Discussion of the ‘metaverse’ has gone from being a fringe topic to one that is now everywhere. What more vindication of the idea entering mainstream consciousness than Facebook, a near trillion-dollar company, changing its name to Meta? Luxury brands are dipping their toes into this new virtual world. GAM Investments’ Swetha Ramachandran recently discussed the topic with luxury expert Tom Meggle, a former Louis Vuitton and Cartier executive. In the second and final part of their conversation, Swetha and Tom look at the reinvention of retail, how brands can connect with customers in the digital world and share their thoughts on the market’s accessibility and growth potential.
To read part one of the discussion click here.
Swetha: ‘Super league’ brands such as Cartier and Louis Vuitton are now emerging with significantly more market share than pre pandemic. People are flocking to brands that they know and trust. Shouldn't this be the moment brands seize the momentum and use it to innovate in a much more profound direction?
Tom: Yes. I cannot wait to see these things happen. In terms of line extensions of physical collections, there are many limitations. However, when it comes to digitally expressing the creativity of your design team, there are so many opportunities. Imagine Cartier launching an iconic design only exclusively available virtually – similar to what is happening on The Dematerialised. A customer buys his / her virtual sneaker and outfit, which is worn virtually and then posted on Instagram or elsewhere and wears it with his digital virtual twin in various metaverses. There are so many smart ways to bridge the virtual world and the real world. These are not isolated universes; it is actually something that melds into the physical world. This is where I see opportunity. Ultimately what a platform like Roblox does is to monetise entertainment of a community by animating that community around certain core values and experiences. A luxury brand could ultimately provide something similar. For example Chanel could invent a metaverse and virtual game where you travel back in time and meet Karl Lagerfeld or have a virtual lunch with Coco Chanel and invite your friends to join. These are all things that can be done today but we are just seeing the tip of the iceberg. These brands are so rich in storytelling and heritage that they could significantly benefit from it. Brands retain clients through interaction, and once you connect with consumers in the metaverse and launch a new product, client engagement is continuous. This is something you cannot do in the real world.
Swetha: The historical model is very transactional, where you go to a store and buy something. Now, even Ferrari has opened a restaurant in its headquarters in Maranello to engage consumers. Then there are virtual reality try-ons, such as Prada on Snapchat, along with many other brands to make sure that they connect with the consumer.
Tom: I believe that retail will continue to be reinvented. I am a great fan of Selfridges which is a pioneer in the department store space. You can now rent your clothes, even sell them through the Vestiaire Collective pop-up. There is even a skate park and a cinema at Selfridges. It is as much experience led as transaction led. In the real world, you can choose the touch points you want to consume at your convenience, for example click and collect or pick up in store or home delivery. Due to the number of options, retail has lost the monopoly of being the only place for transactions. This why the art will be to bring all these digital and virtual experiences together in a bricks and mortar environment. The store of the future is one where you actually connect both sides and have a seamless experience. Forget about the doorman; the Gen-Z consumer is more about inclusivity than exclusivity, they want to feel welcome. They are not impressed by beautifully dressed security guards at the entrance of a store – that feels more like a rejection to them. You actually want this to be your place. The more authentic, democratised and inclusive the experience, the better.
Swetha: That started with e-commerce. If you were physically intimidated by the idea of walking into a Louis Vuitton store, because you thought it was not the right place for you, now you can go online, browse, and leave without anyone noticing.
Tom: Those that have grown the most significantly in the last 12-18 months realised that they had been ignoring quite a lot of consumers who would never set foot in a store.
Swetha: You mentioned that younger consumers were perhaps not as loyal to brands. But if we think about this culture of ‘fandom’, younger consumers are fans of games, and there is a big fan culture that develops in eSports, for example. Could this be extended to luxury brands?
Tom: Younger consumers can be greatly loyal, but I do not think they blindly follow brands and remain loyal for the sake of it. As long as the brand stays relevant and they have a connection with it, they will be loyal. When it comes to the gaming industry – a gigantic business worth USD 300-400 billion globally – the money spent by this young generation just on experiences and accessorising their lives is a great opportunity for the luxury industry. This is a generation much more interested in experience than physical products. I also see a large opportunity for brands to attract new clients with digital assets and digital art.
Swetha: In the early 2000s, there was Second Life, which everyone got excited about. Ultimately, it was a dismal failure. The avatar that we all designed on Second Life went away. What is it that you think has changed that makes things different this time? Or is it that we are currently overhyping?
Tom: The Gen-Z generation have a completely different set of consumer behaviours. They also have a different set of core values. They are very much concerned about nature. I think the number one priority for them is to save the planet and to celebrate inclusivity, diversity and equality. This is the major difference to what happened 20 years ago. We were still in the old world, which was male dominated with political enemies. Now, Gen-Z consumers are less concerned about physical war and much more concerned about global threats. The metaverse is a future-led and future-proof concept that could allow them to realise their dreams. This is also a generation which has a different perception of how to shape careers. They are, by definition, multitasking. This is where we see a radical change between millennials and Gen-Z consumers in terms of consumer behaviour and the social engagement.
Swetha: The wider ecosystem is enabling Gen-Z consumers to express themselves. The technology is much better today than it was 20 years ago. Augmented reality, virtual reality and social media connectivity are far superior.
Tom: And self-learning. Gen-Z consumers have a much higher degree of autonomy because digital connectivity has made the world a small place where everything is connected. According to Morgan Stanley the metaverse is expected to create USD 50 billion in revenues. This is a massive business opportunity for companies seeking growth and creating revenues from selling experiences rather than physical products.
Swetha: Could this potentially be more profitable because it doesn’t involve the costs associated with the physical?
Tom: Certainly. The cost to run the physical side includes everything from design, sourcing raw materials, manufacturing, supply chains, distribution and retail. It is a massive investment. Virtualisation will be rewarding. What I love about the opportunity in the metaverse is that luxury, by definition, is about scarcity. We know there has been a trend in the last decade towards customisation and personalisation. With blockchain-backed digital assets, there is a massive opportunity to create desirability. When I look at the Kelly bag and the Birkin bag as examples, the desirability Hermès has managed to achieve with the waiting list is largely down to storytelling. But the secret currency of success is desirability, which comes from scarcity. This creates a big opportunity to acquire a one-of-a-kind, unique asset that is your own. I would not be surprised to see prices skyrocketing to a level we have never seen before in the real world because of this scarcity element. Imagine a collaboration between Damien Hirst and Louis Vuitton, for example, built on only one product and auctioned on the metaverse – it would surely fetch an exorbitant price.
Swetha: That desirability now has to be translated into a different medium, which is the hyper-unique, hyper-personalised product that only you can get online.
Tom: For sure. What is really important is that brands have become more accessible. If you look at the entry price tag, you can buy into the Chanel or Gucci dream for around USD 200 and become part of the club. It is already a very accessible market. But it is very important to have digital assets that create attraction and demand will follow automatically. It is not about push marketing; it is about pull marketing.
Swetha: On the subject of inclusiveness, there is a perception that crypto, for example, is very much about ‘crypto bros’. How inclusive is the digital luxury space?
Tom: Currently, we only see a few creations that appear and collapse. Making the system scalable is crucial. Engagement with the wider community and making digital assets more accessible in general will be a great challenge. For now, it is still somewhat of an elite connoisseur business and market. There is significant potential in terms of scale over the next decade. I do not think it will be as fast as some people hope. It will grow, but over five to 10 years.
Swetha: At the height of the Covid-19 pandemic, people observing the industry from the outside were musing about the end of luxury and wondering what possible purpose luxury could serve in a world that is coming out of the pandemic? Did you ever feel that way?
Tom: No, never. I would define luxury as something that brings happiness to lives. We all have hard realities and we need to compensate. Luxury is just a way to express this need. Humans have always been creative in making dreams come true. Also, humans have always had some form of luxury; look at ancient ceramics and jewellery. This was luxury, just not the same business model. Ultimately, it is in our nature to produce beauty. And now we can also produce beauty virtually.
Swetha: Is it the case that one company has to go first and then everyone follows? Is someone waiting for the floodgates to open?
Tom: I expect one brand will finally end up doing something amazing to set everything in motion. Everybody has seen a sneaker or a dress. In my view, there will be one brand that does something revolutionary and unique. It will be a gate opener and others will follow. Whoever first enters that field first with determination will have the advantage.
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