The jury is out when it comes to the role of the “metaverse” for fashion/luxury and the extent of that role. Groups, such as Kering and Nike, have made headlines for their efforts in the burgeoning digital space, with the likes of Nike, Gucci and Balenciaga, for example, devoting notable resources to the development of their presences in the Web3 arena. At the same time, others have opted not to embrace this tech trend quite so quickly; LVMH’s chairman Bernard Arnault quipped in an earnings call early this year that the French luxury giant is “not interested in selling €10 virtual shoes,” and instead, is “very much in the real world, selling real products.”
The weight that fashion and luxury goods groups are giving the so-called metaverse is mixed at the moment, but it appears that they may be unable to ignore other aspects of Web3, including, cryptocurrency payment, as the future of consumers’ wallets is expected to consist of both “traditional (centralized) and decentralized finance.” According to a recent report from Morning Consult, some 91 percent of U.S. consumers have heard of cryptocurrency, and 19 percent say they own some, making crypto “no longer just a fringe asset.” A separate survey from Crypto.com and payment processing firm Worldpay found that as much as 75 percent of consumers and 60 percent of merchants want to make use of crypto in the market.
“In an ideal world, cryptocurrency holders would like to be able to make purchases that take advantage of real-time market prices while avoiding the hassle and cost of fiat conversions,” Crypto.com and Worldpay stated in connection with their findings in February. Given the enduring adoption of Bitcoin and other cryptocurrencies, they argue that merchants (fashion brands, included) cannot ignore consumer interest in crypto for too long. Deloitte echoed this sentiment in a digital assets report of its own, stating that crypto may provide companies with access to new demographic groups, as users often represent “a more cutting-edge clientele.”
From an internal perspective, Deloitte asserted that “introducing crypto now may help spur awareness within a company about this new technology,” while also “helping to position companies in this important emerging space for a future that could include central bank digital currencies.”
Against this background, Gucci revealed this week that consumers may begin using cryptocurrencies, including bitcoin, in some of its U.S. stores, including its flagships on Rodeo Drive in Los Angeles and Wooster Street in New York. The announcement comes after Off-White revealed in April that it would follow in the footsteps of fellow fashion brand Philipp Plein (which became one of the first major fashion brands to accept crypto back in August 2021) and start accepting crypto payments in its flagship stores in Paris, Milan, and London. “This is another important step in the growth of the brand, that looks toward the future including Web3 technologies, understanding the needs and desires of its ever-evolving customer base,” the company said in a statement.
Given the wealth that consumers are readily building up – and looking to spend – in Bitcoin, Ether, etc., and the significant gap in where they can actually spend this crypto, other brands will likely follow suit in the not-too-distant future, making this an area worthy of attention when it comes to Web3, which is expected to thoroughly reshape the way consumers pay for goods/services, including those in the fashion/luxury space.
Rising Challenges & Regulation
Not without challenges and potential regulatory issues, Crypto.com and Worldpay found that while luxury goods companies and fashion brands are “keen to take advantage of higher average transaction value of customers who spend in crypto,” enabling consumers to make crypto payments can be a demanding endeavor. For instance, “Changes to in-store payment systems and infrastructure may be required to ensure compatibility with crypto payments, [which] could present a myriad of challenges that do not exist in digital realms,” they claim. Exacerbating this issue is the fact that customers are often demand “parity between online and in-store payment options,” and there are “fewer opportunities and options to buy, build, and partner with third-party technology companies for in-store solutions, as the providers tend to (still) be focusing their efforts on e-commerce primarily (especially after its rise in customer utilization during the COVID-19 pandemic).”
Ultimately, online crypto payment channels “will lead the way for mainstream adoption in Europe and North America,” per Crypto.com and Worldpay, but “new in-store crypto payment channels will likely de-prioritized for the short- to medium-term.”
On the regulatory front, the larger crypto push comes, of course, as the U.S. Securities and Exchange Commission (“SEC”) continues to focus its attention on the $2 trillion crypto market. Chairman Gary Gensler highlighted “three areas related to the SEC’s work in this area: platforms, stablecoins, and crypto tokens” in a talk in April, noting that “there is no reason to treat the crypto market differently just because different technology is used.” Gensler’s comments follow from President Joe Biden signing an executive order in March, in which he called on various U.S. government agencies to examine and develop policy recommendations for digital assets, including cryptocurrencies, in light of explosive growth in recent years.
At the same time, crypto-focused enforcement efforts are starting to come to the fore. The Department of Justice, for instance, arrested two individuals in February for an alleged conspiracy to launder cryptocurrency that was stolen during the 2016 hack of Bitfinex, a virtual currency exchange, presently valued at approximately $4.5 billion. More recently, the DOJ – which created a new National Cryptocurrency Enforcement Team and appointed Eun Young Choi as its first director – charged two different individuals with conspiracy to commit wire fraud and conspiracy to commit money laundering, in connection with a million-dollar scheme to defraud purchasers of NFTs advertised as “Frosties.”
Federal regulators and law enforcement have signaled that they will increasingly focus on crypto, NFTs, and other Web3 technologies, thereby, sending a clear message of caution to those participating in this readily developing space, and the many that are eyeing it.
*This article was originally published on April 1 and has been updated.