Prada has a strategy for clients who desire something more unique than its standard assortment of garments and accessories. Each month, the Time Capsule Collection provides ultra-limited versions of Prada items for 24 hours on a first-come, first-served basis.
Beginning of this month, there will be an additional twist: Those who purchase one of 100 black and white button-down shirts by Prada and collaborator Cassius Hirst will receive a non-fungible token (“NFT”) as part of the appeal. The NFTs will also be given access to those who purchased previous editions of Prada’s limited Time Capsule drops.
The Prada initiative is the most recent illustration of how leading companies are experimenting with NFTs to add a new dimension to their operations. Recent examples include Nike’s digital footwear and virtual collectibles from AC Milan and other sports clubs.
Most media coverage surrounding NFTs is on large art auctions, such as Beeple’s Everydays, a massive digital collage that sold for $69 million in March 2021, and the highly publicized Bored Ape Yacht Club NFTs. Nevertheless, the advent of established brands, especially those in the luxury sector, is noteworthy since total NFT sales for 2022 are projected to reach over $113 billion, more than double 2021’s total.
Consequently, what are the finest examples of companies engaging in this market, and are there any pitfalls?
NFTs are digital assets that serve as proof of ownership, often of digital objects such as a work of art or a movie, but perhaps also of physical items such as specific apparel or an automobile. People may purchase and trade NFTs on markets such as OpenSea, LooksRare, and Magic Eden. The market expanded in 2021 due to the Beeple craze and high-profile celebrities such as Snoop Dogg and Lebron James releasing their own NFTs. In addition to famous individuals, sports associations such as the NBA and NFL were among the earliest adopters of NFTs, offering collectible cards of sporting heroes, videos of classic moments, and even jerseys autographed by players to capitalize on a loyal fan base by providing them with rare assets.
Nike has also demonstrated exceptional foresight by acquiring digital fashion/footwear pioneer RTFKT Studios in late 2021. In addition to its NFT shoes, RTFKT is renowned for its CloneX line of Anime-style 3D NFT characters, which currently sell for tens of thousands of U.S. dollars. Consistent with previous popular NFT collections, such as Yuga Labs‘ Bored Apes, RTFKT is employing the CloneX characters to develop a plot that unfolds gradually over time. CloneX owners were airdropped NFTs of unidentified digital boxes called MNLTHS in February, for instance.
The MNLTHS, which are decorated on the sides with Nike swooshes, began selling for over $10,000 on NFT markets, even though no one knew what they contained. In April, Nike and RTFKT revealed that owners might “burn” the tokens to unlock a pair of digital sneakers called CryptoKicks, a vial that enables users to personalize them, and a second mysterious box dubbed MNLTHS 2.
Meanwhile, internet platforms are facilitating the use of these NFTs. Meta is developing Facebook and Instagram tools to enable users to generate NFTs and display them on their social media pages. Similarly, Spotify is working on a similar project with the goal of developing new revenue streams for artists and record labels.
If these are instances of the potential of NFTs for notable brands, then there are also associated concerns. In recent weeks, the market has experienced a significant decline in both prices and volumes, paralleling declines in the stock market and cryptocurrencies. Many collectors will be in possession of significantly more valuable items a few months ago. Due to variations in the value of NFTs, a historic sports club, such as Real Madrid might unwittingly wind up jeopardizing the financial security of its followers. Should the club reward these individuals in order to preserve the relationship?
A corporation surrendering control of its assets to unidentified third parties also poses a risk of negative consequences. How would Patagonia’s consumers feel about its environmental and activist principles if a large fossil fuel entrepreneur showcased its NFTs?
It is also still unclear for many brands if NFTs will cannibalize their actual product sales (although it seems highly unlikely as of now). Not many brands possess the same scarcity value as Prada and Gucci. If a discount shop, such as Primark, introduced NFTs, its reputation may suffer as a result of lower demand.
Risk of NFTs to companies
Companies introducing NFTs may need to make more adjustments than initially anticipated. To handle connections with NFT owners and their corporate reputation, a number of new jobs will need to be established. This may divert attention away from the company’s primary business. Perhaps they become more focused on maximizing the sales of NFTs than on producing value for their clients, similar to an investing firm. When it comes to NFTs, businesses with a more progressive culture, such as Ben & Jerry’s or Oatly, may face ethical dilemmas, including from an ESG standpoint.
However, it would be intriguing to observe how this industry evolves. Companies who are aware of these hazards and regard NFTs as a new revenue market to investigate rather than a short-term opportunity will likely be the most successful.