As the world opens up after the turmoil of the Covid-19 pandemic, retailers are once again competing for physical space to generate sales and build their brand presence. However, the dawn of the metaverse has created a new option for brands, in the form of digital real estate. The metaverse is still in its infancy, but there are many notable players who are showing their commitment to the concept by making their presence known in the digital world.
‘Metaverse’ is an all-inclusive term used to describe any form of virtual world. Metaverses have existed to some extent within video games, such as Call of Duty, The Sims and Minecraft, as far back as the early 2000s. The current metaverse platforms are distinctive due to the fact that they are based on blockchain technology, utilising the decentralisation of Web 3.0.
There are many metaverse platforms on the blockchain, with some of the most popular including Roblox, Somnium Space, Sandbox and Decentraland. However, there are currently only four platforms in operation that offer significant opportunities for purchasing virtual real estate: Decentraland, The Sandbox, CryptoVoxels and Somnium Space.
How does buying digital real estate work?
Purchasing digital real estate is similar to buying real estate in the physical world – the transaction is recorded in a registry, and buyers receive a copy as proof of ownership. In the metaverse, a purchase is recorded on the blockchain and the Non-fungible token (NFT) is transferred to the buyer’s digital wallet, where cryptocurrency is stored. Ownership of these parcels of virtual land, and development of innovative digital stores, suggest that many retailers are committed to blockchain technology playing a key role in their consumer interactions and branding in the future.
For example, in February 2022 JP Morgan launched its virtual ‘Onyx Lounge’ in Decentraland, a significant development in the world of virtual real estate. The blockchain-based world of Decentraland is composed of 90,601 land parcels, and every land parcel is an NFT – meaning that it cannot be replicated, just like physical land.
JP Morgan’s Onyx Lounge is situated in the Metajuku Shopping District at parcel 94,21. Metajuku takes inspiration from Tokyo’s Harajuku shopping district and is a popular destination for consumers in the Decentraland metaverse.
My colleague Will Churchill, from the HDH Consultancy & Analytics team, commented on the lenders’ move into the metaverse; “The significance of the largest bank, in the world’s wealthiest country, investing in prime virtual real estate cannot be understated. Metajuku Mall is not the marketplace of the future but the marketplace of the present. Current tenants, Dress-X and Tribute Brand are at the forefront of digital fashion and JP Morgan will be a welcome addition to the shopping district. Such a prominent move by a major player shows that the metaverse is becoming mainstream.”
JP Morgan recently released a Thought Leadership paper discussing the potential of Web 3.0, stating that as the virtual worlds in the metaverse have their own population, GDP and currencies, JP Morgan can operate as a bank in the virtual world. JP Morgan also predicts the metaverse has a market opportunity of $1 trillion and NFTs have a market cap of $41 billion, quoting a total of $54 billion spent on virtual goods every year.
Which retailers are already in the metaverse?
Companies of all shapes and sizes have been entering the metaverse. Household names like Walmart, Nike, Gap, Verizon, Hulu, PWC, Adidas, Atari, Victoria’s Secret, Gucci and McDonald’s have all ventured into the metaverse in some form or other.
The benefits of owning digital property are numerous, outside of accruing value over time on investments and creating new opportunities for investors. One of the main benefits of brand presence in the metaverse is the ability to participate in virtual events such as exhibitions or parties. Decentraland collaborated with curated NFT marketplace UNXD to run the Metaverse Fashion Week in late March featuring Selfridges, Dolce & Gabbana and Tommy Hilfiger. The event replicated fashion weeks from the physical world – such as New York Fashion Week and Paris Fashion Week – with immersive spaces, installations and runway shows for participants to enjoy.
Currently, the most expensive purchases of virtual real estate have all occurred in Decentraland, including several purchases for over one million pounds. These valuations reflect the demand for space in prime areas of the metaverse, as more brands explore the opportunities of having a presence there.
How do retailers operate in the metaverse?
A store in the digital realm can satisfy consumer needs in the same way as a physical property, with the benefit of being more easily accessible – open 24/7 and visited from the comfort of a shopper’s home. Retailers can utilise their digital properties in the same capacity as physical stores, educating consumers about the brand’s offer and products as well as potentially facilitating a multitude of purchases through their presence in the metaverse. In March 2021, a digital Domino’s store in Decentraland made history as they created the first real-world food order from the metaverse. Purchases can also be for digital products, such as wearables for the consumer’s avatar, which adds another layer of demand.
Another benefit of virtual real estate in the metaverse is the availability of considerably more data that retailers can use to target consumers. The metaverse platform can be used to better understand the demographics of consumers interacting with the brand, which could be used to tailor products and advertising for customers. Statistics such as the age of users, the time that they access digital retail and the purchases that they make could all prove to be vital information to help retailers better target consumers, and maximise returns and investments.
Much like the physical world, the success of the metaverse and specific platforms is dependent upon the demand from the consumers. How consumers respond to the metaverse will direct the future of real estate and retail in the digital world, and the speed in which these changes take place will be a result of how quickly society adapts to integrating into the digital world.