The crypto exchange platform FTX's demise combined with the challenges at Meta (formerly Facebook) have shocked the entire metaverse. Yet, many view this episode as a learning experience, whilst recognising that this is a good opportunity to consider what is possible in the virtual world and how companies can take advantage of it.
For luxury fashion companies, business opportunities involving the convergence of digital and physical worlds are real. Fashion non-fungible tokens (NFTs) are the haute couture of the virtual world, with online gaming becoming the ideal catalyst for leading brands – over $100bn per annum is spent by players in the virtual economy.
Whilst the metaverse/crypto is still evolving, online games (e.g., Fortnite) and gaming platforms (e.g., Roblox) are well established and fashion companies remain determined to quickly adapt and grow in this space. There are several ways in which corporates can capitalise on virtual worlds.
Screen wear is the new streetwear
The fashion industry sees digital assets as a potential treasure trove. Fashion plays a big part in how people express their identity and, with more people spending time online, it makes sense that they would incorporate these characteristics into their online personas.
Virtual worlds create brand-new revenue streams for fashion businesses by enabling them to offer branded digital apparel or fashion NFTs, while fostering brand loyalty. NFTs are digital tokens that show ownership of an asset. These tokens can be traded securely, and the history of each transaction is stored on a blockchain that offers transparency of ownership and authenticity.
Fashion NFTs come in other formats, including digital content, which owners can interact with, offering new opportunities to connect with customers, foster community, and generate revenue. According to Nonfungible.com and L'Atelier, the market for NFTs grew by 21,000% to reach $17.6bn in late 2021 from $82m a year earlier.
Online gaming - Avatars are the new trendsetters
Big brands and well-known video game franchises have been working together to take the fashion industry's first step into the metaverse, drawing on the luxury consumer’s desire for collecting and exclusivity. The video game Fortnite has evolved from a survival game into a metaverse-like setting.
Fortnite's virtual skins and accessory sales helped drive revenue for its creator, Epic Games, to $6.3bn in 2022. Louis Vuitton (LV) collaborated with Riot Games' League of Legends to create a line of skins, which players can buy. The cost of the exclusive LV picks ranged from about $170 to $5,600. Meanwhile, Gucci has teamed up with Pokémon Go, Tennis Clash and The Sims with its own range of virtual apparel.
Gaming is a lucrative channel for brands to reach new customers. The metaverse has grown out of gaming where $100bn per annum is spent by players on virtual goods. Around three billion people globally play video games, of which 45% are women. In the US, amongst young people, gaming is the preferred entertainment format versus watching TV. The average share of entertainment time that Americans aged 10-20 spend on gaming is 26%.
Virtual stores - Shopping in the metaverse
Virtual stores are digital replicas of real-world shops that are navigable, three-dimensional, and branded. They offer the best of the real-world and the online environment, creating a third way to shop. Companies can purchase land parcels in the form of an NFT in virtual worlds like The Sandbox, where Gucci has already opened a shop and intends to develop an interactive fashion experience based on its Gucci Vault, the luxury brand's conceptual space.
Sporting apparel companies are also getting in on the act. Puma has developed its first metaverse website experience, called Black Station, featuring exclusive NFTs with limited edition redeemable physical trainers. Adidas’ collection of 30,000 digital collectibles on the Ethereum blockchain also grants holders access to exclusive physical merchandise.
Digital twins - A corporate foot in both camps
Many companies are combining NFTs with tangible products that consumers can wear. To appeal to customers, the idea of combining tokens with physical counterparts is being used. Around 25% of customers interested in buying an NFT would be more likely to do so if it came with physical goods, according to a Scalefast survey.
Luxury and collectible brand NFT sales have the potential to be very profitable, with some generating millions of dollars. An example is Dolce & Gabbana's record-breaking Collezione Genesi, the first luxury NFT collection to feature both digital and traditional apparel. Winning bidders received physical and digital copies of the designs they purchased, with the auction raising over $6m.
Historically, fashion businesses have had trouble anticipating and embracing new technologies. Yet major companies appear to be ahead of the curve this time, giving the market assurance that recent setbacks haven’t clouded their vision for the future of digital fashion. There is no better time for companies to position themselves in an evolving environment and shape the future of the internet and the digital asset market.
Marcel Stotzel is co-Portfolio Manager of Fidelity European Trust. The views expressed above should not be taken as investment advice.