Luxury Fashion Houses Are Funneling Millions Into The Metaverse. But To What End?

As with any new technological development, the future of immersive digital worlds is still an open question. However, luxury fashion houses are funneling millions into the metaverse. But to what end?

When a digital Gucci Dionysus handbag managed to sell online for the amount of $4,115 last year, the fact that you could have actually purchased the genuine article for $700 less hit the headlines.

The four-figure sum, paid by a customer on the gaming platform Roblox, was chump change for a brand that created $9.7 billion in earnings in 2021. In fact, the Italian luxury conglomerate originally sold the digital bags for 475 “Robux” (less than $6) each, with the exorbitant prices only later achieved on the resale market.

But the incident showed the existence of individuals who cherish their digital wardrobes just as much, if not more, than their physical ones.

In the last two years, the fashion industry has undergone a radical change thanks to this concept. Premium brands have tried to rush into these new and wildly popular virtual worlds, from Balenciaga attempting to sell character skins on Fortnite to Ralph Lauren launching a digital clothing line on South Korean platform Zepeto.

Millions of people invest their time in immersive, interconnected digital environments, whether these platforms are a part of the so-called “metaverse” (a term that gained popularity when Facebook rebranded as Meta last year) or are merely online games. Major labels are establishing stores as a result, offering virtual events, limited releases, and avatar clothing lines.

The industry is buzzing with exaggerated claims about opportunities in the evolving digital landscape, with McKinsey & Co. claiming that fashion is “at the forefront of the metaverse shift.” According to Charles Hambro, whose company Geeiq (pronounced “Geek”) assists companies like Tommy Hilfiger and Farfetch in “navigate the metaverse,” this enthusiasm could stem from previous mistakes.

“Fashion brands were particularly slow to social media,” he explained in a video conference from London, explaining that in the mid-2000s, brands were condescending of then-new platforms such as Facebook. “They don’t want to be late again.”

“There are 3.2 billion people that play games now, and they aren’t just going into these virtual worlds to play — they are also, crucially, going in to socialize,” he added, drawing a parallel between the fashion industry’s recent efforts and its 1990s efforts to “align with R&B and hip-hop culture.” “If a brand wants to be culturally relevant, it’s really important for them to be connecting with this audience.”

Experience matters

On the surface, digital cloth appears to be just another source of income for luxury brands. Last year, Dolce & Gabbana’s first NFT series, a nine-piece collection of dresses, crowns, and a men’s suit (more than 50 per cent of which were merely visual representations of physical products), sold for a reported $5.7 million on the luxury marketplace UNXD.

The profit margins are undeniably desirable: Producing, for example, a pair of virtual sneakers that can be freely duplicated indefinitely will cost much less than producing and selling thousands of their physical counterparts.

But perhaps more pertinently, the metaverse gives brands access to a completely new generation of consumers—demographics that are frequently younger than traditional wealthy consumers and who might not have ever engaged with high fashion. In actuality, what made Gucci’s Roblox experience, Gucci Garden, noteworthy was not the news-making handbag sales but rather the astounding 20 million users who visited the virtual environment.

This kind of brand-building activity may ultimately encourage new customers to purchase tangible goods, either now or in the future when they have more money to spend. According to a report by the consulting firm Bain, online interactions in some way influence 70% of purchases of luxury goods (meaning that shoppers had at least one digital interaction with the brand or product before deciding to buy).

However, according to Hambro, brands that prosper will not be those that use virtual worlds as billboards or cash cows, but rather those that give users enjoyable and worthwhile experiences instead.

“Facebook makes money from brands, Instagram make money from brands — but Roblox makes money from players,” he said. “So, when a brand goes into these virtual spaces, they need to enrich the experience, because it’s a completely different model. The model is about digital goods and services, not about buying (ads) and getting your logo in front of eyeballs as they’re scrolling through a feed. Brands need to create a true connection with these audiences.”

Labels seem to be on board with the concept. Dolce & Gabbana and Tommy Hilfiger created elaborate experiential boutiques in the Decentraland metaverse for the first-ever Metaverse Fashion Week, which took place in March. (Although the event was clouded by technical issues and faulty graphics, it showed brands’ readiness to take chances in a field where reputation is everything.) Instead of just creating NFTs that sit in customers’ digital wallets waiting to be purchased later, brands are increasingly creating clothing that can be incorporated into consumers’ online lives.

As a result, consumers are buying based on their preferences instead of resale value, according to Hambro. Take, for example, Burberry’s latest Roblox launch, in which the brand reimagined its iconic Lola bag in “extraordinary materials including clouds, water and wild foliage.” As with a traditional NFT sale, the label decided to make an infinite number of bags obtainable for 800 Robux (equivalent to $9.99) for a 24-hour period, with buyers able to carry them wherever they went within the platform’s universe.

The co-founder of Geeiq, whose company later examined the sales data, was puzzled by the fact that prices were unrelated to the scarcity of the goods. Contrary to popular belief, the most popular styles of bags during Burberry’s 24-hour selling period continued to command the highest prices on the secondary market.

“That really goes against what we’re seeing with NFTs, where it’s very much linked to the rarity of the NFT itself,” said Hambro, who believes the items’ value stems from the “aesthetic of the product itself.”

“These individuals were purchasing these products, really for self-expression, not just to own and flip them.”

Digital identities

According to British stylist Gemma Sheppard, who is frequently referred to as the “first stylist in the metaverse,” dressing digitally is fundamentally about self-expression and creativity, just the same as real-life fashion.

“Two years ago, my goddaughter asked me for some shoes for her avatar,” recounted Shepperd, a former head at luxury jewelry brand Boucheron who has since been designated metaverse global fashion director at Dubit, a game development studio. “At the time, they were the equivalent of £60 ($70), and her mother was like, ‘Absolutely not — that’s more expensive than the shoes on your feet.’ But I started to talk to her, and she made me realize it was really important to her that her avatar had these glittery, sparkly shoes.”

“I had this massive realization,” she added. “This is how Gen Z is behaving. This is where they are. This is what their communication is about. Their identity in the metaverse really matters.”

According to a 2021 study by The Business of Fashion, roughly 70% of US consumers, from generations X to Z, already view their online identity as “important.” And Sheppard’s advise for brands—as well as the philosophy behind her own whimsical designs—is to capitalize on the creative potential of the medium.

“All of my concepts come from how I work in the real world, using traditional mood boards, but then I let my imagination run wild,” she said, referencing a new collection she’s working on. “Take accessories: I’ve got some jeweled cups, but they have got superpowers — they’ve got auras and can shower glitter (representing) confidence, for example… A bag doesn’t need to work in Roblox like it works in the real world.”

On the other hand, Sheppard suggested that brands might use virtual environments to evaluate physical designs before placing them into production. But assuming that people will dress the same virtually as they do in everyday life would be incorrect, she continued.

“That’s the beauty of the metaverse,” she added. “I live in Ibiza, and they say you can never be underdressed — you could turn up in your Swarovski gown and I can come straight from the beach in a bikini, and it’s absolutely fine. And I think, to a certain extent, that applies to the metaverse.”

Future questions

As with any new technological development, the future of immersive digital worlds is still an open question.

A few observers have even called into question whether the metaverse will ever exist, or at least the version promoted by Meta CEO Mark Zuckerberg. According to workforce analytics firm Revelio Labs, new employment listings with the word “metaverse” in their title fell 81% between April and June of this year, as interest in NFTs cooled and cryptocurrency prices plummeted. (However, viewing this as a nail in the coffin for the industry is akin to dismissing the internet based on the “dotcom bubble” of the 1990s.)

Nevertheless, according to Reuters, investment bank Morgan Stanley believes that by 2030, digital fashion could increase industry revenues by $50 billion. For their share of the market, heritage brands will face fierce competition from web-first ones like the self-described “digital fashion house” The Fabricant. In a market based on aspiration and exclusivity, it remains to be seen whether selling virtual goods for a few dollars ultimately harms the IRL desirability of luxury brands.

A more pressing question is whether we will one day be able to access our digital wardrobes across multiple virtual worlds (for now, an item bought in Fortnite or Decentraland, for instance, can only be used on those specific platforms). Despite users’ obvious interest in owning a cohesive, cross-platform meta-closet, Dubit is Chief Commercial Officer, Andrew Douthwaite, believes this poses significant technological challenges.

“‘Interoperability’ has been the buzzword around the metaverse for the last year or so. In practice, it’s difficult, because different platforms are closed at the moment,” he said, explaining that this could change with a move towards a more decentralized version of the internet, often dubbed Web3 or Web 3.0. “I absolutely think that it’s something to strive for,” he added, “but it’s not as easy as just saying because I buy something on a certain world it should work in another world.”

Where the digital and physical worlds meet, whether through augmented reality (AR) or virtual reality (VR), there are additional potential opportunities. For instance, virtual “try-on” technology, which enables customers to see how clothes look without visiting stores or mailing back unwanted clothing, has advanced significantly in recent years. According to Hambro, the development of gadgets like “mixed-reality” smart glasses will also influence future applications.

“Where this gets really exciting — and now I’m going into speculation and guesswork about when the hardware gets good enough — is where, through the glasses you’re wearing now, you will see me wearing a different outfit based on the NFTs I own,” he said.

Maybe this is the future on which the fashion industry is staking its vast sums of money.