Whilst it’s hard to avoid the hype around the metaverse, its potential should not be ignored. Although the term was coined in the last millennium, it has come to define the network of digital, augmented realities in which people interact in real-time to play, work and/or socialise. Many believe that the metaverse represents a paradigm shift as significant as the telephone or the internet, where physical and digital worlds interconnect.

Even before the pandemic, the importance of our digital identities was growing. Now, with the proliferation of digital interaction, the explosion in eCommerce and the essential requirements of consumers regarding sustainability, the shift to digital worlds has only accelerated. It is now an essential part of how we work, socialise and consume. Many of the biggest companies in the world are investing, pivoting and (in one high-profile example) renaming to embrace its opportunities. In short, the metaverse is coming. The increase in digital natives is leading to a boom in demand for digital fashion and luxury goods within the metaverse. In November 2021, Morgan Stanley estimated the demand for digital fashion will result in sales of $57 billion by 2030.

The metaverse is triggering seismic paradigm shifts within the fashion and luxury industries. Brands are finding new ways to monetise their intellectual property and connect with new customers, while trying to replicate the essential aura of exclusivity, scarcity and provenance in the digital world.

Digital fashion

Luxury brands are increasingly aware of the commercial potential of digital fashion. By some accounts, 10% of fashion items purchased by Gen Z are purely for display on social media. Digital fashion marketplaces (such as DRESSX) are democratising digital fashion by showcasing emerging digital designers and allowing the average customer to participate without breaking the bank. These platforms typically allow customers to purchase digital assets, upload photos, and receive the same photos with the asset overlayed.

The enfant terrible of digital fashion, London-based Auroboros (housed within Alexander McQueen’s Sarabande Foundation) is highlighting the infinite possibilities of digital fashion by designing intricate and gravity-defying designs, that would be impossible to replicate physically, and offering them for sale via their online store in the metaverse, otherworldly designs are often the most popular, fuelled by customer demand for digital escapism.

Digital fashion extends far beyond clothing. Digital skins for video games are a popular way for luxury brands to dip their toes into the metaverse. Balenciaga, Gucci, Channel and many others plugged into the metaverse before the term was popularised by selling limited-edition skins in popular games. Some brands are taking a step further by opening entire virtual stores within games. Forever 21 recently opened a Shop City in gaming platform Roblox, where players can purchase branded assets and sell them in their own stores.

Further, the metaverse is allowing brands to tap into new consumers bases. Last year when Gucci launched its $12 AR sneakers, customers who would not have the means to purchase a physical pair were able to connect with the brand for the first time. Producing digital garments is also more sustainable; they are not discarded after use. Or at least, from a primary market perspective. When digital assets are circulated on secondary marketplaces, the impact of energy-intensive blockchain technology must be considered.

Role of NFTs

At last year’s events, we discussed the rise of Non-Fungible Tokens (NFTs) and their use for the world of retail and luxury brands. Brands are increasingly using NFTs as scarcity mechanisms in order to maintain in their digital designs an aura of exclusivity. Indeed, NFTs enable brands to mint limited edition, limited quantity designs, and enable customers to verify the authenticity of these designs and provide proof of their ownership. NFT collections in open-world video games are especially popular, given the high degree of creative freedom on offer, and are fast becoming an important currency of the metaverse.

Marketplaces for NFTs are appearing in all corners of the metaverse. DRESSX features both a primary marketplace, where newly-minted NFTs are sold directly by designers, and a secondary marketplace, where second-hand NFTs are sold by collectors. Secondary marketplaces are thriving, with the more desirable NFTs often appreciating in value after the first sale. Some brands appreciate the increasing commercial lifespan of NFTs, and are searching for new ways to maintain their long-term value and market them as attractive investment opportunities for crypto-investors seeking to diversify.

One way of doing this is to use NFTs to bridge the gap between customers’ digital and physical experiences of a brand. For example, ahead of the launch of new trainers, Balmain recently auctioned NFT versions complete with digital membership cards which serve as ‘access tokens’ to real-world perks. These range from PT sessions to fashion show tickets, and more may be added in time. By using NFTs in this way, brands are able to create exciting new experiences for customers and replicate the necessary aura of their exclusivity.

The merging of digital and physical customer experiences is also happening on store floors, with the recent arrival of NFT activations. In the past few months, Californian luxury brand Fred Segal launched in one of its stores an NFT gallery with digital displays, Dolce & Gabbana premiered its NFT Genesis Collection at a fashion show in Venice, and Rebecca Minkoff designed a fully-digital NFT collection for New York Fashion Week.

Digital avatars

The pandemic has dramatically increased the average time we spend online. While some of us invest in high quality cameras and light rings to look our best in video calls, explorers of the metaverse tend to spend their coin on digital assets to customise their avatars. With the right marketing strategy, NFT avatar collections can amass cult followings. The Bored Ape NFTs, some 10,000 unique avatars, are among the most revered and sported by the likes of Eminem and Snoop Dogg. Brands too are hopping on the avatar bandwagon, as last month Adidas announced a collaboration with the Bored Ape Yacht Club.

With the dominance of avatars in the metaverse, the demand for living and breathing influencers could soon decline. Some brands are investing in the programming of their own avatars instead of paying influencers or models to promote their goods. Last year, Prada’s ad campaign for the perfume Prada Candy featured their very own virtual avatar. In the metaverse, some virtual influencers are just as popular with customers as physical ones. Miquela de Sousa, the most successful virtual influencer, has over 3.1M followers on Instagram and has modelled for the likes of Calvin Klein, Chanel, and Supreme.

Fashion tech

Virtual stores and interactive catalogues have long been the go-to tech for enhancing customer experiences. However, the metaverse has much, much more to offer. In celebration of Pokémon’s 25th anniversary, Selfridges and designer Charli Cohen launched Electric/City, an immersive VR city that customers can explore and which showcases an exclusive physical and digital fashion collection. The digital assets on sale are compatible with hundreds of platforms across the metaverse and can be worn by customers via Snapchat’s body-tracking AR technology.

Once hailed as the future of wearable tech, smart glasses never took off on a large scale. However, as metaverse fever sweeps across the world, they will likely soar in popularity as interfaces with the metaverse. As VR technology improves, so does its ability to integrate everyday wearables. Facebook-enabled Ray-Ban Stories are a good example of where this space is heading. Collaborations between tech companies and fashion houses will only increase over the coming year. Such devices can allow customers to browse, customise and interact with products in their own space and with enhanced opportunities to upsell and create unique experiences.

Takeaway

If your company does not have a Chief Meta Officer, it might be time to start looking. However, the brave new world of the metaverse is not without hazards. As emerging technologies redefine the brand-customer relationship, market demands and supply chains, brands must be wary of the intellectual property and regulatory risks involved given that so much of the metaverse involves the wider creator economy, user-generated content and adapting existing overlapping intellectual property rights. The MetaBirkins dispute between Hermes and designer Mason Rothschild is only one example of how creators can quickly find themselves in hot metaverse waters.

Nonetheless, the metaverse provides an exciting new way for brands to monetise their intellectual property and connect with previously untapped customer bases. Leveraging the infinite possibilities of NFTs, ensuring that digital assets are compatible with the major platforms of the metaverse, and adapting marketing strategies to the new digital paradigm will be key drivers for success.

By Cliff Fluet, Co-Head Media and Entertainment - Lewis Silkin

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