Time to get ready for the party. You put on your Balenciaga cap, fasten your Rolex Daytona and don your Louis Vuitton cross-body bag.
But this isn’t In-Real-Life bling. It’s all virtual gear, worn by your digital self, who’s about to be teleported into the metaverse.
Welcome to the new world of luxury, where avatars wear Burberry “skins” and carry Gucci handbags that are not leather totes but non-fungible tokens.
Also read: Why luxury brands want a metaverse future
The biggest designer groups are grappling with how to approach the virtual and augmented reality of the metaverse. The new realm promises to help them capture lucrative sales and win over young fans. It could also be a hedge against China’s common prosperity efforts, since it might be harder for the government to crack down on conspicuous consumption in another world.
So far, luxury houses have mainly ventured on to the big gaming platforms. Perhaps the best known is Balenciaga’s collaboration with Fortnite, which sells skins—virtual clothing and accessories for avatars—costing less than $10, as well as a real-life collection of T-shirts, hats and hoodies costing multiple times more. The Kering SA-owned brand is so keen on virtual fashion that it’s creating a dedicated business unit to explore opportunities in the metaverse.
It’s far from alone. LVMH Moet Hennessy Louis Vuitton SE, Burberry Group Plc, Moncler SpA, Ralph Lauren Corp. and Kering’s Gucci have all participated in gaming collaborations. Although not a luxury brand, Inditex SA’s Zara is making its first foray into the metaverse through the Zepeto platform.
According to Morgan Stanley, luxury groups could generate sales of about 10 billion euros ($11.3 billion) from gaming by 2030, although this could be as high as 25 billion euros in its most optimistic scenario.
On top of direct sales—either from skins or physical products tied to a game—getting involved in the metaverse can help the bling behemoths reach new, younger customers. That’s crucial, because generations Y and Z will account for more than 70% of the global luxury market by 2025, according to Bain & Co.
But the most lucrative luxury metaverse play is creating NFTs. They could generate sales of 11 billion euros by 2030, Morgan Stanley says, though this could reach as high as about 22 billion euros. What is most enticing about NFTs is that the profit margins could be extremely high—after all, it costs far less to make a digital watch or handbag than the real thing.
Luxury has so far only dipped its toes into NFT waters, with Dolce & Gabbana, Burberry and Gucci among those exploring possibilities. Several LVMH brands, including Louis Vuitton, Givenchy, Bulgari and Rimowa, are also experimenting, although their efforts have been more about testing the concept than generating sales and profit. Adidas AG on Thursday announced an NFT collection, while just a few days earlier Nike Inc. bought RTFKT, a pioneer of fashion NFTs with virtual sneakers.
The sweet spot will come when NFTs can easily be moved between different virtual platforms, according to Morgan Stanley. This will make them more useful, and therefore more valuable.
This may not be too far away. Jewellery from the website Artsy is available to rent in the so-called Mall of the Metaverse in AltspaceVR, an app owned by Microsoft Inc. On Altspace, these objects are known as Mixed Reality Extensions, because they are designed to work across different virtual worlds.
With parallel efforts in the NFT market, such developments could enable people’s avatars to wear their digital clothing and accessories in multiple cyber settings. Who needs to buy a real Birkin bag when you can show off a simulacrum at a virtual concert with your avatar pals?
Of course, the leap into the metaverse comes with risks for the luxury industry. The most pressing is how to break into it without losing exclusivity or devaluing brands. One option is to issue NFTs tied to the purchase of physical luxury goods. You can buy your Patek Philippe watch, have its authenticity certified on the blockchain, and get the VR bragging rights, too. But there is also a danger of unauthorized NFTs and other unofficial representations of brands clogging up the space.
Pressure on the cryptocurrencies used to pay for NFTs is another potential peril, as is an effort by the Chinese government to crack down on kids’ screen time, which could hurt gaming and metaverse efforts more broadly.
Some of the virtual reality worlds outside of the big gaming platforms, such as VRChat, are more experimental. Luxury groups will have to tread very carefully as they expand their presence to these outer frontiers.
But right now, the new realm looks promising. With concerns that China’s focus on mass affluence will put consumers off of ostentatious displays of wealth IRL, digital domains offer another option for extravagance. With everything from Moncler puffer jackets to 1990s-inspired Ralph Lauren ski suits to choose from, the metaverse is fast becoming the place to live your most blinged-up life.
Also read: A walk inside Meta’s new office in Gurugram
