19 Apr 2022 3 min read

The state of the consumer (part 5): the emergence of digital fashion

By India Heywood

The final instalment of our deep dive into consumer trends examines how virtual worlds are creating new markets for fashion brands.

Fashion-designers.jpg

As we shift towards an increasingly digital world, new opportunities are starting to arise for consumer companies. An example of this is the emergence of ‘digital fashion’ in the luxury consumer goods sector, where there are two near-term trends: fashion within gaming and fashion within digital worlds.

Gaming

In games such as Roblox and Fortnite, luxury fashion brands are starting to sell digital clothing that can be worn on avatars within the realms of the game. In May 2021, a virtual Gucci* Dionysus Bag sold in Roblox for over $4,000, which is more than the price of the bag in the real world. Fashion brands are also using gaming platforms to advertise directly to gamers. For example, Nike* set up ‘Nikeland’ within Roblox, where users can play online sports games while also browsing real-life Nike products.

Digital worlds

Many immersive digital worlds, often termed ‘metaverses’, are currently being constructed using blockchain technology, such as Decentraland and The Sandbox. Unlike Fortnite or Roblox, these digital worlds are not focused on gaming but are instead about participating in a wide range of real-life activities and socialising in real-time. In Decentraland, users can visit a virtual shopping mall or meet friends for a digital coffee at a café.

Although these online worlds are in their infancy, luxury fashion brands are already researching and investing in them, due to the large commercial and advertising opportunities they might present in the future. For example, in March 2022, Decentraland hosted ‘Metaverse Fashion Week’, where luxury brands displayed their digital fashion pieces on virtual runways. In addition, Gucci recently purchased a piece of land in The Sandbox, possibly with the intention of setting up a virtual store later on.

Luxury fashion brands have also started to sell clothing non-fungible tokens (NFTs), which are unique digital pieces of clothing stored on blockchain technology. These fashion NFTs can be worn inside some metaverses already. For example, Nike acquired RTFKT, which produces trainer NFTs that can be worn in Decentraland and have sold for between $500 and $100,000. Unlike digital fashion where items may be confined for use inside a particular game, fashion NFTs have the potential to be transferred across different online spaces, although this technology may take time to develop.

Digital fashion may contribute significantly to the luxury goods sector

Although digital fashion is currently generating negligible revenues, Morgan Stanley has projected[1] that digital fashion has the potential, in an upside scenario, to increase luxury goods sales by 11% and EBIT (earnings before interest and taxes) by 25% by 2030. And there is already evidence that digital worlds could be popular for more than just gaming, particularly among younger demographics. For instance, in April 2021, Fortnite hosted a virtual concert with Travis Scott, where 12.3 million users attended live.

On the other hand, the technology underpinning these new digital worlds is still young, user interfaces are unsophisticated, and the extent to which consumers will adopt these digital worlds is unknown.

Yet despite the uncertainties surrounding the impact of digital worlds on the luxury goods market, it seems the that the sector is sufficiently intrigued by the possibilities to continue its explorations.

Previous blogs in the series cover:

Online retail and reopening dynamics

Sustainability and consumer choice

Inflation and consumer incomes

Supply chains

 

*For illustrative purposes only. Reference to a particular security is on a historical basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.

 

[1] Source: Morgan Stanley Research: Luxury in the metaverse

India Heywood

Investment Graduate (Active Fixed Income)

India joined LGIM as a graduate in 2021 and works in the Investment Grade Research team, within Active Fixed Income. Prior to LGIM, India studied Natural Sciences at the University of Cambridge.

India Heywood