The number of luxury brands that entered into the NFT space between 2021 and early 2023 exceeds the figure prior to 2021. Some of these brands include Prada, Dolce and Gabbana, Louis Vuitton, and Burberry.
This new pattern is driven by the quest to reimagine customer engagement, enhance product traceability, and tap into the burgeoning secondary luxury market. NFTs are proving to be a transformative force in the realm of luxury, allowing brands to elevate customer experiences and safeguard authenticity.
A report released by the World Economic Forum on how NFTs have fared in this industry, it noted that there are five basic use cases of NFTs by luxury brands globally. The first is for a certificate of ownership and authenticity.
It explained that luxury brands are using NFTs to certify the legitimacy and authenticity of their products, strengthening customers’ confidence. For example, Gucci collaborated with Arianee to develop NFTs that grant proof of ownership, authenticity, and provenance for their products.
Luxury brands also use NFTs to enhance product traceability. LVMH, Prada Group, Cartier, and others have established the Aura Blockchain Consortium in collaboration with Microsoft and ConsenSys. This blockchain consortium aims to enable brands to create NFTs that hold comprehensive information about products, including sourcing, manufacturing, transport, and logistics data.
The three other use cases are for secondary market royalties which brings new revenue sources for luxury brands in the fast-growing secondary luxury market; customer engagement and loyalty where customers are rewarded for their commitment; and as digital and physical collectibles.
Here, products are digitized and sold as NFTs, allowing buyers to own unique digital versions for use in virtual spaces like the metaverse and gaming. Prada collaborated with Adidas on a project featuring NFTs created from 3,000 community-sourced artworks.
For those considering integrating NFTs into their businesses in the luxury market, WEF noted that NFTs, especially in the luxury industry, offer a significant advantage by allowing brands to certify the ownership and authenticity of their products.
Each product is assigned a distinct digital identity through NFTs, which enables brands to verify its authenticity and maintain a clear, unalterable record of its ownership and transaction history.
Counterfeiting is a widespread issue valued at over $460 billion in illicit trade in 2019. Luxury items, in particular, are highly susceptible to counterfeiting in the European Union. To combat this problem, brands such as Aura and Arianee are incorporating authentication features into their platforms, making it easier for customers to verify the authenticity and ownership of the items they buy.
Secondly, it revealed that NFTs offer a valuable tool for brands to enhance the traceability of their products throughout the entire supply chain and to address environmental, social, and governance (ESG) concerns.
This is achieved by storing important information about the product’s journey in NFTs, including details about sourcing, processing, packaging, distribution, and consumption. Additionally, NFTs can contribute to ESG efforts by providing a way to track the disposal or end-of-life processes of products.
Consumers are increasingly interested in knowing the origin of the products they purchase and whether their manufacturing processes adhere to ethical and sustainable standards. By using NFTs to provide transparent information about the product’s journey and its adherence to ESG principles, brands can meet the growing demand for responsible and ethical consumer choices.
Thirdly, it said that NFTs enhance customer engagement for brands that launch offerings such as limited-edition digital collectibles, “phygitals” (physical and digital hybrid products), and exclusive access to events or products.
NFTs also play a vital role in customer relationship management (CRM) by providing insights into product portfolios and client preferences. This data is valuable for tailoring brand experiences and products to individual customer tastes.
Some experts even see NFTs as a promising replacement for traditional website cookies when it comes to acquiring customer data and delivering brand experiences at scale.
Moreover, NFTs have the power to attract new customer segments, such as NFT enthusiasts, into the realm of traditional luxury clientele.
This expansion of the customer base is facilitated by the unique appeal and engagement potential that NFTs offer, making them a bridge between different consumer groups.
The report also added that “NFTs open the opportunity for brands to capture value in the fast-growing secondary luxury market.” Why? The secondary luxury market, where previously-owned luxury goods are resold, experienced a remarkable 65% growth between 2017 and 2021.
In contrast, the primary or firsthand market, where these goods are originally sold by luxury brands, only grew by 12% during the same period.
Lastly, it stated that establishing good business partnerships with crypto-native companies brings credibility and validation to the efforts of luxury brands in the world of NFTs (non-fungible tokens).
It cited the case of Gucci, which has partnered with Superplastic, known for creating animated synthetic celebrities through their brand, Yuga Labs. These partnerships not only contribute to enhancing the brand’s reputation in the metaverse but also signify that they are serious about embracing the disruptive potential of NFTs and the digital realm.