NFT and digital currencies, what do they mean for the fashion industry? | Source: RightClickSave

Investing in the virtual realm comes with its share of real-world risks. Even the world of fashion is not immune, as it boldly steps into the virtual domain. The outbreak of Covid-19 forced physical stores to close their doors, giving rise to the prominence of virtual stores.

This week’s fashion extravaganza takes a unique turn as it unfolds in the metaverse, known as MVFW, featuring the participation of 50 luxury brands and digital entities showcasing their latest collections. Beyond virtual events, the fashion industry is storming into novel concepts like NFTs, embracing payments in various cryptocurrencies.

Looking ahead, as the metaverse officially debuts, we’ll gradually encounter fashion concepts that involve garment structures and forms created from pixels, digital materials, rather than the traditional fabrics we’re accustomed to.

Virtual fashion takes a quantum leap forward

Digital fashion, in its simplest form, refers to clothing designed for virtual characters in digital worlds. While not a novel concept—consider in-game “skins” that players willingly purchase for their characters—it is gaining traction beyond gaming, especially with the anticipated exponential growth of the global metaverse market, projected to reach $47.48 billion by 2022 and a staggering $678.80 billion by 2030.

In this parallel virtual universe, clothing is no longer just battle attire as seen in games; it now represents the lifestyle and identity of users. Numerous digital fashion brands have emerged in the last two years, catering to customers sharing their virtual experiences on platforms like Instagram and Facebook. As the metaverse evolves structurally and in scale, the virtual fashion market is poised to become massive, appealing to a broader audience.

Virtual fashion brands cater to the needs of the new generation of users | Source: Carlings Digital

Cryptocurrency unlocks enormous profit potential for fashion houses

Fashion brands have been part of the “Digital Fashion Battle” early on, participating in games and providing/selling licenses for fashion products. Second Life, a virtual simulation game, collaborated with brands like adidas, Armani, and Calvin Klein as early as 2007. In 2021, Balenciaga unveiled its Fall/Winter collection through the game “Afterworld: the Age of Tomorrow.”

High-end fashion houses ‘distribute’ NFTs through games | Source: LV

Corporate giants like LVMH and Kering have aggressively invested in NFT projects and are building their virtual worlds in 2022. Louis Vuitton launched “Louis: The Game” in August 2021, offering exclusive NFTs as rewards. Players must navigate the game to obtain these NFTs, avoiding the “pay-to-win” formula.

Fashion in games is widely loved | Source: Unicorn Fashion

Gucci is also part of this movement, recently announcing its participation in the “New Tokyo” project with 10KTF. Participants need to register to be on the “Allow list” for a chance to receive one of the 5000 “mint passes” (similar to lottery tickets).

Francois-Henri Pinault, Chairman and CEO of Kering, sees three potential revenue streams for luxury fashion in the metaverse: NFTs linked to physical products, virtual products, and contracts. This foresight could lead to substantial gains with the right investment and development strategies.

Copyright risks and the uncertain future of cryptocurrency

The foray of fashion into the virtual world encounters its first challenge – copyright issues. Games like GTA (Grand Theft Auto) and Simcity often feature characters wearing fashion items reminiscent of real-world famous brands.

To circumvent copyright infringement, game developers tweak brand names to create fictional brands. However, these fictional brands are often easily recognizable as real-world counterparts.

Hermes sues over copyright of Metabirkins bags | Source: Highsnobiety

In the realm of NFTs, Hermes took legal action against the creator of Metabirkins bags, Mason Rothschild, accusing him of “brand infringement” for selling virtual bags under the name Metabirkins. These NFT bags were subsequently removed from the OpenSea NFT platform after Hermes asserted ownership.

Despite the enthusiasm of LVMH and Kering for the metaverse, NFTs, and crypto, these conglomerates remain cautious about this “bubble.” The industry giants are conducting internal experiments before making large-scale applications in the market.

Francois-Henri Pinault, Chairman and CEO of Kering, believes there are still too many risks at present, and the success rate of digitizing fashion is uncertain. This phase faces technological challenges, such as enhancing realism through VR technologies, and requires users, especially high-end fashion consumers, to adapt to these changes over time.

The future of NFTs and cryptocurrencies remains uncertain | Source: Coinvn

There are certain doubts about NFTs in the market, with experts expressing concerns about the practicality of these items. The bubble bursting is a looming possibility if the market proves unsustainable, user numbers remain limited, and issues of manipulation, speculation, and fraud proliferate.

Brands must strike a balance between the real and the virtual

As the metaverse and virtual reality thrive, online shopping channels increase, yet 60% of European customers still prefer shopping in physical stores. Customers want to interact with tangible products before making final purchase decisions.

Brands need to balance between physical and virtual stores | Source: VRScout

This tendency is particularly observed in luxury brands, where experiences at concept stores serve as a way for users to express their self-worth. Fashion brands must develop a parallel and balanced approach between physical stores and virtual channels to provide customers with a seamless and exciting experience.

However, the collection of customer data is increasingly restricted by third parties (Google and Apple are tightening their controls). New retail technologies must help brands delve into the market based on voluntarily provided information from buyers.

Fashion is inherently ephemeral, trendy, and intertwined with social life. Therefore, NFTs or cryptocurrencies, in the end, are merely tools, interesting embellishments for an industry that always knows how to reinvent itself and spark discussions.