Virtual Fashion for $8.99 Isn’t the Answer

Meta began selling digital outfits by Balenciaga, Prada and Thom Browne this week. The looks can be purchased for $8.99 a piece in the company’s new Meta Avatars Store and displayed on Facebook and Messenger, as well as Instagram Stories and DMs.

When Meta’s Mark Zuckerberg and his director of fashion partnerships, Eva Chen, announced the move last Friday, many rejected it as uncool. Meta said it was too soon to share early results, but a post on the launch by Highsnobiety, a hub for young fashion fans, attracted a flood of comments like “Make it stop,” “Literally no one wants this” and “They’re trying sooooo hard to be cool.”

The mixed response was hardly surprising. Big Tech rarely gets fashion right, even if Instagram has become an indispensable platform for the industry. But consumer demand for digital assets has grown significantly since Louis Vuitton became the first major luxury brand to develop virtual skins for Riot Games’ League of Legends back in 2019.

Now, there is growing consensus that the opportunity in digital goods is more than hype. But where do they fit into the luxury business model? Are $8.99 virtual outfits the answer?

Luxury’s top brands have built multi-billion-dollar global businesses by extending their offerings beyond exclusive fashion and accessories to lower-priced, higher-volume categories like beauty, forming a pyramid of products starting with haute couture at the top and broadening to ready-to-wear, leather goods, eyewear, fragrance and cosmetics.

While $100,000 couture gowns are beyond the reach of most people, they help to generate a perception of exclusivity and quality that allows brands to earn improbably high margins on lower-priced items, like lipstick, sold to millions of consumers.

In recent years, Alessandro Michele’s Gucci, Demna Gvasalia’s Balenciaga and Virgil Abloh’s Louis Vuitton have seized the opportunity in pricey T-shirts, hoodies and sneakers, adding streetwear to luxury’s product pyramid with spectacular results, thanks to its high margins and appeal with the young consumers driving the sector’s growth.

Now, approximately 70 percent of Gen-X to Gen-Z consumers in the US rate their digital identity as important, while 50 percent are interested in purchasing a digital asset, according to BoF Insights. Global spending on virtual goods reached an estimated $110 billion in 2021, with around 30 percent attributed to digital fashion, according to BoF and McKinsey’s “The State of Fashion: Technology” report.

With the crypto bubble bursting and a recession looming, demand may suffer in the short-term. But as we live more of our lives online, it’s not hard to imagine some luxury brands embracing digital fashion as a new entry-level category with the potential to extend their reach into new consumer segments and even power a new phase of growth.

“Virtual fashion is a new layer at the bottom of the luxury pyramid, just above fakes which remain the entry door for all those who can’t afford luxury but do not want to be seen as have-nots,” said Jean-Noël Kapferer, author of “The Luxury Strategy.”

Major luxury brands are adept at maintaining a perception of exclusivity while moving millions of units in lower-priced product categories. But selling inexpensive digital outfits in high volumes comes with risks.

Is a luxury brand still desirable if tens of millions of aspirants wear its virtual looks? And does it make sense for brands to cede control over distribution and valuable customer data to platforms like Meta, as they did with social media?

While this might work for some brands, there’s a compelling counter-argument for placing digital goods further up the product pyramid, positioning assets like digital skins and NFTs as scarce collectibles, steeped in creativity and digital craftsmanship, with the potential to resonate with more sophisticated clients.

“It doesn’t have to be lower than beauty,” said Benoit Pagotto, co-founder of RTFKT, a virtual fashion start-up acquired by Nike in December.

“It could surely have a positive impact on our brands — if it’s well done,” said LVMH chairman Bernard Arnault, referring to NFTs and the metaverse at his annual presentation to investors in January. “It’s not our objective to sell virtual sneakers for 10 euros.”

Eventually, luxury brands may develop a wider spectrum of digital goods. But it’s still early days and managers are right to be cautious.

Selling physical goods with “digital twins” that can be shared online and used to access online communities is the best place to start, advised Ian Rogers, former LVMH chief digital officer who joined crypto wallet maker Ledger in 2020.

“$10 items in the avatar store? No thank you.”

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Luxury sales are set to grow by 5 to 15 percent this year, Bain says. The global luxury market accelerated sharply in early 2022, the consultancy found, but risks slowing due to macroeconomic pressures and Covid-19 lockdowns in China.

Chanel to head to Senegal for next Métiers d’Art show. The luxury house will debut its next Métiers d’Art collection with a show in the West African country’s capital Dakar on Dec. 6. Within West Africa, Senegal enjoys the reputation as the region’s capital of couture craftsmanship.

H&M closes Shanghai flagship store, hurt by lockdowns and consumer backlash. The world’s second-biggest fast-fashion retailer entered China in 2007 with the opening of the Shanghai flagship store. It had more than 500 stores in mainland China early last year but its website currently only lists 376.

Zalando plunges after cutting guidance on worsening economy. The German e-tailer’s shares tumbled the most in more than three years after Europe’s largest online retailer slashed its profit forecast, blaming worse-than-anticipated macroeconomic conditions.

Nike to fully exit Russia, will scale down in coming months. Three months after suspending operations there, the US sportswear maker announced in an emailed statement Thursday it would leave the country completely, joining Western brands including McDonald’s and Google.

Mango to franchise Russian stores to local partners. The first two of 55 shops Mango was directly operating in Russia will be transferred this week to local partners, the Spanish company said in a statement on Monday.

Harrods delays summer sale as new season’s goods slow to arrive. It’s the latest instance of supply constraints hitting industries ranging from cars to high-end fashion, with shortages worsened by China’s Covid-zero policies and the war in Ukraine.

JD Sports annual profit more than doubles. The retailer’s profit before tax rose to £654.7 million ($800.2 million) for the year ended Jan. 29 from £324 million a year ago. The company, which has been the subject of several investigations by Britain’s antitrust watchdog, is splitting the position of chair and chief executive and in the process of filling both positions.

European fashion councils form alliance to lobby on sustainability policy. France’s Fédération de la Haute Couture et de la Mode and Italy’s Camera Nazionale Della Moda are among the 25 members of the European Fashion Alliance announced Tuesday and spearheaded by the Fashion Council Germany.

Mike Ashley’s Frasers raises Hugo Boss exposure up to $937 million. Frasers (formerly Sports Direct) is on a drive to move upmarket, said it now holds 4.9 percent of Hugo Boss stock directly and a further 26 percent of stock indirectly via the sale of derivatives known as put options.

Hop Lun to sell controlling stake to platinum equity. The financial terms of the deal between one of the world’s largest producers of intimate apparel — which manufactures lingerie, underwear and swimwear for brands including H&M, Fenty and Victoria’s Secret — and the private equity firm were not disclosed.

THE BUSINESS OF BEAUTY

Hailey Bieber’s Rhode Skin sued for trademark infringement. Hailey Bieber’s Rhode Skin brand — which launched June 15 — is being sued by fashion label Rhode, which alleges in a court filing that Bieber’s unauthorised use of the trademarked “rhode,” represents a “textbook case of reverse confusion.”

Glossier to increase prices as costs rise. The beauty brand put a banner across its site announcing the price of some products would increase by $1 to $4 starting July 6 due to “higher production costs.”

PEOPLE

Harry Styles collaborates with Gucci. At a presentation during Milan Men’s Fashion Week on Monday, the Italian luxury giant revealed that its creative director Alessandro Michele had collaborated with the English singer on its latest menswear collection, titled “HA HA HA.”

End. names new chief executive officer. LVMH vet Parker Gundersen will succeed co-founders Christiaan Ashworth and John Parker, who remain on the board of directors.

Boohoo appoints former Asos, Amazon executive as new chief financial officer. The UK-based fast-fashion retailer announced that Shaun McCabe will succeed Neil Catto in a regulatory statement Tuesday. He joins Boohoo from online rail ticketing platform Trainline.

MEDIA AND TECHNOLOGY

Chinese fashion tech firm Linctex Digital raises $100 million. The money has been earmarked for international expansion and a further shift into the digital fashion realm, it said on Tuesday.

China’s JD.com posts slowest growth ever in ‘618′ shopping event. Total sales rose 10.3 percent over the 18 days to Sunday during the first major shopping festival since a recent Covid-19 outbreak, the company said, down from the 2021 event’s growth of 27.7 percent.

Compiled by Joan Kennedy.

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholder’s documentation guaranteeing BoF’s complete editorial independence.