On planning to launch NFTs
Why it matters:
Quick take: If your company ventures into NFTs, how would you ensure that your NFT initiative outlasts the bubble? I recommend learning from the iconic streetwear brand Supreme.
What’s Supreme: In 1994, James Jebbia started Supreme, a small skateboard shop aimed at the New York skating scene. Over the next 25 years, Supreme expanded into high-quality clothes and accessories and became a staple in the streetwear community.
- As a result, when Supreme drops new collections twice a year, there are often long lines of Supreme fans, often called Supremeheads or Hypebeasts, outside Supreme stores.
- In November 2020, VF Corporation acquired Supreme in an all-cash deal for $2+ billion.
The connection: Supreme isn’t in the apparel and accessories business. It is in the collectibles business. It has made collectible clothes, shoes, crowbars, bricks, bandaid, bling, caps, and skateboards, to name a few. Similarly, NFTs too are about selling digital collectibles.
- Twitter CEO Jack Dorsey sold his first-ever tweet as an NFT for $2.9 million. Why would someone pay $2.9 million for a tweet anyone can read?
- Because they believe this tweet is a part of history and hence worthy of being collected. Or they were speculating and expecting its price to rise in the future
Why Supreme: Unlike the Tulips and the NFT market today, Supreme has been in the collectibles business for over 25 years. It has outlived many recessions and bubbles and has steadily grown into a multi-billion dollar brand.
Supreme’s 5-step strategy
Since the beginning, James and Supreme were an integral part of New York’s streetwear community.
- Armed with this understanding, Supreme launches authentic products that capture the nuances of that subculture — its myths, legends, and iconography.
- Supreme is valuable because the community it participates in — the streetwear community — believes so. Why else would someone pay $200+ for a brick from Supreme? https://stockx.com/supreme-clay-brick-red
Cultivate social credibility
- Armed with this insight, Supreme has collaborated with many iconic brands over the years, such as Nike, Louis Vuitton, and Comme des Garcons. These collaborations help expose Supreme to new audiences. In return, brands get access to the streetwear subculture.
- Whenever celebrities and trendsetters — A$AP Rocky, Tyler the Creator, and Kanye West — are seen wearing Supreme, the demand for more Supreme products spikes.
Cultivate a purchase habit
You’ll not find Supreme’s goods on Amazon or in another store. Like clockwork, every Thursday at 11:00 am during the spring and fall season, Supreme drops a limited collection of merchandise on its website.
- This fixed time and location reinforce the habit. Customers know when to expect new merchandise.
- Hence, they keep coming back to the Supreme website every week. It also creates excitement, rumors, and conversations within the community.
Unlike most brands, Supreme isn’t in the business of profit maximization, i.e., selling as much product as possible.
- Their weekly collection drops have many products but in minimal quantities. Additionally, once sold, Supreme never repeats the same product.
- This scarcity intensifies the desire because customers know that it won’t be available again if they do not buy the product right now.
- Generally, demand far outstrips the supply. Hence, Hypebeasts compete to buy the products, and the merchandise is sold within minutes, if not seconds.
Cultivate a resale market
What happens if you wanted something, but it got sold out? You know that Supreme won’t release more of the same product. This is where the resale market kicks in, converting Supreme’s merchandise into collectibles.
- Despite knowing they could charge more, Supreme has consistently kept its original retail prices low to spawn a secondary resale market.
- Often called “Supreme Flipper” or “Supreme Collectors,” resellers earn a significant markup on the original retail price. You can find the Supreme products for resale on websites like StockX.
- The resale market expands Supreme’s target market beyond Hypebeasts to include those who want to earn money by flipping merchandise.
To outlast the bubble, below are some of the principles to consider
NFTs are by uber-nerds for uber-nerds within a specific subculture. Others can participate if they want, but the products were not built for them.
In the late 1990s, many bought Apple products to signal the Think Different aspiration. Likewise, people own Royal Enfield to be part of the Indian biking community.
Collaborate with others to exchange social capital
Random JPEGs become valuable and thus NFT-worthy when people emotionally associate with them. Often the emotional connection is a result of solid storytelling.
However, there are only so many stories that your brand can tell. Therefore, it becomes critical to collaborate with other celebrities and brands to expand the story and reach.
Do not dilute the exclusivity
NFTs are closer to luxury brands (Lamborghini) than fast-moving consumer goods (Shampoo). Luxury brands like Burberry, Nike, and Louis Vuitton spend millions on destroying their own unsold merchandise to preserve their reputation of exclusivity.
Maximize for community
Every time a person buys an NFT from you, they buy into a long-term volatile asset. So it becomes your responsibility to nurture a community that will last the test of time.
Hence, you cannot jack up the prices even if demand outstrips supply. Instead, you’ll have to leave value on the table so that a mature resale market develops and resellers can earn a healthy profit.
In return, you lock in customers and resellers into a community that is committed to you long-term.
Pre-NFT: A non-NFT example of a company that has maximized for community instead of profit is WordPress. Over the last 18 years, many blogging platforms have come and gone but WordPress has endured. This is because of the community of developers, agencies, designers, and dependent companies that it has nurtured. In 2011, WordPress powered 13.1% of the Internet. By 2019, that number had grown to 32.7% of the Internet.
Bottom line: Do not jump into NFTs as a short-term speculative bet. Instead, invest in it as a long-term community-building opportunity.
- Cover Image – Photo by David Lezcano on Unsplash