Luxury fashion house Prada has a program for customers who want something even more exclusive than its usual range of clothing and accessories. Each month, on a first-come, first-served basis, the Time Capsule collection offers ultra-limited editions of Prada products. They are only on sale for 24 hours, with purchases delivered directly to customers’ doorsteps.
For the new June edition, there is an extra twist. Those who purchase one of 100 black and white button-up shirts by Cassius Hirst, son of famed British artist Damien, will receive an NFT (non-fungible token) as part of the experience. These are GIFs of the black and white capsules that Prada uses to mark these events, and they are also made available to buyers of previous editions.
It’s the latest example of how big brands are experimenting with NFTs to add another dimension to their businesses. This has recently included everything from digital Nike sneakers to virtual collectibles from sports clubs such as AC Milan. For example, Gucci is selling a digital bag for more than its real-world equivalent ($4,115 vs. $3,400), a sign that Prada NFTs could fetch a premium if resold.
Most media coverage around NFTs has focused on major art auctions such as Beeple’s Everydays, a giant digital collage that sold for $69 million, and the highly publicized Bored Ape Yacht Club. , 10,000 cartoon avatars of bored looking primates. But clearly, the arrival of traditional brands is also an important part of the story. Total NFT sales for 2022 are heading towards around £90bn, more than double 2021 despite the markets crashing at the moment.
So what are the best examples of brands operating in this space, and are there any pitfalls?
NFTs are online assets that double as certificates of ownership, typically digital items like an artwork or video, but potentially even physical items like clothing or a car. People can buy and sell NFTs on marketplaces such as OpenSea, LooksRare, or Magic Eden. The market exploded in 2021 driven by the hype of Beeple and A-list celebrities like Snoop Dogg and Lebron James issuing their own NFTs.
Sports associations such as the NBA and NFL were among the first to sell NFTs of sports hero trading cards, videos of classic moments, and even player-signed jerseys. It’s about using NFTs to capitalize on a loyal fanbase by gifting them with rare assets.
???? ALL SALUTE THE KING ????@YoDough picked up this legendary LeBron James moment from our Cosmic Series 1 set for $208,000‼️ This moment is from our first ever legendary set ????
The best acquisition for any NBA Top Shot Moment…so far.
Congratulations on the beautiful van! ???? pic.twitter.com/rFLMzbwXN7
— NBA Top Shot (@nbatopshot) February 22, 2021
In the coming years, NFTs are likely to merge with the virtual worlds of the metaverse, in the sense that many will likely be usable there. Balenciaga, another luxury fashion house, was an early pioneer in this direction, offering a collection of NFT accessories that players can wear in Fortnite.
Nike was particularly forward-thinking when it purchased NFT pioneers RTFKT Studios in late 2021. RTFKT made a name for itself with a collection of manga-style 3D NFT characters called CloneX that now trade for dozens thousands of US dollars. In line with other top NFT collections such as Bored Apes, RTFKT uses CloneX characters to create a storyline that unfolds gradually over time.
In February, CloneX owners got NFTs dropped from mysterious digital boxes known as Mnlths. The Mnlths had Nike swooshes on the side and soon began selling for over $10,000 on NFT Markets, even though no one knew what was inside. In April, Nike announced that owners could “burn” them to unlock a pair of digital sneakers called CryptoKicks, along with a flask allowing users to customize them, and another mystery box called Mnlth 2. A pair of CryptoKicks will has since sold for $134,000.
Meanwhile, online platforms are helping to make these NFTs more usable. Meta is building features for Facebook and Instagram that will allow users to create NFTs and feature them on their social media profiles. Spotify is working on something similar, with a view to creating new revenue streams for artists and record labels.
Danger straight ahead?
But while these are examples of the potential of NFTs for big brands, there are also serious risks. The market has fallen significantly in both price and volume in recent weeks, in line with declines in everything from the stock market to cryptocurrencies. Many collectors will be sitting on assets that were worth much more a few months ago.
A historic sports club like, say, Real Madrid could thus unwittingly damage the financial well-being of its fans. Should the club compensate these people in some way to avoid jeopardizing the relationship? Or what if fans became like day traders, flipping NFTs to try and make money. Is the club then likely to be accused of allowing something akin to gambling?
Another danger is the undesirable repercussions of a company giving control of assets to unknown third parties. What, for example, would the customers of fashion brand Patagonia think of its sustainable and militant values if its NFTs ended up being displayed by a major fossil fuel contractor?
For many brands, it’s also not yet clear whether NFTs could cannibalize the sales of their physical products. Likewise, not all brands have the same scarcity value as a Prada or a Gucci. A budget retailer such as Primark could experience a lack of demand if it launches NFTs, and its image could be affected.
Companies launching NFTs are potentially going to have to change more than meets the eye. They will need to implement a range of new roles to manage relationships with NFT owners and their corporate reputation.
It could become a distraction from the core business of the company. Perhaps they are becoming like an investment house, more focused on maximizing NFT sales than creating value for their clients. Especially for brands with a more progressive culture like Ben & Jerry’s or Oatly, this could raise awkward ethical issues.
Nonetheless, it’s going to be fascinating to see how this market develops. Successful companies are likely to be those that are aware of these risks and view NFTs as a new revenue market to explore rather than a short-term opportunity.