• Andreas Besel, Partner |
  • Jana Valkovicova, Expert |

To capitalize on any concept, the business must first address the following question: "How do consumer requirements convert into commercial opportunities, and what will facilitate this exchange?" Lets discuss how ready the metaverse’s proposition is to serve the luxury goods consumer. 

The asset challenge – The proposition of the metaverse is not yet matching the expectations of a luxury consumer

The metaverse originates from a thriving gaming market which was valued at USD 178.37 billion in 2021 and is expected to reach USD 268.81 billion in 2025. However, as stated in our article "Cutting through the noise of the metaverse", research suggests that the consumer gaming experience doesn’t match with that of the luxury experience. Furthermore, the mentioned research shows that 49% of news articles published in Switzerland relate to technology and investment, whereas non-fungible tokens (NFTs), art, fashion, and luxury account for only 9.5%. These findings suggest that the proposition in the metaverse needs to be shaped and expanded to be more closely aligned with luxury and the luxury experience.

The value challenge – Value is still ambiguous and imposes risk for luxury brands

Pricing a good, whether in the physical or digital world, requires a certain understanding and perception of value. While the metaverse keeps developing, today’s companies are still mostly experimenting with different business models and are in the process of figuring out the size of the needed investment and potential revenues. Furthermore, cryptocurrency which is essential to goods exchange, is still highly volatile. That itself enlarges the question of how much the metaverse is really worth. Among these and other challenges, rules of how to apply the taxation system for VAT remain unclear, as how to classify a provider’s location remains a question too.

However, the KPMG research shows that innovation linked to the metaverse and NFTs impact a company’s value. Luxury companies saw a rise in their share prices after announcing their foray into the metaverse.

The process challenge – The current process is cumbersome and inefficient

The process of buying an NFT is still considerably complicated and requires specific technical, process, and risk literacy. As a result, the seamlessness of the consumer journey and experience is still severely compromised. Furthermore, launching and purchasing are time consuming and have high transaction costs which diminish the margin.

The security challenge – Luxury brand companies need new means of protection

New business models and channels create new opportunities but also expose the value chain to new risks. Personalization and direct-to-consumer business models increase the potential to collect consumer data via multiple touch points, but also make brands more vulnerable to cyberattacks. Failure to provide data security, democracy of disclosure or transparency and proof of origin puts customer loyalty and brand reputation at risk. Given that the metaverse’s proposition, prices, currencies, and processes are still intricate and unstable, the challenges of protection multiply.

Furthermore, we observe an increase in conflicts involving trademark infringement, misleading designation of origin, deceptive descriptions and representation as well as other issues, particularly in the luxury sector where brand protection is crucial. The word "meta" has a connotation of novelty that, however, does not adhere to a set of defined regulations, which creates yet another security challenge.

Where to start in your company?

While the metaverse is complex and changing dynamically, it undoubtedly presents vast opportunities for luxury goods companies, and the importance of it should not be overlooked. We recommend starting with education and awareness about the metaverse. Its technologies should be put on the agenda of Boards and C-level management for them to consider the metaverse as a strategic tool and enable corresponding actions across the organization. Further, companies should develop an action plan that considers their entire value chain to ensure a comprehensive response to the metaverse. Finally, companies should look for suitable talent. Looking internally for talent can also help lower upfront investments, as employees, especially the younger generation, may already have the requisite knowledge to support the intended efforts.

Read the full article "Cutting through the noise of the metaverse" where we describe the mentioned challenges in more detail and suggest how consolidation can help overcome the challenges. 

Venturing into the metaverse and the NFT business presents various questions from both the strategic and the transactional standpoints. KPMG’s Luxury Goods Practice, in collaboration with KPMG’s metaverse experts, has extensive industry knowledge and a unique position to help your company build a metaverse strategy as well as the corresponding solutions. Please feel free to contact us. 

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