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Future of Luxury

NFTs and luxury: What you need to consider for your brand

10 September 2021 ‚ÄĘ by St√©phane J. G. Girod in Future of Luxury

The recent explosive growth of the NFT (Non-fungible token) industry has piqued the interest of many luxury players who are making their foray into the world. ...

NFTs can further many of the sector’s closest-held values, but brands first need to consider the habits of their demographic, says a panel of experts facilitated by IMD Professor of Strategy and Organizational Innovation, Stéphane JG Girod and moderated by Michael Solomon, Forbes Life editor.

The virtual economy is nothing new, but NFTs have suddenly come to touch most sectors of luxury lifestyle. This year, Forbes turned its cover into an NFT, while Gucci, Porsche and Givenchy sold NFTs, and the artworld experienced an eruption of them. 

The industry was valued at 2.5 billion dollars in the first half of 2021, a significant increase on 2020’s estimated net worth of 13.7 million dollars. 

‚ÄúA confluence of different¬†recent¬†factors has expedited the emergence of this space,‚ÄĚ said¬†John Egan, CEO of¬†L‚ÄôAtelier¬†BNP Paribas.¬†¬†

‚ÄúOne is COVID, another is¬†the emergence¬†of¬†the crypto¬†world into¬†the¬†mainstream¬†in the¬†last¬†10¬†years, and the third is¬†[that] many¬†young people under 40¬†[‚Ķ]¬†are¬†looking for an economy within which they can prosper.‚Ä̬†

Exclusivity, originality and authenticity: how non-fungibility aligns with the luxury code 

NFTs¬†‚Ästpart of the Ethereum blockchain and a cryptocurrency¬†similar to¬†bitcoin¬†‚Äď can be understood as a¬†bitcoin¬†‚Äď a fungible object¬†‚Ästthat can be ‚Äúundressed‚ÄĚ,¬†explained¬†Michael del Castillo, Forbes Editor for Blockchain and cryptocurrencies.¬†

“Keep the interior blockchain the same and then put something new over the top; a piece of artwork, a song, a digital shoe […] You can start to see how that asset moving hands accomplishes something similar. 

‚ÄúThe first generation of crypto assets were all fungible tokens ‚Äď they had the same value. With luxury, fungibility is not what you want. You want exclusivity which is in a sense the opposite. With a non-fungible token, every single one is different or at least rare.‚Ä̬†

In addition, in a world in which you can copy and paste objects with a couple of key strokes, the ability to prove something digital was original, which blockchain delivered, was enormous. The same principles were then applied to non-fungible assets, he explained. 

CEO of Jacob & Co, Benjamin Arabov, who was instrumental in bringing the first digital NFT to launch in the luxury watch space, said NFTs could be a lure for the luxury market by boosting authenticity, one of the sector’s major values. 

¬†‚ÄúThe¬†potential for¬†NFTs in the luxury space¬†is significant and will play a healthy¬†role in the luxury space:¬†consumers¬†have a¬†digital copy of what¬†they are¬†purchasing¬†‚Ästa¬†record of¬†authenticity¬†‚Äď which also¬†allows them to track how¬†the¬†product¬†might have been¬†switching hands¬†in¬†the¬†secondary or¬†grey markets. Luxury goods are currently not tracked,‚ÄĚ he said.¬†¬†

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Are NFTs a no brainer for the luxury sector?  

Despite NFTs‚Äô¬†compatibility with luxury, they aren‚Äôt for every brand cautioned¬†Daniela Ott,¬†General Secretary of the Aura Blockchain Consortium,¬†who said¬†they¬†should ask¬†‚ÄėWhat are our aficionados looking¬†for?‚Äô¬†

‚ÄúSee¬†NFTs as part of long-term product strategy,‚ÄĚ she said, suggesting brands ask questions on their intention, the¬†size of¬†their¬†collection,¬†their¬†scarcity¬†and¬†whether they will¬†launch on¬†their¬†own NFT site or on an NFT market space.¬†She¬†cautioned that¬†doing the latter was a greater risk in terms of¬†the¬†possible¬†lack of¬†regulation.¬†¬†

That said,¬†Ott¬†also said that,¬†ultimately,¬†‚Äúit‚Äôs about collecting and whether it‚Äôs physical or digital¬†is not¬†so¬†important.¬†It‚Äôs about¬†bringing together both worlds for the client.‚Ä̬†

Indeed,¬†entering¬†into¬†both the¬†physical and digital NFT space¬†for the same product¬†‚Ästpairing¬†them together¬†‚Äst¬†will¬†be the next move for¬†Jacob & Co.¬†¬†

Centralisation versus decentralisation: the undetermined future of the virtual economy 

‚ÄúCentralisation is the world we are used to. [‚Ķ]¬†Large companies own resources¬†[‚Ķ]¬†and manage [their] ecosystems.¬†Over the last 15 years,¬†we have¬†seen¬†the emergence of decentralised platforms, so a decentralisation of trust, responsibility,¬†action¬†and activity ‚Äď mostly famously with bitcoin,‚ÄĚ explained Egan.¬†

So, can a conglomerate like LVMH become a 21st-century central bank? Not so fast, he said. 

‚ÄúGlobal intra-operability across platforms¬†is the goal.¬†But it hasn‚Äôt been achieved yet.¬†It‚Äôs significantly easier to create a centralised itineration of that. [‚Ķ]¬†I expect we will see a coexistence of centralised platforms and then decentralised platforms. Creating a never-ending space¬†that is¬†intra-operable and rich in detail is currently decades away,‚ÄĚ he said.¬†

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Luxury: finding its home in the metaverse 

‚ÄúA lot of creative people will become successful in these metaverse universes, particularly the decentralized ones. So,¬†luxury must think about the possibility that they could be out-mediated in the creation of desirable goods and arts,‚ÄĚ said Professor St√©phane JG Girod.

Ultimately, the metaverse is here to stay.¬†And it can be understood,¬†said¬†del Castillo, as¬†‚Äúthe internet meeting¬†a videogame. If the Internet had addresses you could walk to in a virtual word,¬†that‚Äôs it.¬†Then you¬†have a virtual version of yourself, an avatar.¬†You want to wear¬†high heels¬†or¬†a¬†top hat? That‚Äôs it.‚Ä̬†

And, as Forbes editor Michael Solomon pointed out, despite the fear of the unknown this new world often creates, we often find our own world so dangerous that a lot of people will be happy to hear that the virtual one is going nowhere.  


Stéphane J.G Girod

Stéphane J. G. Girod

Professor of Strategy and Organizational Innovation

Stéphane J.G. Girod is Professor of Strategy and Organizational Innovation at IMD. His research, teaching and consulting interests center around agility at the strategy, organizational and leadership levels in response to disruption. At IMD, he is also Program Director of Reinventing Luxury Lab and Program Co-Director of Leading Digital Execution.

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