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What’s the Deal with NFTs and is it the Future of Retail?
There’s no doubt that you’ve heard about NFTs in the last few months. This digital asset is a part of the blockchain family and has taken off in popularity in the last year. But what is it, and can retailers use them to their advantage?
Let’s start at the beginning. An NFT is an initialism of the term “Non-Fungible Token”, which is essentially a digital asset that’s stored on a blockchain. They’re a unique and non-interchangeable piece of information, often represented as a photo, video, audio and other digital files. In the last few months, NFTs have skyrocketed in popularity, with celebrities, entrepreneurs, and retailers, selling them for a hefty price.
Famously, Jack Dorsey – the CEO of Twitter – sold his first Tweet as an NFT for a whopping $3.8 million. It’s not just tech leaders that are jumping on the bandwagon, it’s retailers too. Luxury brands like Gucci have leaned in on the trend, selling NFTs inspired by its Fall/Winter 2021 collection. The online auction, which was hosted by Christie’s, sold for $20,000.
Additionally, it’s selling digital sneakers for USD$12. Keep in mind, no one can actually wear them. But they do look nifty, and make for an excellent social media post. As we’ve mentioned before, social commerce is rapidly expanding – especially among Gen Z consumers.
According to Gucci, it’s ‘only a matter of time’ before other retailers dive into the world of NFTs. “With the opportunity to gain significant profits through the auction of unique virtual fashion pieces, the interest towards the use of NFT in the fashion industry is evident,” says Carolyn Dorrian, the Solicitor Director at Dorrian & Co Lawyers.
“Luxury brands, in particular, have been historically enthusiastic of e-commerce trends and would naturally be willing to experiment with technology like NFTs. Gucci, for example, who has also released its own digital sneakers, has recently confirmed in Vogue Business that it is ‘only a matter of time’ before they release an NFT. It is a given that other fashion retailers will be urgently following suit in the future.”
So is it just a phase? Well, maybe – however, this technology could in fact open doors to a whole new world of experiential retail. “While they might sound like a quick craze, they’re a superb case in point of the infinite application possibilities of the tech,” explains Lachlan Feeney, Founder and CEO of Labrys. “This breakthrough for ownership and copyrights is a landmark moment for artists in all creative industries – film, music, art, retail – helping them to secure the true value of their craft. It’s helping solve the intellectual property issues that can trouble many industries and allowing real people to monetise their talents.”
If brands like Gucci are already taking advantage of this new tech, does it mean that other retailers will follow suit? It’s no surprise that blockchain is a complicated technology, and it’s still relatively new in the grand scheme of things. This means that it will only be used by retailers and companies that have a deeper understanding of its complexity.
“For the average retailer today, incorporating NFTs into their business is like trying to make a company website in the late 90s – you know you’re going to need to do it, but you don’t know how and it’s very hard to do. Today there are NFT platforms like Opensea, Mintable, and Rarible to create and distribute your NFTs. It’s going to become far easier and more user friendly to create NFTs as time progresses,” he says.
“Presently, NFTs are only being explored by the biggest or most tech-savvy brands, but there will come a time where NFTs become a very real possibility for far more retailers. As the technology improves and the public becomes more aware of NFTs – leading to a greater demand – opportunities for retailers will increase,” says Feeney.
While it could be considered too early to tell, Feeney believes that the companies that are more digitally savvy will be likely to start offering NFTs sooner than later. But it’s important to remember that just because it’s offered, it doesn’t necessarily mean it will be a success.
“The appetite from retailers is clearly there, and as the tech quickly evolves, new use cases are appearing on a weekly basis. Because an NFT has only one owner, they create a scarcity that many shoppers demand today. It’s just an evolution of age-old retail practices like limited edition sales, only this time it’s a digital asset and there’s only one,” he tells Power Retail.
“As long as consumer interest is there – and there are no signs of it slowing down – there will be a booming market for NFTs. The technology is really pushing the boundaries of what retailers can achieve and offer, in a society that more rapidly than ever, is going digital.”
Not every retailer has hopes to sell an NFT like Gucci, but many still wish to experiment with the technology. If a company doesn’t want to sell a virtual product, can they still benefit from NFTs? Yes, they can. As an example, blockchain capabilities make for an excellent alternative for payments. “In its purest form, blockchain is a peer-to-peer form of payment that removes third parties like banks. With blockchain, there are no transaction fees, which reduces costs for both businesses and consumers alike. It’s the most prominent example of its existing use,” says Feeney.
“Beyond payments, the technology has numerous benefits like security, transparency, and productivity. Blockchain helps improve supply chain transparency. By keeping records in a blockchain shared by retailers, manufacturers, suppliers, distributors, there is transparency and traceability. Through this decentralised ledger, records can’t be removed or altered, so through their trust in the blockchain, shoppers can trust the supply chain. This provides transparency in terms of ethicality, and as proof of provenance – or origin – which helps overcome fake or counterfeit goods, which are big issues for retailers.”
What about experiential retail? As Feeney tells us, in 2019 the NRF ran Project NGAGE, where they ‘released’ hundreds of virtual butterflies, and branded digital objects in a somewhat virtual treasure hunt. “Using their mobiles, people could catch butterflies on a map or in augmented reality, then redeem them for real gifts at a blockchain booth,” Feeney shares. “So while NFTs are garnering the hype, there are many, many benefits beyond them.”
NFTs could also be an interesting way to garner further revenue through virtual sales. Just as Gucci tested, selling relatively low-priced virtual products will gain a bit of attention from those who want to experiment with leading technology, combined with the exclusivity of the brand name. “Shoppers have always been drawn in by exclusivity, whether it’s a flash sale or a limited-edition product. NFTs are a fantastic way to generate additional revenue through virtual sales,” Feeney explains. “They hold huge appeal to growing communities of enthusiasts and collectors, affording retailers a rare opportunity to engage with those audiences by expanding those passions into a digital arena.”
It’s not all sunshine and rainbows (or butterflies), though. NFTs, just like blockchain itself, is a new and somewhat uninviting technology for consumers, due to their fluctuation and unpredictability. “Whilst the retail industry may adopt the NFT trend, speculation exists in the market regarding its widespread use, particularly outside the world of luxury brands and independent retailers,” says Carolyn Dorrian.
“A concern for retailers of NFT in its infancy is the bubble effect that seems to exist around the speculation of its true popularity, similar to recent price surges in GameStop and dogecoin. With a 70 percent drop in their average price since February alone, investment into NFTs at this stage is considered by many to be an unjustifiable risk.”
Aside from its unmediated risk to consumers and retailers alike, it’s also notoriously bad for the planet. Retail – especially the fashion industry – is already causing plenty of damage to the earth, so would the introduction of NFTs be the tipping point?
“The most significant criticism of NFTs and cryptocurrency generally in its current form is in the carbon emissions that suggests common use of NFTs is unsustainable,” Dorrian explains. “In an industry that is already the second-largest polluter on the planet, the use of NFTs gives rise to significant reputational risk and potential sunken cost for retailers.”
Getting Started – The Right Way
Before a retailer jumps in on the blockchain train, they need to assess whether it’s a valuable investment or if they’re just eager to join the fun because it’s the new hot thing. When asking Carolyn Dorrian about the important steps, she explained three major steps that retailers should be aware of when getting started.
- “Ensure that your insurance covers the use of NFT and minimises the risk of capital loss arising from the use of blockchain technology in verifying assets from theft or other malicious hacks.
- Create an NFT through a dedicated site of NFT creation platforms such as Rarible, Mintbase or Cargo
- Choose the right blockchain. Relevant considerations may include:
- Marketplace size: which blockchain has the largest amount of buyers and sellers
- Additional apps and services: what kinds of wallets, exchanges and other services are available on the blockchain network?
- Mining fees: as Freeman-Turner told Finance Magnates, creating NFTs can be very costly as an out-of-pocket expense. While platform choice may determine how and when these fees are paid, with some blockchains charging lower fees than others.
- Environmental impact: what is the carbon footprint of the blockchain?”
Do NFTs have real staying power? According to Lachlan Feeney, they do. “Blockchain is set to change many industries, but in retail, it’s predicted to have one of the greatest impacts. Practical applications like security, transparency and peer-to-peer payments receive less attention than NFTs but will benefit the industry, business and shoppers greatly for a long time,” he tells us.
“Australia is one of the leading markets for blockchain globally. The industry here is brimming with innovation and has huge potential to make a significant mark globally. Over the last 18 months, we ourselves have witnessed significant growth, which mirrors the upswing of the blockchain industry – so the signs of Australia growing as a significant creative hub are very positive. That’s great news for the local retail industry.”