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Tried and tested revenue streams for fashion brands in the Metaverse

By Angela Gonzalez-Rodriguez


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Archive image: Hogan, Untraditional NFT Collection

Digital demand for fashion and luxury brands is expected to explode and bring in extra sales for the industry that could reach 50 billion dollars by 2030. Meanwhile, the Metaverse’s market share in the fashion industry is expected to increase to 6.61 billion dollars in the next five years.

“Revenue streams from digital mediums for luxury brands are negligible... We think this is about to change,” strategists from Morgan Stanley predicted in an industry outlook published in late 2021. That change is already in motion, with brands ranging from Burberry to Nike, from Forever21 to Tiffany’s exploring different revenue streams to future-proof their digital businesses.

According to Technavio’s most recent outlook, the Metaverse fashion market’s growth momentum will accelerate at a CAGR of 36.47 percent, reaching 6.61 billion dollars in value by 2026. This market will record a 30.5 percent year-on-year growth rate by the end of this year. The report points out at the growing number of fashion brands entering metaverse platforms as the main growth factor in the foreseeable future.

“Metaverse platforms have the potential to transform the online shopping experience. Fashion brands, especially clothing apparel brands, are largely dependent on attractive labels and branding for sales. Clothing apparel brands are using metaverse platforms to enhance brand awareness”, highlights the analysis team at Techvio, referring amongst other initiatives to Nike Inc’s acquisition of RTFKT Inc. (a company that makes digital sneakers) in late 2021. “Nike and RTFKT launched a virtual sneaker named RTFKT x Nike Dunk Genesis CRYPTOKICKS collection. These virtual product launches will help improve brand awareness and consumer interaction.”

Must-have fashion NFTs

Analysts at Morgan Stanley believe that while “The Metaverse will likely take many years to develop; however, NFTs and social gaming (e.g., online games and concerts attended by people’s avatars) present two nearer-term opportunities for luxury brands.” According to the investment bank proprietary research, non-fungible tokens (NFTs) and social gaming could expand luxury group’s total addressable market by more than 10 percent in the next eight years and boost industry earnings before interest and tax by around 25 percent.

A good example of that potential are the 25 million virtual items created on virtual gaming platform Roblox in 2021 alone. Almost 6 billion units of those were bought, earning creators 538 million dollars, Winnie Burke, head of fashion and beauty partnerships at Roblox said in an interview with Drapers. Burke added that Gucci, Tommy Hilfiger, Nike, Vans, and PacSun are among those to have set up worlds in Roblox, allowing fans to engage with the latest collections or having their avatars try on virtual clothing. “As we are catering to a fully digital generation, we recognize that Gen Z values community and accessibility more than any other generation, and we joined Roblox to further build that connectivity with our consumers. Considering that they leverage Roblox as a point of socialization, we knew that to further our strong emotional resonance as a brand, we needed to continue to build alongside them in the gaming world," said Brie Olson, president at PacSun when explaining their decision to invest in this virtual universe. "

Venture capitalist Nic Carter believes that ‘redeem-and-retain’ business models can help accelerate the mainstreaming of NFTs and offer consumers a more appealing entry into Web3. Carter spoke of the allure of the “digital twin idea”.

Digital twin NFTs are virtual copies of physical products that share their data with the original physical version (each digital twin includes the assets that represent systems, products or services, processes of firms and any other physical things that can be modeled using virtual reality or 3D modeling technology.) “This digital twin idea has been embraced by a number of brands, although the model itself has yet to stabilize. Burberry was an early mover in taking their brand to the Metaverse, launching in 2021 a custom character in Mythical Games’ NFT-focused Blankos metaverse RPG, although the vinyl characters remained digital-only,” wrote Carter in a Medium post. Hogan, for example, released a series of physical products as redeemable NFTs through its Decentraland-based retail space. “We wanted to extend our presence in the Metaverse and together with Boson Protocol, we created a one-brand pop-up store on Decentraland. Through this marketplace, the virtual district of boutiques for major fashion brands, we have put up for sale our physical products as redeemable nfts-a wide range of products by which we want to engage old and new generations and create together with web.03 the world of the future,” said the Italian brand in a corporate release.

Dolce & Gabbana’s auction of nine NFTs for 5.7 million dollars last Spring was dubbed by Morgan Stanley analysts as another sign of the potential this space yields for the fashion business. “We expect the whole sector to benefit from the advent of the Metaverse, but see the soft luxury brands (ready-to-wear, leather goods, shoes, etc.) as particularly well positioned as opposed to hard luxury (jewellery and watches),” concluded the private bank’s report from December 2021.

The rise of phygital

“The bigger opportunity phygital fashion unlocks is for NFTs to be sold before the physical garments, which allows brands to gauge demand for physical goods before actually manufacturing and distributing them,” Jessie Fu, Co-Founder of digital fashion house Altr_ told to the Chinese newspaper ´Jing Daily´. Fu concluded that “This should reduce overall consumption, production and the shipping costs that come with it.”

Another example of the rise of phygital are spaces blending physical retail with digital fashion. FashionUnited spoke with AR fashion platform ZERO10 about its recent collaboration with Crosby Studios to launch a physical retail pop-up store with digital-only clothing. This pop-up store opened for ten days in September and offered a virtual shopping experience with a traditional brick-and-mortar format in what the collaborators called a “physical” gateway into the Metaverse. Shoppers used ZERO10’s proprietary clothing AR technology to try on digital-only clothing pieces on-site. Designed by Crosby Studios, the collection featured five digital-only pieces that incorporate the studio's signature aesthetic inspired by the 90s video game, which can also be seen throughout the interiors of the space.

“The pop-up exceeded any expectations that we had. People loved the idea of trying on virtual items in a pop-up store and having a chance to experience the digital world in a physical environment. We got over 2,000 visitors over the course of two weeks — despite the limited space. The visitors spent, on average, over half an hour in the store. Some took several hours to stay, taking great pictures and videos, and many of them came more than once,” explained to FashionUnited a spokesperson from AR fashion platform ZERO10. The pop-up store coincided with New York Fashion Week and proved that “people were more likely to experience AR as a part of the physical experience. ZERO10 Digital items were tried on about 25000 times in the app.”