Digital Luxury In 2022?

Can digital be considered a form of luxury? Most consumers and luxury brands would have said no until recently. Luxury is about exclusivity, while digital is about making items, data, and information available to everyone — the two appear to be mutually exclusive. Digital will always be a channel or, at best, an add-on supporting and magnifying a physical product or experience, according to this argument.

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To be sure, the add-on can provide significant value or provide access to entirely new consumer groups. The Tiffany's engagement ring discovery app is an example of this: it allows consumers to try on engagement rings via the app using augmented reality before going into the boutique. League of Legends players can purchase Louis Vuitton items online and then pick them up in shops. Last year, at one of the Gucci-Poke stops, Pokémon GO players were able to purchase fashion items from Gucci's partnership collection with The North Face. Epic Games has committed $100 million to game development in 3D space, partnering with businesses ranging from Balenciaga to Louis Vuitton.

However, it is becoming clear that the digital world can deliver the fundamental elements of luxuries without requiring any physical artifacts or experiences.

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1. Rarity is the first ingredient (NFT)

It can be difficult to identify the difference between an original and a copy even in the actual world. It has long been thought that distinguishing "genuine" digital things from equally digital duplicates was nearly impossible. But, as always, technology has a solution: non-fungible tokens (NFTs).

NFTs can be tied to digital products, like as a digital painting, using blockchain technology to ensure authenticity and evidence of ownership. As a result, sales of NFT-based goods have increased dramatically, totaling $10.7 billion in Q3 2021.In March 2021, Christie's sold an NFT attached to a digital artwork by the artist Beeple for over $70 million. Morgan Stanley forecasts that NFTs might account for 10% of the luxury market by 2030, representing a $50 billion opportunity.

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Brands can also use NFTs to produce totally customised fashion items: The brand Overpriced's first virtual sweatshirt, NFT, sold for $26,000 on the BlockParty platform. NFT holders can receive a physical replica of their digitally held goods via flexible production processes like 3D printing, thanks to companies like RTFKT and PlattformE. This flexibility also allows for on-demand production of things only after the NFT holder has virtually tried them and agreed to purchase the physical version, avoiding the long-standing problem of overstock, which is especially widespread in the fashion industry.

However, uniqueness and personalisation are insufficient. Luxury items must go beyond uniqueness and find ways to cater to our desires' hopes, imaginations, and goals. That's something that digital can achieve as well.

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2. Exclusivity

We can display ourselves very much however we want in the digital realm, and we can alter our identities very quickly. Some high-end brands have already seen the opportunity: For example, Balenciaga has created a virtual fashion line in Fortnite, where players can show off their brand loyalty by purchasing branded virtual garments or "skins" for their avatars. Burberry is exploring with in-game NFTs to provide skins to virtual avatars like Sharky B in the multiplayer game Blankos Block Party, which is a limited edition, limited quantity character.

The industry for digital skins and in-game purchases is estimated to be worth over $40 billion per year, according to trading platform DMarket. Establishing global intra-operability across ecosystems that allows objects to be worn and exchanged across platforms would only improve consumers' ability to project their identities and status, raising the value of the digital products that enable this.

Furthermore, the virtual services and goods supplied in gaming and communities are frequently highly expensive individually, which brings us to another important luxury component.

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3. Price

One of four rare NFT pieces was recently sold for $3.6 million on Mutant Ape Yacht Club in December 2021. Brands are already paying attention. The recent selling of nine NFTs by Dolce & Gabbana for $5.7 million is only one indication of the possibilities. Karl Lagerfeld's limited edition of 77 digital pieces for €177 sold out in just 33 seconds on the platform The Dematerialized. RTFKT, a digital fashion brand now owned by Nike, has teamed up with artist Fewocious to release three sneaker designs in 2020, with prices ranging from $3,000 to $10,000. In just seven minutes, over 600 pairs of shoes were sold.

In fact, some customers are willing to spend even more for digital goods than they are for real goods. The scarce digital version of a Gucci Dionysus handbag, which sold for $4.75 in Roblox, recently sold for $4,000 on the secondary market, which was more than the bag's original price. RTFKT's sneakers sold for twice their original price just weeks after they were released. This is a fantastic opportunity. Where as in the physical world, the digital tracking of transactions allows brands to receive a portion of each future resale, allowing for a new source of ongoing revenues.

Balenciaga has even set up a whole company branch to focus on virtual items in the metaverse. Virtual items have significant margins as well, because the cost of digital products is substantially cheaper than that of physical products. Furthermore, the unsold inventory has no cost.

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The companies profiled here are pushing the boundaries of what it means for a product to be rare, exclusive, and expensive — and the possibilities for creating business and consumer value are only going to grow, as what these luxury trailblazers are learning will inevitably lead to new types of products and services both inside and outside the industry.