from Gucci to Starbucks, luxury and consumer brands rush into the virtual world for their pots of gold

Last summer, Ralph Lauren launched its inaugural collection of digital apparels on Zepeto, where customers can select from 50 items to dress their avatars in the brand’s signature prep-school look.

There were colourblock hoodies, Polo T-shirts, teddy bear sweatshirts and even two unique skateboards that exist only in the digital realm. Within weeks, more than 100,000 pieces sold for between US$0.57 and US$2.86 each to customers who were eager to embrace and explore the frontiers of virtual fashion.

Welcome to the metaverse, a virtual world that’s hailed as the next generation of the web, where virtual reality, augmented reality intermesh with the physical world in a seamless experience for users. Previously the playground of computer gamers, the metaverse is seeing an influx of consumer brands such as Ralph Lauren, Starbucks and McDonald’s, who are looking for opportunities in a market where annual revenue could soar to US$1 trillion, according to JPMorgan’s estimates.

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The metaverse “is really going to turn the fashion [industry] into a new, stronger [iteration] with interesting opportunities,” said Stefano Rosso, a board member of OTB Group, which owns the apparels brands Diesel and Maison Margiela. “Brands need to be ready for this. It’s important that we start experimenting now.”

Digital fashion featuring Ralph Lauren’s distinctive prep-school look from the Ralph Lauren X Zepeto collection. Photo: Ralph Lauren alt=Digital fashion featuring Ralph Lauren’s distinctive prep-school look from the Ralph Lauren X Zepeto collection. Photo: Ralph Lauren>

Rosso is chief executive of Brave Virtual eXperience, a subsidiary of OTB Group created in November to lead the company’s charge into the metaverse. The company is rolling out around 40 projects by the end of 2022, with the first one ready around March.

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“It’s more than [attracting] new consumers,” Rosso said. “We’re trying to increase the number of users, and [find] a new means of speaking to them. For us, it is a new way of communicating to our consumers.”

Gucci’s Dionysus Bag with Bee, which usually sells for US$3,4000. A non-fungible token of this bag sold last June on the Roblox platform. Photo: Gucci. alt=Gucci’s Dionysus Bag with Bee, which usually sells for US$3,4000. A non-fungible token of this bag sold last June on the Roblox platform. Photo: Gucci.>

Bigger competitors with deeper pockets are already actively staking territories in the metaverse, and striking gold with their forays. Gucci sold a four-minute film last June as a non-fungible token (NFT) for US$25,000. A month before that, Gucci’s Dionysus Bag with Bee digital token found a buyer willing to pay 350,000 Robux – a digital currency that’s usable only on the Roblox platform – or the equivalent of US$4,115, more than the US$3,400 that the bag costs in real life, or IRL in metaverse lingo.

Gucci was hardly alone in minting money in the metaverse. Balenciaga, the sibling brand of Gucci under the Kering Group, launched a collaboration with the popular game Fortnite, where several of the game’s characters are dressed in Balenciaga’s armour boots, hoodies and swooping sunglasses.

Prada, Adidas, Balmain and Dolce & Gabbana also sold NFTs. Sportswear giant Nike took its forays into the metaverse a step further by paying an undisclosed amount to buy the NFT studio and virtual sneaker designer RTFKT. Nike also created its digital environment on the Roblox where it can test product launches with consumers before a physical release.

Other consumer companies ranging from Wal-Mart, Gap, Hulu, telecommunications giants such as Verizon, China Mobile, China Telecom, the electric-car maker Xpeng, the liquor distiller Kweichow Moutai and even the milk tea brand Nayuki joined the race, most of them issuing NFTs correlated with their products.

China’s regulatory authorities, in the midst of an antitrust and cybersecurity clampdown on technology companies, are adopting a more conservative and nuanced attitude towards the metaverse and NFTs.

Companies are urged to exercise restraint in embracing the metaverse. NFTs are renamed “digital collectibles,” and their issuance and circulation are carefully watched, as regulators come down hard on speculators and NFT-related scams.

Still, that hasn’t stopped China’s largest athletic wear company Anta Sports Products from jumping on the bandwagon. Anta, which has reaped a marketing bonanza with its sponsorship of the Olympics double-gold medallist Eileen Gu, launched 7,000 digital collectibles in January. Consumers are invited to win scores through gamified activities on Anta’s new digital interaction space on the e-commerce platform Tmall operated by this newspaper’s owner Alibaba Group Holding.

SCMP Graphics alt=SCMP Graphics>

“Most of our activities are made for a marketing purpose,” Anta’s chief marketing officer Lydia Zhu said in an interview with South China Morning Post. “We want to better connect with young consumers, and have some breakthrough in the marketing model. We haven’t regarded it as a new sales channel yet.”

A direct link with consumers gives companies an option to sidestep the minefield of publicity backlash whenever brand envoys are caught in personal indiscretions or political scandals. It also creates the possibility for experimenting with new technologies such as the “gamification” of the shopping experience.

These companies tend to collaborate with external designers and studios on their metaverse-related projects, such as NFTs and building up a virtual community based on an existing platform, experts said. The huge cost and expertise required for such efforts forced businesses to hire third-party suppliers instead, analysts said, such as Rimowa failed to issue a NFT as it wanted to self design it according to a February report by Credit Suisse.

“The metaverse has strategic meaning for the retail and consumption industry, especially its function in creating a new retail scenario,” said Andy Chen, assistant vice-president at the research department at Guotai Junan International. “In the virtual world, the better visual experience and active engagement provide better showcases for the products.”

Sources: DappRadar, Bitcoin.com alt=Sources: DappRadar, Bitcoin.com>

The size of the early-stage consumer metaverse market is expected to reach US$1.3 trillion, according to CMB International, without outlining a specific time frame. Around US$54 billion has already been spent on virtual goods every year, almost double the spending on buying music, JPMorgan said.

Yet, the journey of consumer brands’ rush into the metaverse may be strewn with landmines. Existing sales models may not readily fit in the virtual world, not even for the largest conglomerates with the deepest pockets that had been the pioneers of the push.

Gucci’s competitor LVMH Moet Hennessy-Louis Vuitton has made it clear to not expect any NFT, or virtual product, to come out any time soon from the vast portfolio of the world’s largest luxury-goods seller.

Bernard Arnault, billionaire and chairman of LVMH Moet Hennessy Louis Vuitton SE, speaks at the inauguration of the Atelier Louis Vuitton Vendome in Vendome, France, on Tuesday, Feb. 22, 2022. Photo: Bloomberg alt=Bernard Arnault, billionaire and chairman of LVMH Moet Hennessy Louis Vuitton SE, speaks at the inauguration of the Atelier Louis Vuitton Vendome in Vendome, France, on Tuesday, Feb. 22, 2022. Photo: Bloomberg>

“We are not interested in selling a pair of virtual sneakers for €10,” said Bernard Arnault, Europe’s wealthiest man and founder of LVMH, when asked about the metaverse during a January 27 earnings call with analysts. “[The metaverse] is a virtual world. Right now, we are very much in a down-to-earth world. We want real products selling for real [money].”

Still, related applications may be afoot. LVMH developed a blockchain called AURA with Microsoft and ConsenSys in early 2021 for authenticating the provenance of luxury goods and weed out counterfeit products. The AURA blockchain has since expanded into a consortium of the world’s largest luxury brands, involving Prada, Richemont – the owner of Cartier, Dunhill, Montblanc among others – and OTB Group.

The metaverse also creates a potential dilemma for luxury brands, particularly for business models that rely on hefty profit margins to support their heavy marketing campaigns. An overly aggressive push to issue digital products risks turning the brand into a mass-market label, diminishing the cache and premium that come with limited-edition goods.

“This is a tricky activity that may be detrimental in the long run for brands that overuse it,” as it lowers the value of the brand, said Andrea Fenn, chief executive of the digital consultancy Adiacent China, in Shanghai. “If that happens, luxury brands are doomed, because they are all about perceived value instead of real value.”

The future development of virtual infrastructure is uncertain, depending on whether technological advancements can enable the smooth running of the metaverse, analysts said. Additionally, regulatory pressure could increase as the trading of NFTs is not legal in every corner of the world.

South China Morning Post, with an archive of news articles and photographs dating from the newspaper’s establishment in 1903, is poised to launch its own NFT next week called ARTIFACTs, capturing some of the most important news events from 1997, a watershed moment in Hong Kong’s history.

Some brands are using the metaverse as marketing gimmicks, while some are exploring new businesses that are unlikely to contribute to much revenue at least in the short term, Adiacent China’s Fenn said. “A fraction of brands are going to properly explore this as a business tool. And the overwhelming majority of brands are going to use this within their marketing mix.”

The buzz of the metaverse was magnified when the eponymous operator of the Facebook social network renamed itself Meta, trading under the mnemonic MVRS on December 1.

In Asia, the concept entered the mainstream as several exchange traded-funds (ETFs) comprising metaverse-related stocks, with CSOP Asset Management launching its metaverse ETF last month. The fund’s portfolio encapsulates 46 US-listed technology stocks with US$5.2 trillion in combined capitalisation, including Apple, Meta, WeChat’s operator Tencent Holdings, the 3D graphics processor maker Nvidia and the online games platform Roblox.

All this hoopla could be nothing more than a fairy tale created by the world’s largest technological giants to boost their stock price, said iiMedia Research in Guangzhou.

“The metaverse is a castle in the sky, created for speculation in the capital market, ” said iiMedia’s chief executive Zhang Yi. “The difficulty of the real economy is how to sell products to consumers faster, with higher profits, and that’s what they should do.”

“Consumers will not buy these kinds of activities, even if they are aimed for marketing or promotion of the brand,” Zhang said. He refuted some analysts’ opinion that metaverse will disrupt the consumer sector.

“What disrupts the industry should bring real benefit and innovation to consumers and help innovate the marketing strategies in the sector,” Zhang said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.