Fashion’s next NFT use case? Pairing them with NFCs

This article on NFC technology is part of our Vogue Business Membership package. To enjoy unlimited access to Member-only reporting and insights, our NFT Tracker and TikTok Trend Tracker, weekly Technology and Sustainability Edits and exclusive event invitations, sign up for Membership here. Cult & Rain, the streetwear-inspired luxury startup that has been an early adopter in reimagining how high-value physical goods might benefit from Web3 tech, is dropping a new collection of NFT-linked products that include near-field communication (NFC) chips. The intersection of the digital collectibles with near-field technology marks a new functionality for Cult & Rain’s NFTs, unlocking new capabilities around authentication, post-purchase marketing and secondary revenue for the physical and digital goods. On 28 March, Cult & Rain will release 401 phygital hoodies in four different colourways with varying degrees of scarcity for between ETH 0.2 to ETH 0.25 (about $350 to $440 at current market rate). This is the first time Cult & Rain has offered hoodies, following sneakers and varsity jackets. The main objective of the collection was to “break through on the NFC tech”, says founder George Yang, whose background designing for brands including Theory and Costume National has informed Cult & Rain’s strategy. The NFCs linked to NFTs enable phygital luxury products of ongoing value for the brand and its community — which Yang sees in opposition to the speculative, get-rich-quick mindset that fuelled the early NFT mania. “We know that [NFCs] are key to our future. We are not a PFP model. We are not about flipping jpegs for people to sell. We’re about building a brand.” NFC-chipped products allow a token of certification that “bridges the gap between digital and physical items”, says Lindsey Hermes, global commercial director for digital solutions at materials science company Avery Dennison, which makes NFCs and a software suite for brands and retailers to use them with. In the burgeoning development of phygital goods, the marriage of NFTs and NFC chips has become a critical element, because it concretely links the digital good (certified through an NFT) with the physical (chipped with the NFC). While early phygital projects might have, for example, relied only on token-gated e-commerce purchase paths to provide physical goods to NFT holders, or required holders to “burn” their original NFT to essentially cash it in for a physical counterpart, this NFT-NFC marriage inextricably links the identities of both the digital and physical pieces indefinitely. The thinking is that this enables brands to continue their established business models with physical goods, while better taking advantage of Web3 tech — especially the ability to earn incremental revenue after the product changes hands. Nike, for example, has made millions off of its acquisition of Rtfkt, thanks largely to the revenue that Rtfkt earns any time its NFTs change hands on the peer-to-peer secondary market. With NFC- and NFT-linked physical goods, this type of earning power can extend to its “traditional” physical goods, paving the way for brands to monetise the secondhand market (and thus diversify reliance on producing and selling only new goods). There are, of course, benefits for the consumer until the secondary revenue pipeline is fully realised. These can include AR wearables, discounts, event access, suggested styling or pairing tips, and information on previous owners, in addition to product authentication, as the product identity is encoded in each specific chip, and it’s not something that can be easily duplicated. Cult & Rain is offering trailers for the product colourway, brand updates and collector rewards. An NFT on a top means a brand can airdrop additional gifts, says designer Charli Cohen, who is founder of Web3 fashion startup Rstlss, which is designed to create phygital products on behalf of creators, or offer token-gated access to future goods and experiences. Cult & Rain joins a growing group of brands who are deploying NFCs with phygital goods. Just this week, Middle East retail operator Chalhoub Group announced the launch of Sol3mates, a phygital sneaker brand whose physical products will be authenticated via NFCs. And earlier this month, Cathy Hackl’s new VerseLuxe brand launched a collection in collaboration with jewellery designer Simone Faurschou called Frillz; the 100 necklaces and 100 bracelets are made of resin, silver, gold — and an NFC chip tied to NFT ownership. This follows Gmoney’s 9dcc NFC-chipped streetwear, which launched in August 2022, and an Rtfkt x Nike AR Genesis hoodie whose NFC chip is connected to a corresponding NFT and gives the wearer the option to wear virtual wings through augmented reality. Hermes says that Avery Dennison is already in conversation with multiple brands about NFC tech, which can provide customer access to authentication and other product details, in addition to loyalty and re-commerce incentives. She expects that tools that authenticate goods, including NFCs, are likely to become more popular “through the blunt force of governments regulating it”, pointing to recent moves such as the European Union’s new digital product passport (DPP) requirements. In January, the Boston Consulting Group and Web3 platform Arianee released a report outlining the considerations and implications of digital product passports. Among the findings is that DPP can accelerate adoption of utilities including product information access, certificates of authenticity and ownership, product lifecycle management tools, CRM tools and virtual product replicas. Plus, Hermes adds, “Consumers are willing to pay more for the transparency that NFCs can provide.” Connecting NFTs to NFCs When an NFC chip on a garment or product is scanned by a smartphone, a brand can programme it to launch a pop-up that directs to a web page or app that can be changed or personalised over time (Avery Dennison offers its atma.io product cloud to brands for this purpose). Brands are still experimenting with ways of linking them with NFTs, and with how the consumer engages. In the case of the Cult & Rain hoodie drop, the mint mechanics work like this: the three-part blind mint starts with early access and discounts for genesis holders and the allowlist, via Opensea. After a limited amount of time, the mint closes, and a “reveal day” reveals which items holders have ultimately purchased. A limited number, for example, include AI-generated art inspired by retro 1980s Japanese science fiction, Yang says. This is followed by a limited-time trading window, in which people can buy, sell or trade to acquire their preferred piece (the most rare NFTs also grant a limited edition sneaker). Then, trading will be locked, and customers link their wallets to the website of Cult & Rain’s tech partner, Ltd.Inc (pronounced “limited”), which has previously worked with denim brand Wrangler and NFT community Deadfellaz. Via Ltd, holders select their preferred size and enter their shipping address to claim their physical item. Then, they can claim and immediately wear their AR product, made in collaboration with DressX, until the physical product is shipped in the coming weeks after it is produced in Los Angeles. Once they receive the product, they scan the NFC chip with their smartphone to verify the product. The “phygital, on-tap experience” offers a more simple, web-based authentication verification, or holders can elect to download the Ltd app to see more complete details, such as the specific NFT to which it is linked, the NFT’s price history and the wallet ID of the owner. Anyone who scans the garment’s NFC accesses this information. On the backend, Cult & Rain’s flow works like this: each NFT artwork is created, and Ltd deploys a custom contract on the Ethereum mainnet. When it mints the NFTs, it binds them to the NFCs, so that the unique digital identities of both are linked, explains Ltd.Inc CEO Daryl Kelly. At this point, the NFTs show up on Opensea. The NFCs are all labelled and sent to the manufacturer, where they are infused in each specific corresponding item, before being sent to the awaiting customer. While this can be a manual process — ensuring that the right chip goes in the right hoodie and sent to the right person, Kelly says — it’s akin to a luxury brand carefully making each product. Proponents say the consumer flow — which is familiar to anyone who has, for example, scanned a menu’s QR code or tapped to pay with their smartphone — stands to provide a “gentle on-boarding into Web3”, says Cohen. “The idea of a certificate of authenticity or some record of provenance is something fashion collectors are already super familiar with. And, once you’ve done that, without even really thinking about it, you’re now inside the Web3 ecosystem where this NFT linked to your physical garment can start to unlock other benefits,” Cohen says. “There’s zero pressure to opt in — just an understanding you can access more value if you do so.” Marketing to the product, not the customer It’s these extra perks that have both luxury brands and Web3 denizens excited, because the NFC chip gives a direct connection to whoever owns that product, and the brand can essentially market to the product, rather than marketing to the consumer, says Cult & Rain CMO Andy Griffiths, without needing to know details such as their email address or phone number. “It opens up a different way of thinking about communication between brand and customer. We can pick three customers and give them something unique.” For the brand, it enables a new approach to loyalty rewards and customer engagement. Adding an NFT on top means that when the item changes hands, the NFT can also change hands, enabling a percentage of revenue for the lifetime of the product, and a continued customer relationship beyond the first owner. “When we can associate a unique item with an individual, this is where we unlock a lot more potential to connect brands to drive loyalty and exclusively tailored information,” beyond the point of sale, Hermes says. “You [can] learn who is clicking what and who is buying what and where, without violating privacy issues.” VerseLuxe offers community membership to its 200 holders, and is currently exploring other ways of connecting physical and virtual touchpoints, Hackl says. 9dcc grants POAPs (proof of attendance protocols) to holders who wear the shirt to physical events such as NFT Paris and Art Basel Miami Beach, where wearers were incentivised to network by scanning one another’s tees and collecting each others’ POAPs; five thousand were exchanged over five days, according to 9dcc. Now, the brand is building a large-scale treasure hunt for wearers of its new chipped hats during NFT.NYC. “Few traditional industries have taken more creative approaches to Web3 than fashion has, and it’s brought a profound sense of collaboration into the space,” says Tokenproof CEO Fonz, who worked with 9dcc on this functionality. “That kind of community-building through fashion is powerful.” “We’ve seen this to be most effective in fashion when the ‘proof-of-possession’ NFT is used to build the customer’s status in the brand’s ecosystem, while making that status meaningful through different token-gated tools,” says Ryan Ouyang, co-founder of phygital NFT tech provider IYK*, which worked with 9dcc. For example, claiming the NFT from a 9dcc shirt allows shirt ownership, POAP distributions and referral purchases to be attributed to the holder’s account, which builds up their status in the 9dcc ecosystem, he says. Resale as the “holy grail” When a customer is done with a high-value phygital product — maybe they want to flip it for profit, as many NFT holders are accustomed to doing — the NFC-linked NFT is especially valuable. It’s still early days, but this is how Cult & Rain and Ltd have mapped it out: Ltd is launching a peer-to-peer resale marketplace for the products it has chipped; it’s also making an API (application programming interface) that Cult & Rain can plug in to its own site. When a holder wants to sell their hoodie, they can list it and people can bid on it. If the owner accepts the deal, they ship the physical product. Ltd acts as an escrow agent, and holds the funds while the product is in transit. When the new buyer receives the item, they validate it with the NFC chip, and can either accept the item or reject it (in the rare case that it doesn’t pass muster). If they accept it, the NFT is transferred to them, and the money is transferred to the seller, via Ltd’s platform. If they reject the purchase, they have a two-week return period to send the product back, while the payment and the NFT are locked, until the money is refunded. Crucially, Cult & Rain makes a cut of the sale and maintains the consumer relationship, both of which are missing from most peer-to-peer resale platforms today. “That is the holy grail,” Yang says. “Once you crack the phygital marketplace, not only can you add bells and whistles onto your tapping and storytelling, but you can also profit from your physical sales.” He points to the red Mschf boots that made waves at New York Fashion Week, when resale values topped $2,000 on StockX. “What would happen if every secondary sale got 10 per cent of it?” Going forward, Cult & Rain plans for future products to all have chips, with Yang calling it the “key to Cult & Rain’s success within Web3”. Ltd is planning a multi-brand marketplace for NFC-chipped phygital goods, Kelly says. “My prediction is that in the next five years, no serious investor will buy a handbag they can’t verify by scanning.” Correction: Updated to clarify number of brands with which Avery Dennison is working on NFC technology. 29 March, 2023 To receive the Vogue Business newsletter, sign up here. Comments, questions or feedback? Email us at feedback@voguebusiness.com. More on this topic: What happens when Web3 natives throw a physical party? The real metaverse How Discord became the “Soho House of Web 3.0” Gmoney introduces personalised POAPs to his Web3 luxury brand

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