They’re the next big thing, but can NFTs be a new source of revenue for retailers? We take a look at the trend and what it means for the future of retail.
Are NFTs for Retailers The Next Big Thing in Retail Innovation?
NFTs, or non-fungible tokens, are the current talk of the art world. Though they’ve existed since 2014, the popularity of NFTs rose rapidly in 2021, with trading hitting $10.7 billion in the third quarter of that year.
NFTs can be anything – art, memes, and even newspaper articles or tweets. They are stored on a blockchain, the database that cryptocurrency relies on. However, unlike crypto, NFTs cannot be exchanged with another digital asset – each NFT is entirely unique. Each NFT that is sold has no equivalent, and blockchain technology is used to establish sole ownership and digital provenance. These digital assets can be resold on specialised online marketplaces, making them a lucrative investment opportunity. In the world of NFTs, anything can be monetised and sold, which is also part of their appeal.
Their popularity can be explained by the fact that they are simultaneously exclusive and are becoming more affordable. Individual NFTs are highly unique but theoretically anyone with an internet connection – and enough capital – can access the world of collective NFTs.
More recently, the world of retail is seeing value in NFTs. While some NFT sales have made headlines for their expense, the majority of NFT purchases in the first 10 months of 2021 were valued at less than $10,000. This means they can be categorised as ‘retail’ in nature. In the second half of 2021, brands including Adidas and BoohooMAN created their own NFT collections, hoping that they could capitalise on the technology’s popularity. High fashion brands are also trying their hand at NFT collections, including Dolce & Gabbana.
Is there a future in NFTs for retailers? That depends in part on your brand and target market. According to a survey from Morning Report, 15% of male respondents said they collected NFTs, compared to only 4% of female respondents. For high fashion brands, who more often than not have a female consumer base, NFTs can be a way of driving sales from male consumers. Alternatively, if your brand already markets predominantly to men, NFTs are a lucrative way of increasing revenue.
Based on the growth of NFTs in the latter half of 2021, it’s clear that NFTs will continue to increase in popularity. The most expensive NFT in 2021 was sold for $69.3 million in March, and while NFTs for retailers are unlikely to market for the same extraordinary prices, it’s evidence of the profit that can be created with NFTs. The entire NFT market is expected to grow to $240 billion by 2030, and NFTs for retailers could offer brands a lucrative opportunity to enter the burgeoning digital asset market.
A New Market in NFTs for Retailers
The NFT market has grown from a niche area for technology and crypto enthusiasts to something more accessible to the average consumer. At the same time, over the course of 2021, the average transaction size and the total value of NFTs increased. By October 2021, collector-sized transactions of between $10,000 and $100,000 accounted for 19% of all NFT transactions, compared to 6% in March 2021. This suggests that NFT assets are gaining value rapidly and that collectors and consumers aren’t put off by high price tags.
Despite the growth in large NFT transactions, the majority of purchases are still conducted at retail level – that is, with transactions of less than $10,000. In comparison to the crypto market, NFT purchases are still driven by retail purchases, not collectors or larger institutional transactions of over $100,000. In 2021, 80% of NFT purchases were made by retail buyers, despite the growth in those high-value collectors and institutional transactions. For this reason, the market for NFTs for retailers is promising – it could prove to be a major retail innovation in the next five to ten years.
Additionally, the audience for NFTs for retailers is already there. Millennials are the most likely generation to engage in NFT purchasing, with 42% of millennial respondents to one survey saying they do collect NFTs. They are followed by Generation Xers, of whom 37% say they are collectors.
Despite Generation Z occupying a strong part of the retail market, they are one of the generations least likely to be involved in NFT collecting or retail purchasing, beaten only by baby boomers. Just 4% of Gen Zers said they collect NFTs, because of limited purchasing power or a lack of interest in collecting digital assets as a hobby. Despite Gen Z’s current reluctance to get involved in NFT purchasing, there is interest there. One study found that despite such a small proportion of Gen Zs currently purchasing NFTs, close to 30% say they are interested in purchasing in the future. Of those who said they were uninterested, 57% claimed the reason was because of a lack of understanding. As blockchain and crypto become more mainstream technologies, understanding will inevitably grow, making Gen Z another promising market for retailers involved in the technology.
Retailers are Already Taking Advantage of NFTs
The first instance of a fashion brand embracing NFTs for retailers was when fashion house The Fabricant sold a digital dress for £7,500 in 2019. Since then, more retailers have turned to NFTs to expand their brand awareness or explore a new avenue of profit. According to the Vogue Business Index, 17% of fashion brands have already worked with NFTs.
Last year, Adidas took their first foray into the world of digital art. Their debut collection Into the Metaverse consisted of 30,000 NFTs, each of which gives the buyer exclusive access to physical merchandise that will become available in the future. The NFTs sold out within hours and Adidas earned approximately $22 million in sales. The retailer has since stated their intention to bring out more NFTs in the future, and with the success of their first collection, future profit is almost guaranteed.
They’re not the only brand to consider NFTs for retailers the future of retail. In late 2021, BoohooMAN became one of the first major fast-fashion retailers to branch out into NFTs. However, unlike Adidas, BoohooMAN is planning on giving their NFTs away for free to eight lucky winners. This fundamental change – from NFTs as a revenue stream to a marketing tactic – is evidence that BoohooMAN sees more than just monetary value in digital assets.
Retailers and the Metaverse
Here lies another advantage to engaging in NFTs – increasing brand recognition. At the end of last year, we explored why brand consistency is so important for retailers. With the rapid increase in omnichannel retailing, it’s more important than ever that retailers ensure consistent brand identity across all channels. As another marketing channel, NFTs for retailers can be a powerful way to increase brand awareness and add another facet to your brand identity. This is especially true as we start to see digital spaces like the metaverse becoming more common.
The metaverse is destined to be a 3D version of the internet where users can interact in real-time with others in a realistic virtual space. There are numerous applications for retailers here, including virtual stores where users can shop for virtual goods like NFTs using cryptocurrency. The brand opportunities present in NFTs for retailers are staggering – with so many people potentially entering the metaverse with avatars, there’s a chance for retailers to sell their products and gain much larger visibility across the globe. Despite being a relatively new retail innovation, the metaverse promises to change how customers shop and could be a key part of the future of retail.
Retailer ASICS has already taken one step towards the metaverse, with plans to develop a digital store where consumers can interact with the brand’s products. Luxury retailers are also exploring the possibilities the metaverse can offer. Last year, Burberry launched an online game that users can access by purchasing an NFT. In the game, they can interact with the brand’s identity and products, and purchase virtual accessories like jetpacks, armbands, and pool shoes. With retailers already considering ways to become digital-first, the metaverse offers opportunities for building brand identity, and revenue, outside of physical stores, and NFTs for retailers is a huge part of this.
Are NFTs The Future of Retail?
McKinsey’s State of Fashion 2022 report concluded that NFTs are likely to become part of the mainstream for retailers this year. With the rapid growth of the market and the branding and profit opportunities afforded by the sale of digital assets, it’s clear they will become a staple in the future of retail. In fact, the luxury NFT market is expected to grow to $56 billion by 2030, and while luxury NFTs will still comprise a small proportion of the overall market, this retail innovation will see increased demand because of the metaverse.
When considering if NFTs for retailers represent the future of retail, it’s also worth considering the as-yet undeveloped applications of the technology. Retailers may find that embracing the technology now could offer unforeseen advantages in the future as blockchain and NFTs for retailers become more widespread. As the technology becomes more accessible, it will also be easier for brands to explore opportunities within NFTs.
Though the market for NFTs for retailers is likely to grow, retailers should be aware of the potential implications of embracing NFTs. We already know that the retail industry is committed to becoming more sustainable. 14% of respondents to McKinsey’s State of Fashion 2022 said that sustainability would prove the biggest challenge for the fashion industry, while 12% regarded sustainability as an opportunity. NFTs, though, present a major sustainability problem.
NFTs rely on the cryptocurrency Ethereum, which in turn relies on huge amounts of electricity to keep transactions going. To establish digital provenance and security in the blockchain, “miners” solve cryptography problems with high-power computers. In doing so, they draw a huge amount of power from the grid – Ethereum’s total annual carbon footprint is estimated to be the same as that of Hungary. The future of retail may well lie in the metaverse and NFTs. However, brands will have to think carefully about whether embracing NFTs for retailers may contradict their sustainability goals and negatively impact their brand reputation.
NFTs for Retailers and RFID
Beyond investing in collectible NFTs, an additional advantage of blockchain technology that often goes under the radar is that retailers can use it to establish product authenticity. Globally, the counterfeiting industry is valued at $500 billion a year, with luxury retailers particularly vulnerable. In the future, NFTs for retailers might be used to establish product authenticity and supply chain transparency, combating common problems in the retail industry like counterfeiting.
Existing technology like RFID can be harnessed alongside blockchain to provide customers with additional information about their products. “Product passports” will support authentication by offering information about products and their provenance through virtual tags. Chanel are already utilising this technology, replacing physical tags in their luxury handbags with a digital passport through a scannable metal plate.
With the global adoption of RFID technology on the rise, it’s likely that we’ll see more collaborations with RFID and NFTs for retailers in the future. Whether NFTs will become a mainstay in the future of retail remains to be seen, as many consumers are still in the dark about the technology. However, there’s no doubt that it’s a retail innovation that offers opportunities for increased revenue, brand visibility, and security.
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