The phygital phenomenon: Luxury’s next ‘it’ products target Web3 communities

Gucci’s new “it” product isn’t available to its standard clients, or sold in any of its flagship or online stores. Instead, it can only be obtained by those who are owners of its Gucci Vault Material non-fungible tokens (NFTs). 

It’s a tactic that more luxury brands are adopting, whereby members of their elite Web3 communities are rewarded with exclusive pieces unavailable to offline retailers. Take Louis Vuitton’s VIA program as an example. After purchasing a $42,000 Treasure Trunk NFT, owners received both the physical trunk piece and, more recently, access to the house’s new Speedy 40 bag.

Whether you love or loathe the word, “phygital” is primed for success in the luxury market. 

Targeting the digital-native, haut monde crowd, Gmoney, founder of luxury phygital platform 9dcc, believes the approach will soon be adopted by every major luxury player. 

“I think we’re going to see every brand trying different approaches to the space. Over the next few years, we will see different variations as companies test the model out,” he tells Jing Daily. 

In Gucci’s case, the product arrived in the form of either a bifold wallet or a duffle bag. Both pieces boast a unique “10KTF” branding detail that distinguishes them from the maison’s usual line of goods, in addition to the trademark interlocking G.  

Gucci Vault Exchange is live at https://t.co/O514vG9r1Q for all Gucci Vault Material NFT holders.

Turn the digital textile into Gucci physicals starting now through August 25, 2023 at 3:00 PM PT.

Visit https://t.co/O514vG9r1Q for full details. pic.twitter.com/zsrDahsjf6

— Wagmi-san (@10KTFshop) July 27, 2023

Scarcity mindset

Luxury has been recalibrating its approach to Web3 ever since hype across the landscape dissipated last year. While brands like Tommy Hilfiger and Coach have increased their accessibility through virtual expansion, others are seizing the opportunity to reclaim their air of exclusivity across the online and offline terrains. 

The contrivance of these unique physical pieces is an exciting new foray for the market. But in the elusive world of luxury, scarcity is key to preserving its alluring cachet.  

Tiffany & Co. set a new market standard with its CryptoPunk pendants in August last year. Widely categorized as one of the first examples of a luxury-based phygital rewards system, the brand offered CryptoPunk holders the chance to transform their one-of-a-kind token into a $50,000 pendant by purchasing one of 250 “NFTiff” NFTs. 

The project sold out in 22 minutes.

Marco Staglianò, CEO of Another-1 — a luxury Web3 platform that recently collaborated with Como-based fabric mill Olmetex and graffiti artist Zoow24 on a new phygital release — explains that the luxury consumers benefiting the most from this seismic shift are blue-chip NFT holders, including CryptoPunks.

Tiffany & Co. turned CryptoPunk NFTs into wearable jewelry last year. Photo: Tiffany & Co.

Blue chip tokens are NFT projects, such as Azuki and Bored Ape Yacht Club (BAYC), that have demonstrated a high and stable market value over the long term, and usually are prestigious. It’s a status that could be likened to that of high-profile players in the traditional luxury market. 

“Communities of so-called ‘blue-chip’ NFTs are benefiting from a huge range of collaborations from brands like Gucci or Tiffany, or partnerships between brands that share the same creative director, like Louis Vuitton and Doodles, resulting in joint product offerings,” Staglianò tells Jing Daily. 

Staglianò outlines how this newly established clientele is a lucrative opportunity for luxury. He believes that brands are missing out on a goldmine by not acknowledging this development. 

“The luxury clientele of tomorrow will be represented by the same ‘NFT Degens’ crowds that populate the NFT communities today. The need for millennials to express themselves through the exclusivity of their outfit is extended to Gen Z by being essentially native to the Web3 community. This is what BAYC, CloneX, Azuki and other established ‘Degen’ communities are providing by positioning themselves as potential next-generation luxury brands,” he says.

Louis Vuitton VIA. The first VIA journey is now available. Discover the Speedy 40 VIA @Pharrell, revisiting the Maison’s iconic bag crafted in 1930. Discover more at https://t.co/FN7LgduFzK#LouisVuittonVIA #PharrellWilliams pic.twitter.com/X2i5G7w9xQ

— Louis Vuitton (@LouisVuitton) July 17, 2023

Phygital’s evolution

Brands have been slowly embracing phygital products over the past 18 months — albeit not always successfully. Trial and error has been the key to determining what resonates long-term with consumers, as well as what falls into the short-lived hype category. 

Gucci’s new rewards scheme could see the house design entire product lines for its Web3 community in the future, depending on whether its initial roll-out is a success. 

The appeal of phygital is that members of these cohorts will be able to sport their designs in the physical world, ushering in a new concept of ‘it’ products powered by the blockchain.

“At some point we will see it happen. It comes down to design and creating something that the mainstream audience will want; but there will be only one way to get it,” Gmoney says. 

Others have turned to game collaborations to crack the phygital market. This week, Ralph Lauren dropped its first phygital collection with Fortnite by bringing to life its P-Wing boot design, which debuted digitally in the game in November last year.

Like Gucci, Ralph Lauren’s new product epitomizes Web3’s “if-you-know-you-know” attitude, becoming an offline identifier among Fortnite’s close-knit crowd of aficionados. 

Ralph Lauren hopped onto the phygital trend in collaboration with gaming platform Fortnite this month. Photo: Ralph Lauren

Rewarding investors

Gucci’s latest rewards scheme wasn’t a quick turnaround. Owners of the Gucci Grail NFTs, who were airdropped Gucci Vault Material tokens at a later date, originally invested in the virtual asset back in 2022. 

The new product to arrive from Gucci’s members club is a way of acknowledging the maison’s long-term commitment. Other brands are also picking up on this approach and gratifying their digital audiences to show them their support hasn’t gone unnoticed. 

Prada was also an early adopter of rewarding its digital native community. The label’s Timecapsule NFT project, which began in June last year, gifted consumers an exclusive NFT when they purchased one of the limited-edition, archival pieces that dropped each month as part of the initiative. 

The token unlocks access to Prada’s dedicated VIP Crypted community, where holders can access future projects and drops, as well as invites to fashion shows. 

Prada’s Timecapsule NFT project gifted token holders with limited-edition, archival pieces unobtainable in offline stores. Photo: Prada

Survival tactics

Digital sneaker titan RTFKT implements a similar strategy. “It’s about how you perceive these different physical and digital planes, and how they can intervene by unlocking access to each one,” co-founder Benoit Pagotto told Jing Daily earlier this year.

The label reimagines the luxury experience by offering its NFT community the opportunity to forge and customize their own physical products.

Ideas like these capitalize on luxury’s ability to extract and create extreme value for clients. Putting fans in the front seat of the creative product design process creates an authentic connection with the brand.

While RTFKT is a Web3-native company, capitalizing on its phygital elements isn’t just a creative choice;  it’s also a survival tactic. 

“While we wanted to design digital products, we knew we would still have to have a physical component, because people are not fully ready for something 100 percent virtual,” Pagotto said. 

Virtual sneaker label RTFKT allows its community to customize their physical pieces, creating a “money-can’t-buy” experience. Photo: RTFKT

The acceleration of blockchain luxury: Dilution or enrichment?

With NFT-powered, online community hubs becoming commonplace in luxury’s roadmap, even non tech-savvy enthusiasts are scrambling to get in on the action. But brands need to be careful not to dilute their high-caliber appeal in the process.

“It is crucial to maintain the brand’s DNA in the phygital offering by providing a high-quality product experience. The essence of luxury also has greater potential to be realized through offline engagement such as perks exclusively reserved for the owners,” Staglianò says.

As the ripple effect from Web3’s evolution is felt across luxury, demand for access to these virtual inner circles will continue to swell.

“Luxury has always embraced scarcity and exclusivity, but it does not imply that access to the brand is entirely limited. Although many brands offer products at more accessible price points and greater levels of availability, exclusivity is a trait that is highly appreciated and shared by Web3 communities and luxury consumers alike,” Staglianò says.

The phygital product market is poised to be the next big game changer for luxury – that is, if brands can master the delicate combination of physical and virtual appeal. As the first proto-disruptor of its kind, the wave is set to evolve from yet another buzzword to a radical pillar in the way we consume luxury goods.

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