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How digital assets are changing the fashion business

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Digital assets such as virtual fashion, games and NFTs offer consumers new ways to shop, exchange goods and inhabit identities, giving fashion brands the opportunity to increase their sources. of income.

This is according to the sixth annual edition of The State of Fashion 2022 Report by McKinsey in partnership with Business of Fashion.

To capture untapped value streams, the report suggests fashion players should explore the potential of intangible products – digital assets such as non-fungible tokens (NFTs), games, and virtual fashion – which are all an area of rapidly growing interest in luxury brands and offer new avenues for creativity, community development and commerce.

Gen Z is spending more time in the metaverse

Younger, tech-savvy groups of people are spending more and more time in the metaverse – from social media and games to virtual realities – and adopting multiversal identities. Gen Z spent an average of eight hours per day on screens in 2020, while 81% of Gen Z have played video games in the past six months, averaging 7.3 hours per week.

Part of the appeal of virtual worlds is the ability to engage with others and build communities, which was accelerated by pandemic lockdowns when in-person social contact was limited.

These growing levels of engagement have spawned a new generation of digital fashion designers, who are pushing the boundaries of online possibilities, and brands have the opportunity to engage more deeply and creatively with their customers and unlock new opportunities. new value chains.

How fashion participates in the metaverse

The metaverse is emerging as a big business, with funding pouring in from investors, and for the fashion industry it has become the buzzword in 2021.

As participation in the metaverse has grown over the past few years, fashion brands have become increasingly interested in participating – in digital products related to blockchain-powered NFTs, virtual reality interfaces, and games, the latter of which. increasingly becoming a target of choice for brands.

In 2021, Gucci auctioned off its first NFT for charity and released its very first virtual sneakers, selling the 3D animated sneakers for US $ 12 a pair. Following this, brands such as Dolce & Gabbana, Rimowa and Louis Vuitton released NFTs.

A growing number of fashion brands are also collaborating with gaming platforms to design virtual fashion assets.

“There are more and more” second worlds “where you can express yourself [but] there is probably an underestimation of the value attached to individuals who want to express themselves in a virtual world with a virtual product, [through] a virtual character, ”Gucci chief marketing officer Robert Triefus told McKinsey, citing the 19 million visitors who visited Gucci Garden in the game’s Roblox metaverse.

Rise of in-game fashion

As gaming increasingly becomes an extension of the real world and with the participation in Pandemic Supercharging, it has become a prime target for fashion brands. This has mainly been done through collaborations with gaming platforms to design virtual fashion assets.

Take Ralph Lauren – the brand has partnered with South Korean social network and avatar simulator app Zepeto to create a virtual fashion collection, giving users the ability to dress their avatars with exclusive products, or “skins”. Gucci has created digital assets for the Roblox gaming platform, as well as for Pokémon Go and Animal Crossing.

Balenciaga unveiled its Fall / Winter 2021 collection in video game form and then partnered with Fortnite in a collaboration that included virtual clothing and physical products to buy, promoting the partnership on traditional channels and metaverse.

According to the McKinsey report, the opportunities in games are plentiful and provide a platform to engage young consumers and create a buzz with those who don’t normally interact with brands in physical formats. In-game delivery of goods allows brands to monetize digital assets where it is customary to pay for high experiences.

The role of NFTs in the fashion industry

Much of the excitement around virtual environments is around NFTs – unique crypto assets whose ownership is verified on blockchains and are bought, sold, and traded in the metaverse primarily using cryptocurrency.

NFTs have seen an explosion of interest over the past year, following an NFT created by digital artist Beeple that sold at Christie’s for a record $ 69.3 million.

In fashion, NFTs have a wide range of use cases, ranging from product authentication to the collector’s item function.

In 2021, there was a wave of NFT engagement among luxury players, often via the gaming world. For its 200th anniversary, Louis Vuitton launched a collectible NFT video game partially designed by Beeple. The game contained NFT art that could be acquired by players in a story echoing the journey of the brand’s founder.

Burberry created NFTs in the Blankos Block Party game, with digital vinyl toys that live on a blockchain. Adorned with the Burberry TB summer monogram, the limited edition Burberry Blanko Sharky B NFT can be bought, improved and sold. The collaboration also includes branded NFT accessories in the game.

And Dolce & Gabbana has collaborated with Unxd, an organized marketplace for digital luxury and couture, to create an inaugural collection of nine NFT pieces sold alongside physical couture.

Monetization opportunities, but sustainability and cybersecurity issues

So, can fashion digital assets generate significant revenue streams? According to Coindesk, Dolce & Gabbana’s first NFT collection grossed the equivalent of $ 5.7 million.

That said, McKinsey’s report suggests that opportunities for monetization are likely to depend on the psychology of scarcity and limited editions leading to the NFT mania, as well as the security of authentication and the potential for boosting the internet. community they offer.

“We say to any fashion brand we work with: it’s experimental. It won’t always work and we can’t guarantee it will work, ”said Amber Slooten, co-founder and creative director of The Manufacturer, a digital fashion house that helps brands create their own virtual products and has worked with it. brands like Adidas. , Marques Almeida and Buffalo London.

The report suggests, however, that there are reasons to be cautious. One of the concerns is the environmental impact of the blockchain technologies that underpin NFTs, in particular the energy required to validate transactions. Cyber ​​security is also a concern, with counterfeiting and security breaches a significant threat.

A recent cyberattack on the official website of anonymous British street artist Banksy caused a collector to pay US $ 334,000 for a counterfeit NFT, the BBC reported.

Approach to be adopted in 2022 and beyond

Looking ahead, McKinsey reports, the buzz around NFTs will continue to grow as a growing number of fashion brands seek avenues of differentiation and launch creative experiences. As consumers spend more time interacting online, their interest in collecting and displaying digital items is likely to deepen.

However, they will also seek opportunities for co-creation and expect brands to engage with digital assets in a format native to the spaces they inhabit, rather than with content that repeats itself across all. canals.

The crypto fashion opportunity will require significant investment, experimentation, and a new playbook. Brands will need a strategic mindset and a willingness to develop partnerships and harness different talents to deliver high quality content both internally and collaboratively. In an area where a lot of hype is involved, it will be advantageous for brands to seek out business cases that generate excitement while remaining loyal to the brand.

To do this, according to McKinsey, it may be necessary to take a new perspective on ROI, focusing on less measurable benefits such as brand awareness and marketing impact, as well as setting flexible goals. that are calibrated on the potential, rather than focusing exclusively on the bottom line.