This article first appeared Current state of fashion: technologyBoF and McKinsey & Company co-published a detailed report.
Metaverse pioneers show that fashion brands have business cases to invest in the virtual world. Indeed, a fully formed metaverse (including an interconnected virtual ecosystem that overlaps or provides an alternative to physical reality) is still impossible given the constraints of technology. is. However, brand experiments using metaverse principles such as virtual fashion, extended reality, games, and non-fungible tokens (NFTs) show the potential impact of virtual activity on: Marketing and community building tools for fashion.. Global spending on virtual assets will reach approximately $ 110 billion in 2021, growing at about the same rate as the gaming market, and is expected to be worth more than $ 135 billion by 2024.
The next frontier for major brands is to transform unproven technology into a sustainable source of revenue and effectively separate hype from reality. Over the next two to five years, fashion brands focused on Metaverse innovation and commercialization could generate more than 5% of their revenue by investing in today’s virtual activities.
Beyond the five-year outlook, some bullish observers are hoping for adoption by the mass consumer of the virtual world, creating the greatest opportunity for the fashion industry since e-commerce. Kuma predicts that metaverse hype will diminish if technology doesn’t live up to expectations or users hesitate to use virtual space as extensively as some business plans expect. increase.
It’s unclear if a significant number of consumers will develop a full-fledged virtual life and spend most of their time on the Metaverse, but it creates great revenue opportunities for fashion brands.
The pace of adoption is driven by technological advances, interoperability between virtual environments, and social acceptance. Technology companies, as well as fashion start-ups and brands, need to develop technologies that help transform today’s unsophisticated virtual experiences into mature, immersive realities. Recruiting mass consumers can be a significant hurdle. 78% of those who have already entered the virtual world say they miss physical interactions when doing so.
As a result, many players will hang out to see evidence of commercialized use cases and specific ROIs before investing. For others who want to seize commercial opportunities, the greatest short-term revenue potential lies in the virtual assets that can be used to trade, transfer, or pay. Identify two distinct use cases for virtual assets that have long-term potential.
AR fashion and virtual skins
In virtual spaces and social media platforms, online IDs are highly motivated to create and adapt, with approximately 70% of US consumers from Gen-Z to Gen-X making digital IDs “somewhat important” or “very important.” It is important. ” There is a similar desire for virtual products in China, with 70% of luxury consumers buying or considering buying virtual assets.
Some companies are using augmented reality (AR) to allow users to modify their photos and videos, and are creating digital skins to change the look of their avatars. For example, DressX, a digital fashion startup that sells virtual clothing that can be added to photos and posted on social media, has partnered with brands such as H & M to launch a digital collection. On the other hand, users of online gaming platforms such as Roblox update their avatars on a regular and possibly daily basis. The potential revenue of in-game costumes and accessories can be significant. Gucci sold a virtual version of the Dionysus bag at Roblox for $ 6. This led to bids of over $ 4,000 per bag when later resold in the second hand market.
The multi-billion dollar gaming market continues to offer fashion opportunities. The game skin market could reach $ 70 billion by 2024, from $ 40 billion in 2020. Brands need to seek entry from established gaming and platform partners.
Over the next two to five years, fashion brands focused on Metaverse innovation and commercialization could generate more than 5% of their revenue by investing in today’s virtual activities.
Still, like any other early technology, there are risks. First, brands, especially luxury brands, need to be careful about selling “cheap” digital items that can weaken the monopoly of the brand image. AR technology is relatively early in development, and glitches and cumbersome applications can compromise the user experience.
In addition, if a brand chooses to partner with a virtual platform in games or other ways, topline opportunities can be hampered by high take rates that can reach commissions as high as 50% of revenue.
NFT as a digital twin and loyalty token
Much of the blockchain-based NFT enthusiasm is focused on digital art collections, which can be purchased and exchanged for huge amounts of money, bothering some observers. That’s why we’re pushing up the news headlines. The combined annual growth rate of NFT market value surged 750% from $ 41 million to $ 24.9 billion between 2018 and 2021.
However, the rapid growth of NFT sales has already begun to slow down. In fact, the daily trading volume of the NFT Marketplace OpenSea fell by 80% between February and March 2022. NFT skeptics suggest that this may indicate that the bubble burst in an unsustainable market with a limited number of active customers and rampant fraud and fraud.
However, even as the hype subsides, there are use cases that address industry issues and consumer demand with applications that support community building, product traceability, and reliability.
Long-term business opportunities for fashion brands to get involved in NFTs may serve more practical purposes by using NFTs as “loyalty tokens”. Gucci, Adidas, and The Hundreds use NFTs in particular to offer benefits such as new NFT drops and early access to physical products, basically acting as a membership program. In a sense, these NFTs are digital collections. This is because users can use it for their social media profiles, but they can’t yet wear it in the virtual world. Brands are beginning to add more “utilities” to collectable NFTs. This increases the value of buying one for consumers and can lead to long-term opportunities for brands.
We believe that the most compelling use case for NFTs is the digital twin, which hosts information about the history, reliability, and ownership of physical or digital products. This is especially beneficial for the luxury segment in the fight against counterfeiting. Twins allow the product to theoretically be combined with tamper-proof records, unleashing the brand’s ability to collect royalties from resale. Many start-ups and industry initiatives such as the Aura Blockchain Consortium, Lablaco and Arianee are aiming to make blockchain-based digital twins popular. Lablaco is working to link digital IDs to virtual versions of clothing to allow customers to participate in augmented reality experiences such as fitting.
Partner, build, get
While some confusion factors, such as the digital fashion marketplace, focus solely on virtual products, most technology-savvy and innovative brands diversify their revenue streams and attract Gen Z and Millennial consumers. Take advantage of the opportunity to target. Players who want to experiment with the Metaverse but lack the required in-house features can:
- As Gucci partnered with social network and avatar simulation app Zepet to create paid digital skins, or as Barbary partnered with Tencent to launch a limited edition scarf, the game company or Partner with a technology company with Chinese virtual influencer Ayayi.
- As Valenciaga does by creating a “Metaverse Business Unit” dedicated to Metaverse marketing and commerce, it is unique by hiring people with technology-related skills, along with a deep understanding of Metaverse and its community. Build your abilities.
- The acquisition will be in line with Nike’s contract to purchase the virtual fashion studio RTFKT in 2021.
As in the early days of e-commerce, some Metaverse-related ventures can either fail altogether or require rapid iterations. However, fashion has a connection to self-expression, status and creativity, so it is a good place to take advantage of its involvement with the virtual world and the Metaverse. Executives need to consider metaverse strategies based on their digital ambitions and customer goals.