GAM Investments’ Swetha Ramachandran recently interviewed Karinna Nobbs – a digital visionary and academic specialising in the rapidly evolving fashion space. Karinna recently co-founded The Dematerialised - an experiential marketspace for digital fashion including a white label operating system for the creation and trading of non-fungible tokens (NFTs). In part one of their discussion, Swetha and Karinna discuss the history of digital fashion, its growing appeal and the diverse set of consumers involved.
How did we get here? This is not digital fashion’s first rodeo
Swetha: Digital luxury is a space that is going to get much more attention and investment. As investors in these public companies, I believe we need to be thinking laterally about how we can allow this parallel ecosystem to flourish and how even the incumbents are themselves thinking about these new brands. Are they going to compete? Are they going to coexist? It is a collision of worlds.
Karinna: This is not digital fashion’s first rodeo. Games have been around for a long time. Super Mario Brothers and Second Life, for example, explored digital fashion a while ago. It is fascinating that it has taken until now for it to rise to prominence. Undoubtedly, the pandemic has exacerbated and expedited the need to increasingly communicate and curate our digital identities online. I think there will be a natural evolution of profile images look, whether people want to have an avatar and what clothes avatars will wear. Also, from an industry perspective, the fact that many brands were not able to create physical fashion shows was something that spurred them into forward gear into thinking about making digital collections to survive. Consumer curiosity is another key factor.
Swetha: Second Life was all the rage and then disappeared into oblivion. Why is it that this phenomenon is now durable versus 15 years ago?
Karinna: Choice and quality, in a nutshell. We now have multiple metaverses, mini metaverses or games environments that we can look to. There is an adage: “Well, there is an app for that”. Now, if there is a game you like, you can love its aesthetics and games range from being hyper-realistic to those massive online multiplayer games - meaning the fidelity is much stronger. What is different now is that there is something for everybody. There was previously one thing that either crossed that innovation chasm or did not.
Swetha: Do you think we are there in terms of augmented reality and virtual reality, relative to what the digital fashion industry needs in order to really catalyse that adoption and uptake?
Karinna: No. As a consumer, even as a brand or marketplace owner, I want the technology to be better now than it actually is. That being said, I am still in love with many of the different activations that you can have at this precise moment in time, because they do further our experience and understanding and make us think differently about fashion, or about the brands who will have done that specific activation. Looking at pixel streaming, or different kinds of 3D spatial environments, or augmented reality ‘try ons’, pockets are really fantastic but maybe not reliably so. I do not think we are as far away as two to three years - I would say, in 12 to 18 months there are going to be huge leaps.
“I think a natural evolution will be how profile images look, whether people want to have an avatar and what clothes avatars will wear.” Karinna Nobbs.
Digital (fashion) natives
Swetha: The fashion industry today is being driven by ever-younger consumers. Younger millennials and all of Gen Z are effectively digitally native. There is no real distinction for them between online and offline, the boundaries seem quite blurred. Is digital fashion today a truly inclusive space, or is it really being driven by sort of ‘crypto bros’ and gamers? Do you think it is broadening out from that very narrow segment that it started out with?
Karinna: Conceptually, digital fashion is inclusive, but operationally it can still be exclusive. The barriers to entry are very low because you just need a smart device and internet connection. However, if you look at the recent hype in terms of the digital art space and NFTs within the art space to the extent that it is now said: “Oh, NFTs are maybe just going to be a fad generally.” What is interesting in my view is the bubble in that space was also driven by excited creators and collectors. I do not want that to happen within the fashion sector.
Swetha: Statistics show 2,000 buyers on Rarible (a marketplace for art NFTs) are driving 80% of their transaction volumes. It is easy to get the impression that everyone is on this bandwagon when it is a small number of people making a large bet.
Karinna: True. At Dematerialised, we are trying to flatten that curve a little bit lower the barriers to entry. For example, you do not need a crypto wallet to buy an NFT on our platform, you can buy it with fiat currency. That way, we start to make NFTs and digital fashion more digestible for regular customers who may or may not be strolling down a high street these days.
Swetha: Also, that consumer may not be a gamer, and may be from a different subculture, but is just as interested. It is similar to feeling intimidated walking into a Louis Vuitton store, because you might think that you are not the target audience.
Swetha: I am interested to see how brands can actually leverage the concept of ‘fandom’. I do not see the start-ups and the incumbents necessarily in competition but rather I see them as quite complimentary.
Karinna: I agree. There is an opportunity here for everybody and NFTs could really replace the loyalty cards of old because they can be used to unlock experiences, they can be used as a badge of honour to be considered a connoisseur because you have collected these things. Humans, by our very nature, are collectors.
Swetha: Also, luxury at the high end effectively relies on limiting supply to boost desirability. How far do you think we are from seeing sort of a tokenised digital-only Birkin with the waitlist or a Ferrari Testarossa in a colourway that only that particular consumer has? Or why not have a piece of jewellery that could not exist for physical reasons, but can virtually?
Karinna: I would not be surprised if Hermes is incubating that particular notion inhouse at this point in time. The luxury car industry will probably move faster than fashion. And then I think jewellery will move faster than fashion. It is also easier to model jewellery in 3D. Hard goods look amazing in a digital format.
Swetha: The Chinese consumer is driving over a third of the overall luxury industry and most of its growth, with a lot of innovation tending to happen in China before it happens anywhere else. Do you find that in the digital fashion and NFT space also or not?
Karinna: I have seen it less in the NFT space but I would definitely agree with you in terms of things like the propensity to buy virtual goods. Whether it is a virtual rose for a virtual influencer or a virtual rose for a real influencer, those barriers are much lower and also the integration of those features into the platforms that are super prevalent in China and are a lot easier. In China, you can capture a large audience by doing a small activation. With live shopping, it will be interesting when that migrates more into a holographic context or live streaming but selling digital fashion as an augmented layer. I have not seen any of that yet, but it would not surprise me to see it soon.
“NFTs could really replace the loyalty cards of old because they can be used to unlock experiences. Humans, by our very nature, are collectors.” Karinna Nobbs.
Swetha: Do you think that this concept of digital fashion takes off more in Western countries where many people have had a lot for a long time physically? In some other countries, which are earlier on in their consumption curve like China, it seems like the desire to acquire physical goods is still very strong.
Karinna: I see it more as being personality-based rather than geographically-based because I have seen examples of both. It is quite situational and personality driven. It also relates to the availability of what you want in your immediate environment. For instance, some of the software providers that we talked to who do things like virtual try-on technologies say that countries like the Philippines and India are among the largest users of their technology - and the brands that consumers are trying on are the brands that do not have a strong physical presence in those countries. Also, they see the technology is being used by some of the outliers in terms of the physical characteristics. So those consumers who are below the norm and above the norm in terms of sizes and are underserved are among the adopters of newer technologies.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.