Selling more expensive than the real thing, Metaverse luxury goods stand out

Soft luxury brands have better prospects in the Metaverse

Compared to selling hard luxury brands such as jewelry and watches, soft luxury brands selling ready-to-wear, leather products and footwear have a better prospect in the Metaverse. 

While some people are still wondering whether the “metauniverse” actually exists, this concept has become popular. In addition to technology companies rushing into it, luxury goods companies are also planning their own metauniverse future.

Morgan Stanley’s analyst team recently released a report saying: “The Metaverse may take years to build, but for luxury companies, social games in the Metaverse (such as online games and people through virtual Concerts and other events that I participated in) and NFT brought two closer opportunities.

According to a report released by Bain Consulting, although the global luxury market will experience a V-shaped recovery in 2021, it is still below the level of 2019. Metaverse has brought new opportunities to the luxury industry, but the biggest challenge is still the recovery of China’s luxury industry.

1 Open a store in a social game and open the door to the tens of billions of dollars market

Millennials and Generation Z who spend a lot of time in the virtual world see their virtual identity (Avatar) as an extension of their own image. On the game platform Roblox, one-fifth of players change their virtual identities every day, buying virtual goods and clothing, in order to show their individuality. It can be said that in the virtual experience, the image is everything.

This brings an entry point to the luxury goods industry. Morgan Stanley’s team of analysts said that luxury goods companies have ushered in an opportunity to sell virtual goods in the Metaverse. By 2030, the market will reach up to 50 billion euros (approximately 57 billion US dollars), which is expected to help Luxury goods companies increased their revenues by more than 10%, and their earnings before interest and taxes increased by 25%.

Balenciaga, a subsidiary of Kering Group (KER), has been selling the “skins” of the game characters in the popular game “Fortnite” starting in September this year for about $8.

Selling more expensive than the real thing, Metaverse luxury goods stand out

Gucci, also part of the Kering Group, opened a Gucci Garden Experience on Roblox. This has become a barometer of virtual fashion shopping interest. The leader in the luxury goods industry created a virtual venue with a swimming pool, balloon arches, and a shopping space. A digital version of the Bacchus bag was launched in the shopping space, and the price was over $4,000, which is more expensive than the physical bag sold at $3,400.

Selling more expensive than the real thing, Metaverse luxury goods stand out

Blockchain industry media Cointelegraph believes that Metaverse can also help luxury goods companies expand users. For example, the current Roblox players are mainly teenagers, and 70% of sales in the fashion industry are contributed by women. Metaverse will give luxury goods companies an opportunity to attract new age consumers who did not belong to their target customers in the past.

It is estimated that social games can add 10 billion to 20 billion U.S. dollars in sales to the luxury goods market.

2 to attract new demand by NFT, to solve the problem of fakes

Luxury goods companies are also entering the NFT market, which provides application scenarios for Metaverse. In September, world-renowned designer Karl Lagerfeld (Karl Lagerfeld) released 777 pieces of NFT on the digital fashion market THE DEMATERIALIZED, each priced at 77 euros (approximately 87 US dollars). Under the eager anticipation of the players, Lagerfeld’s works were sold out in a few seconds, arousing people’s interest in this new road opened up by the luxury goods market.

Selling more expensive than the real thing, Metaverse luxury goods stand out

In early October, Dolce & Gabbana’s first NFT series was auctioned at the luxury goods market UNXD, and 9 NFTs sold for 5.7 million U.S. dollars. Morgan Stanley analysts said that consumer enthusiasm for NFT collectibles will create huge demand for luxury goods companies in the medium term. By 2030, the share of such NFTs in the $300 billion NFT market may increase. Reached 25 billion U.S. dollars.

In addition to attracting demand, luxury goods companies adopt NFTs for two reasons. First of all, when luxury goods are resold, luxury companies cannot make money. This is also a problem that has plagued the luxury industry for many years. Through smart contracts, luxury companies that create NFTs can sell goods every time they are resold. A certain percentage of sales will be obtained at the time. In addition, because NFT has unique characteristics, it can also solve the problem of fake luxury goods.

Analysts are most concerned about how much of the new revenue can be converted into profit. For example, the commission rate of the NFT platform OpenSea is only about 2.5%. In contrast, the commission rate of platforms such as Alibaba and Tmall or e-commerce Farfetch is between 15% and 40%. They believe that they are more optimistic about the NFT business of soft luxury brands that sell ready-to-wear, leather products and footwear than hard luxury brands that sell products such as jewelry and watches.

Due to Gucci’s prospects in Metaverse, HSBC has upgraded the rating of Kering Group from “Hold” to “Buy”.

3 A broader challenge: the recovery of China’s luxury goods industry

Since China’s position on the issue of cryptocurrency is relatively tough, some people might think that China also holds the same stance on Metaverse. But in fact, China’s large technology giants have designed online shopping malls similar to Metaverse, such as Taobao, Tmall, JD.com, WeChat and other platforms and applications.

China Market Research Group analyst Kerstin Brolsma (Kerstin Brolsma) said: “Some Chinese companies are investing heavily to help increase consumer awareness and understanding of Metaverse, and promote investment growth. The main reason is Tencent, the leader in the game field.”

Brosma pointed out that Millennials and Generation Z grew up with the game. They have a high degree of acceptance of virtual fashion or character dressing, and they are obviously potential fans of the Metaverse.

Brosma also said: “This group of people want experiential shopping. The combination of physical and digital is very attractive to them. There is a demand. As long as luxury goods companies are willing to do this, they will be welcomed by them. In fact, mainland Chinese singer A Duo released the first NFT music work “Water KNOW” on May 25, and the transaction price reached RMB 304,271.

However, she also pointed out that the surge in demand for digital experience in Western countries is due to the long-term closure or isolation caused by the epidemic, and China, which controlled the epidemic earlier, now has different priorities.

Brosma said: ” Where the headquarters of luxury goods companies are located will affect the way they build the Metaverse in the next 5, 10, or 15 years. China’s current demand is different from that of Western countries , which also reflects luxury goods. A broader challenge facing the industry is how the Chinese luxury goods market is recovering.”

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