TIME to get ready for the party. You put on your Balenciaga cap, fasten your Rolex Daytona and put on your Louis Vuitton shoulder bag.
But it’s not In-Real-Life bling. It’s all virtual gear, carried by your digital self, that is 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 tote bags but non-fungible tokens.
The largest groups of designers are wondering how to approach the virtual and augmented reality of the metaverse. The New Kingdom promises to help them capture lucrative sales and gain young fans. It could also act as a cover against China’s joint prosperity efforts, as it might be more difficult for the government to crack down on conspicuous consumption in another world.
So far, luxury houses have mostly ventured into the big gaming platforms. Perhaps the best known is Balenciaga’s collaboration with Fortnite, which sells skins – virtual clothes and accessories for avatars – for under $ 10, as well as an actual collection of t-shirts, hats and hoodies costing several times that. The Kering SA brand is so keen on virtual fashion that it creates a dedicated business unit to explore opportunities in the metaverse.
It is far from being alone. LVMH Moet Hennessy Louis Vuitton SE, Burberry Group Plc, Moncler SpA, Ralph Lauren Corp. and Kering’s Gucci have all been involved in gaming collaborations. Although not a luxury brand, Zara of Inditex SA is making its first foray into the metaverse through the Zepeto Platform.
According to Morgan Stanley, luxury groups could generate around 10 billion euros ($ 11.3 billion) in sales from games by 2030, although that could reach 25 billion euros in its scenario on more optimistic.
In addition to direct sales – whether it’s from skins or physical game-related products – getting involved in the metaverse can help bling behemoths reach new, younger customers. This is crucial, as Gen Y and Gen Z will account for more than 70% of the global luxury market by 2025, according to Bain & Co.
But the most lucrative luxury metaverse game is all about making non-fungible tokens (NFTs). They could generate sales of 11 billion euros by 2030, according to Morgan Stanley, although it could reach around 22 billion euros. What’s most appealing about NFTs is that the profit margins can be extremely high – after all, it costs a lot less to make a digital watch or purse than the real thing.
Luxury has so far only dipped its toes in NFT waters, with Dolce & Gabbana, Burberry and Gucci among those exploring the possibilities. Several LVMH brands, including Louis Vuitton, Givenchy, Bulgari and Rimowa, are also experimenting, although their efforts have been more to test the concept than to generate sales and profits. Adidas AG announced an NFT collection on Thursday, while a few days earlier Nike, Inc. bought RTFKT, a fashion NFT pioneer 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.
It might not be too far. Jewelry from the Artsy website is available for rent in the so-called Mall of the Metaverse in AltspaceVR, an app owned by Microsoft, Inc. On Altspace, these items are known as Mixed Reality Extensions because they are designed to work on different worlds.
With parallel efforts in the NFT market, such developments could allow people avatars to wear their digital clothes and accessories in multiple cyber environments. Who needs to buy a real Birkin bag when you can show off a dummy at a virtual concert with your avatar friends?
Of course, jumping into the metaverse carries risks for the luxury industry. The most urgent thing is to know how to get into it without losing exclusivity or devaluing brands. One option is to issue NFTs linked to the purchase of physical luxury goods. You can buy your Patek Philippe watch, have its authenticity certified on the blockchain, and also get the VR bragging rights. But there is also a risk that unauthorized NFTs and other unofficial brand representations will clutter up the space.
The pressure on the cryptocurrencies used to pay for NFTs is another potential danger, as is an effort by the Chinese government to clamp down on children’s screen time, which could hamper gaming and metaverse efforts more broadly.
Some of the VR worlds outside of major gaming platforms, such as VRChat, are more experimental. Luxury groups will need to exercise caution in expanding their presence to these external borders.
But for now, the new kingdom looks promising. Fearful that China’s focus on mass abundance will discourage consumers from being ostentatious IRL wealth demonstrations, digital domains offer another option for extravagance. With everything from Moncler down jackets to ’90s-inspired Ralph Lauren ski suits, the Metaverse is fast becoming the place to live your most bling-up life. – Bloomberg