing widespread entry to high-speed web. This surroundings and low labour prices in comparison with Western Europe have attracted international companies on the lookout for IT providers.

Development of the tech trade hasn’t been evenly distributed throughout the area. Some international locations are racing forward whereas others are taking longer to rise up to hurry. Both means, these elements have created the appropriate situations for the area to wield outsized affect.

Estonia, for example, has fewer than 2 million folks, “so comparatively small,” Oleszczuk stated, “however Estonia has one of many highest numbers of [start-up] unicorns.” Successes from the nation embrace mobility start-up Bolt, and Estonian builders had been a part of Skype’s founding staff.

Ukraine and Russia, the 2 giants of the area, have loved comparable benefits, although their paths have been barely totally different as they’ve remained exterior the EU. And each international locations have felt the impression of Russia’s invasion of Ukraine.

Sanctions on Russia have constrained the nation’s digital sector, whereas tech expertise from every has fled to different areas. Many Russians have gone to international locations the place they’ll enter with no visa, akin to Georgia and the United Arab Emirates. Ukrainians have gone to locations like neighbouring Poland, a powerful tech participant and residential to fashion-focused start-ups akin to digital try-on supplier Wearfits and Fitly.ai, which makes use of AI for match suggestions.

Ukraine particularly had a strong fashion-tech sector that produced firms akin to 3DLook, a frontrunner in digital try-on; founders like DressX’s Daria Shapovalova and Natalia Modenova; in addition to engineering employees for a lot of others. They’ve needed to adapt to the warfare, which may have long-lasting results. Ukraine additionally utilized for EU membership in June 2022 after its invasion by Russia and formal talks are anticipated to start Tuesday.

The Soviet legacy in Central and Japanese Europe could have formed entrepreneurship within the area in different vital methods, too. Below the Soviets, freedoms had been restricted and alternatives scarce. After the international locations grew to become unbiased, the whole lot immediately modified.

Vinted’s Mitkute stated it produced a way of “eagerness and I’d say feeling hungry — for brand spanking new concepts, for brand spanking new issues … it was being hungry to create since you don’t have a very good life, so it is advisable to construct [it] your self.”

Extra to Come

That starvation is obvious throughout Japanese Europe, which together with fashion-tech entrepreneurs, is producing numerous globally famend design abilities, together with names like Kiko Kostadinov (Bulgarian), Anna October (Ukrainian), Sandra Sándor (the Hungarian founding father of Nanushka), Nensi Dojaka (Albanian) and Demna Gvasalia (the Georgian inventive director of Balenciaga).

That blend of vogue and tech expertise is more likely to preserve the fashion-tech sector flourishing, as is the continuing explosion of tech ambition within the area extra broadly and the inflow of enterprise capital funding it. Bain & Firm discovered that VC funding in Central and Japanese Europe increased more than nine times over from 2015 to 2021, the quickest fee for any area in Europe. “CEE has arrived on the map of European enterprise capital, and the expansion streak is ready to proceed,” it acknowledged.

That trajectory isn’t assured. PwC’s Oleszczuk identified that financial headwinds brought on by surprising geopolitical occasions just like the warfare in Ukraine, regulatory constraints and different shifts, akin to rising labour prices, can have an impact. In 2023, for example, the area did see a drop in venture capital consistent with falling funding throughout Europe.

However for now, the years forward look vivid. On-line resale marketplaces, AR firms and now synthetic intelligence performs are amongst these gaining energy. Jegorova, the previous challenge supervisor on the Baltic Style Federation, stated there’s a powerful sense of group among the many firms, who all assist each other. Governments are additionally serving to by offering grants and schooling to entrepreneurs. In her view, the area’s rise is just starting.

“We began possibly later than others, however we’re rising so quick,” she stated. “You’re going to see a lot extra in just a few years.”