NFTs Are In Fashion, So Fashion Wants To Be In NFTs

NFTs Are In Fashion, So Fashion Wants To Be In NFTs
Andrew Rummer

about 2 years ago4 mins

  • The world of luxury fashion is slowly falling in love with NFTs as a way to monetize their vast troves of intellectual property.

  • Digital luxuries offer plenty of opportunities for brands willing to embrace the new world, from cheaper production costs to the ability to tap the underserved male market.

  • If the NFT boom continues as the optimists forecast, they could account for as much as a quarter of profits at luxury firms by the end of the decade, helping underpin their stock market valuations.

The world of luxury fashion is slowly falling in love with NFTs as a way to monetize their vast troves of intellectual property.

Digital luxuries offer plenty of opportunities for brands willing to embrace the new world, from cheaper production costs to the ability to tap the underserved male market.

If the NFT boom continues as the optimists forecast, they could account for as much as a quarter of profits at luxury firms by the end of the decade, helping underpin their stock market valuations.

Mentioned in story

Non-fungible tokens (NFTs) have been the crypto world’s crossover hit of 2021, with huge swathes of the global economy suddenly embracing the technology with abandon. And now that NFTs have found acceptance in the art, sports, and gaming communities, luxury fashion is the latest industry to imagine a digital Dior or a programmable Prada and see dollar signs. 

What’s going on?

NFTs – effectively digital certificates of authenticity that live on the blockchain – go with intellectual property (IP) like fries go with ketchup. So it’s little surprise we’ve seen companies that own a load of IP flocking to mint NFTs this year, from the National Basketball Association to Formula One racing team McLaren.

High fashion, meanwhile, has stayed true to its somewhat staid image and so far been a little slow off the mark to monetize its IP mountain. According to a report last month from investment bank Morgan Stanley, fashion NFTs have accounted for less than 1% of total transaction value this year. 

But the supertanker appears to be turning. Gucci has released an NFT video inspired by a recent collection, and Facebook clearly sees a role for fashion companies in the next generation of the internet: it tweeted, “Hey @Balenciaga, what’s the dress code in the metaverse?” as part of its recent rebrand to Meta

A still from Gucci’s video
A still from Gucci’s video

What’s the motivation for fashion labels?

Companies will always want to go where their customers – or their potential future customers – are. And there’s a growing awareness among the big fashion houses that huge numbers of people, particularly younger people, want to buy NFTs at the moment. 

Add in gender and the fashionistas are onto a double-winner: the average NFT buyer is a young, tech-savvy man – exactly the demographic that currently spends the least on high-end clothing. With women accounting for some 70% of luxury goods sales globally, fashion companies that succeed in attracting NFT-loving guys will be tapping an underserved market.

The insane profit margins don’t hurt either. Fashion is already a high-margin industry, but moving to the digital world increases them even further. Making a virtual handbag costs less than making an actual handbag, after all. And while brands have to pay as much as 40% in commission to sell traditional products on platforms like Farfetch, an NFT platform like OpenSea only takes about 2.5%.

NFTs also allow labels to bake their IP into the digital contract, so they can ensure a cut of any future sales in the secondary market. And, finally, the digital world can act as a sandbox where designers can experiment with virtual items and gauge consumer demand – before bringing the most popular into the physical world by actually making them. 

What could this mean for luxury brands’ bottom lines?

Morgan Stanley estimates that NFT sales could net luxury firms a massive $12.5 billion to $25 billion in revenue globally in 2030, plus another $11-$28 billion from sales on non-blockchain based “social gaming” platforms like Fortnite and Roblox. Combined, that could contribute up to 7% of the global industry’s $470 billion in estimated 2030 sales. 

Estimated luxury sales boost from NFTs

But because – as we mentioned earlier – digital goods are so much cheaper to produce, the boost to profit should be even greater: Morgan Stanley estimates that luxury NFTs and social gaming could account for between 12% and 26% of earnings before interest and taxes (EBIT) in the luxury industry by the end of the decade.

Estimated luxury profit boost from NFTs

That would be a welcome boost to an industry hit hard by the coronavirus pandemic.

Per-share profit at companies in the S&P Global Luxury Index
Per-share profit at companies in the S&P Global Luxury Index

As for what the appeal for NFT buyers might be, luxury NFTs offer a (relatively) affordable way into the sector, especially for those who want to add a little exclusivity to their online avatars. And presumably plenty of people buying luxury-branded NFTs are hoping their value will go up over time – even if no one really knows how durable their appeal will prove. 

What do luxury NFTs mean for crypto markets?

For crypto itself, more adoption and more concrete use cases are an unalloyed good. Most NFTs are built on the Ethereum network, and their breakthrough in 2021 has helped push up the price of ether by more than 500%. 

The growing interest in luxury NFTs is also attracting a new wave of exciting startups to market, which will only boost demand for the crypto tokens underpinning the networks they use. One of billionaire Bill Ackman’s investment firms, for example, last month backed Swiss firm Origyn Foundation, which uses NFTs to guarantee the authenticity of physical items like luxury watches and jewelry. 

Overall, it’s fascinating to watch one of the world’s oldest industries learn to embrace one of the world’s newest financial technologies. And, if Morgan Stanley’s estimates are to be believed, NFTs might contribute a quarter of luxury firms’ profits by the end of the decade – helping them justify their lofty valuations. 

Of course, nine years is a long time in crypto – a market barely a decade old. But the likes of LVMH and Hermes will surely be hoping NFT demand keeps building. And if it does, luxury stocks offer an interesting way to gain exposure to the boom from the relative safety of the stock market.

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