Goodbye Luxury NFTs as We Know Them

Luxury is, in short, extreme value creation. The best luxury brands are incredibly good in creating value that is far beyond the typical category value. A great example is the Hermès Birkin bag, the world’s most expensive handbag, which starts around 10,000 and can exceed several hundred thousand dollars for exceptional pieces. Contrast this with the typical price range of luxury handbags between 500 and 2,000. The non-linearity of the price of a Birkin reflects the disproportionate value perceived by its clients and fans. The value creation is such that the average value increase of used Birkins has exceeded the value increase of most investment vehicles over the span of the last 20 years. When you walk out of a Hermès store with a new Birkin bag, you can likely sell it immediately for a 20-30 percent premium. Year over year, the value has been increasing: this is extreme value creation par excellence. Therefore, luxury brands need to be obsessed with continuously strengthening brand equity, storytelling, customer experience, and as a result, the value proposition of the brand. Every move should be strategic — the biggest asset is the trust of the clients. Brands that overly promote lose their ability to influence, and those who engage in incongruent moves risk a massive loss of consumer trust and desirability. As a result, being extremely strategic and intentional is critical to successfully create extreme value over time. Interestingly, when it comes to activities in the metaverse, many brands forget strategy and see Web3 as a huge field for experimentation, often lacking strategy and intent. The number of luxury brand NFT drops is growing every day to a point where it is almost impossible to follow who does what and why. Being well-connected to some of the most influential NFT creators and trading platforms, I hear one complaint again and again: brands often approach them with a simple brief. “My CEO told me that I need to launch an NFT, because our competitors have. Can you develop something quick?” The result of these increasingly tactical moves will be disastrous for many brands. I estimate that already today 75-85 percent of all NFT projects are failures even if companies celebrate them as short-term successes internally and externally. The percentage will increase dramatically in the near future. Don’t get me wrong. NFTs are incredibly interesting and offer promising opportunities for brands, investors, and consumers. The metaverse is still in its infancy, after all. Estimates indicate that in 2021 the value of NFTs already accounted for 15-20 percent of the total market for art, or about 35-40 billion. The artist known as Beeple sold an NFT for 69 million, a record for a digital asset and the third highest ever paid for an artwork of a living artist. Given that NFTs are just shy of eight years old and only became significant over the last 18-24 months, it’s safe to say that it is the fastest expanding category ever, even surpassing the adoption of crypto. Until now, the latter eclipsed anything before in terms of adoption rate, despite the high volatility and the recent value contraction of bitcoin and others. I just presented about the opportunity for digital assets in the luxury space at one of the most important conferences about crypto as an exponential investment opportunity. The audience — managers of some of the most influential and powerful family offices in the world — shared my upbeat general outlook. However, there is a caveat. Currently, there seems to be more demand than supply. This often results in prices that are disconnected with the intrinsic value of the asset fueled by the NFT pricing mechanism that most clients don’t understand fully in its entire psychology, further driving up the willingness-to-pay. With a growing number of digitable tokens, there are already signs of rapid commoditization. It’s simply not enough to have a seemingly random branded image of something and hope that customers will always apply value to it. At some point, there will be a significant market correction, a bubble burst, and what I call “soulless NFTs” will collapse in value. This is a major risk for the trust luxury brands need to build with their clients as they continuously increase prices. Many brands are playing with fire. If an NFT is not treated as a strategic initiative and if brands don’t scrutinize their metaverse activities towards their ability to create extreme value for clients, then a disastrous outcome is almost certain. Not being radically intentional is the worst pitfall a brand can tap into in Web3’s reality. Obsession about digital extreme value creation is the only way for brands to stand out. There is no space for tactical experimentation without a clear objective. The stakes are too high. So, what should luxury brands do? The most promising projects in the luxury space manage to transcend something physical of extreme value which is also closely connected to their brand story into the digital world. Those can be digital twins or collectables that are closely connected to a rare physical or experiential asset. This transcendence amplifies its real-life utility within the digital world. Instead of being prone to instability due to the lack of any underlying tangible asset or any uniquely intriguing story — as so many of the current NFT projects do — digital twins or asset-based NFTs can address the growing pain point of investors and clients who ask themselves, “where is the true value of an NFT?” A recent luxury brand initiative that takes NFTs to a fascinating asset-backed level comes from Dictador Rum, one of the rarest, most luxurious, and sought-after spirits brands in the world. It has just launched Dictador’s ArtHouse Spirits DAO (DAO is the abbreviation for a “decentralized autonomous organization,” the latest form of digitally powered self-organized brand communities). Members of the DAO acquire a fractional ownership of the world’s rarest and most valuable trove of luxury rums, some of them decades old, through the purchase of an NFT as a “membership token.” Depending on the membership status, which can be in excess of 1 million dollars, NFT owners have a vote on what to do with the treasury of physical assets, which will only get rarer and more exclusive with every passing year. Additionally, each NFT of the DAO is itself a unique piece of art, individualized and personalized, representing the map of the city of the owner. The DAO offers exclusive access to a high-net worth like-minded community of experts, investors, and collectors all over the world, further boosting the value proposition. The combination of art, treasury, and community differentiate this DAO from most other metaverse projects in the luxury space. Given the importance of a strong linkage to brand values, Dictador’s long-standing relationships with some of the most renowned artists and a history of one-of-a-kind digital artist created NTF's backed up with rare and unique rum bottles for 100,000 or more, add to the desirability of the project. This example shows luxury brands how to avoid the worst pitfalls in the metaverse. Houses must be true to their DNA and should see NFTs not as “nice to have” because it’s a trend. FOMO should not drive tactical decisions. Instead, NFTs offer the opportunity to dramatically increase the value proposition for their clients through the transcendence between digital, physical, community, and experiential assets. Projects should either be intentional or not done at all. So, it’s not simply “goodbye luxury NFTs” in general. Instead, luxury should say bye bye for good to any metaverse project that doesn’t create value. Otherwise it will be too late. This is an op-ed article that reflects the views of the author and does not necessarily represent the views of Jing Daily. Named one of the “Global Top Five Luxury Key Opinion Leaders to Watch,” Daniel Langer is the CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the executive professor of luxury strategy and pricing at Pepperdine University in Malibu, California. He consults many of the leading luxury brands in the world, is the author of several best-selling luxury management books, a global keynote speaker, and holds luxury masterclasses on the future of luxury, disruption, and the luxury metaverse in Europe, the USA, and Asia. Follow @drlanger

Goodbye Luxury NFTs as We Know Them

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Published June 13, 2022

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Goodbye Luxury NFTs as We Know Them