Making the Case for Virtual Fashion

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Virtual fashion is one of those fascinating growth opportunities that people have polarized opinions about. Some find it very exciting. Others think it’s foolish.

And then there are reports like this one that estimates the virtual fashion market to reach almost $3 billion in 2027, at a ≈26% annual compounding growth rate.

It’s an interesting dichotomy. What’s going on?

Let’s zoom out and start adding things up.

What is Virtual Fashion

Virtual fashion refers to apparel that only exists in digital space. Either sold as items and skins inside experiential platforms or games (Roblox, Fortnite, Zepeto, CS:GO, etc.) or blockchain-based digital collectibles (NFTs).

Instead of a human wearing it in the real world, an avatar wears it in the digital.

Why Brands are Interested

In the past few years, we’ve seen a rush of fashion and lifestyle brands launch various virtual fashion-related initiatives across platforms like Roblox and Fortnite. Others have opted to experiment with blockchain and NFTs. Some are doing both. 

Why? Because they’re experimenting with ways to transfer brand equity from physical to digital spaces. 

Consider a jacket – it can serve two purposes. One is utility (“I’m cold, I need a jacket”), and the other is brand equity and affiliation (“I want to signal something by wearing this specific jacket”).

You could buy a $30 jacket that covers the utility needs. Or, you opt to buy a $1000 Gucci jacket. It’s equally warm, but it’s Gucci.

Virtual fashion (in most cases) is 100% brand equity-based. It also comes with the added benefit that the marginal cost of producing one more unit is 0.

We're seeing many brands go early and fast because they see a future where the next generation of customers is as likely to buy digital products as physical ones.

Many fashion brands were measured and skeptical of the internet and e-commerce early on. It led them to play second fiddle to online marketplaces and aggregators for a long time. They're not making that mistake twice.

Why it Makes sense

My logical reasoning for seeing the market opportunity for virtual fashion, regardless of whether I find it interesting to buy those products or not, goes something like this:

1. People care about identity, self-expression, and signaling. 

2. This is done through brand affiliation, among other things.

3. People spend more and more time online. 

4. As people spend more time online, their digital identity increases in importance, too.

5. The fidelity of internet experiences also increases, creating space for more expression (from profile picture to avatar, for instance)

6. Combining the above will drive demand for digital identity customization, mimicking what’s happening in the real world.

To tie a bow on this intro post about virtual fashion, here are a few predictions of what I think will happen next:

Predictions

• Virtual fashion evolves along two paths that (hopefully) converge over time.

  • First path: On-platform assets on Roblox etc.

  • Second path: Web3-native assets like NFTs

• Physical and digital product bundles will become normal. Buy a physical sneaker and redeem its digital twin for your avatar. Or the other way around.

• Virtual fashion will become a significant revenue stream for top-tier lifestyle and fashion brands within 10 years.

• We’ll see the rise of a virtual-first fashion brand that reaches the same revenue and brand affinity metrics as the top-tier brands of today.

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