Is the future of Luxury digital?

Can luxury be digital? Until recently, most customers and luxury companies would probably have answered with a no. Luxury is about exclusivity, while digital products make data and knowledge accessible - the two seem to exclude each other. According to this logic, digital technology is only a channel or at best an add-on that complements and enhances a physical product or experience.

However, it turns out that the digital world can also provide the basic components of luxury goods and services that are independent of any physical artifact or experience. L'Officiel Austria sheds light on this topic.

The brands described here are expanding the meaning of rarity, exclusivity, and expensive products. Because what these luxury pioneers learn will inevitably create new types of products and services within and outside the sector.

Rarity

Even in the physical world, it can be difficult to distinguish between original and copy. Distinguishing between "real" digital products and digital copies was long considered almost impossible. But technology provides a solution: non-fungible tokens (NFTs). NFTs can be attached to digital products such as digital artworks, establishing their authenticity and proof of ownership. As a result, sales of products with NFTs increased to $10.7 billion in the third quarter of 2021. A digital collage by Beeple, which was attached to an NFT, sold for nearly $70 million at Christie's in March 2021. Investment bank Morgan Stanley estimates that NFTs could make up 10% of the luxury market by 2030 - a $50 billion opportunity.

But rarity and personalization are not enough. Luxury goods must go beyond and find ways to tap into the dreams, fantasies, and ambitions that fuel their customers' desires. Here, too, digital technology can play a role.

Exclusivity

In the digital world, we can present ourselves pretty much as we want - and change these identities very quickly. Some luxury brands have already recognized the opportunity this presents: Balenciaga, for example, has developed a virtual fashion collection in Fortnite - players can show their affiliation with the brand community by purchasing branded clothing or "skins" for their avatars. Burberry is experimenting with in-game NFTs to offer skins for virtual avatars, such as their limited-edition character named Sharky B in the multiplayer game Blankos Block Party.

The trading platform DMarket estimates the market for digital skins and in-game purchases at around $40 billion per year. Establishing global interoperability across ecosystems that allows items to be worn and exchanged on different platforms will only increase consumers' ability to project their identities and status, and increase the value of digital products that enable this.

It's not just about games. Online communities like the Bored Ape Yacht Club or Pudgy Penguins are becoming increasingly popular among digital collectors. Membership in the community is acquired by purchasing an NFT linked to an image (such as an image of a bored ape or a pudgy penguin), and the tokens serve as entry tickets to collectible digital goods and services. According to the Chainalysis 2021 NFT Market Report, membership tokens for these communities were the most popular NFTs in 2021. In August, for example, the developer of the Mutant Ape Yacht Club, Yuga Labs, sold 10,000 membership NFTs in just one hour, generating a transaction value of $96 million. Furthermore, the virtual goods and services sold in games and communities are often individually very expensive, which brings us to another important luxury ingredient.