Planning to launch NFTs? Learn from Supreme
As per a Reuters article, in 2021, the NFT sales volume totaled $24.9 billion, compared to just $94.9 million the year before. Many corporates dipped their feet into NFTs’ attractive waters. In 2021 alone, many household American brands, including Nike, Taco Bell, Mcdonald’s, Coca-Cola, New York Times, Ray-Ban, Gucci, Under Armour, and Campbell’s Soup, have launched their own NFTs.
Why it matters: Many market watchers claim that the bubble in the NFT market is similar to the bubble during the Tulip Mania.
- In the early 1600s, a frenzy for tulips swept through the Netherlands. Prices for the flowers reached absurd levels, with a single bulb selling for more than ten times the average annual salary. The mania eventually collapsed, leaving many people ruined.
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
Participate in a subculture: 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.
- Why else would someone pay $200+ for a brick from Supreme? https://stockx.com/supreme-clay-brick-red
- Armed with this insight, Supreme has collaborated with many iconic brands over the years, such as Nike, Louis Vuitton, and Comme des Garcons.
- Whenever celebrities and trendsetters — A$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.
- 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.
Cultivate FOMO: 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 . 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.
- 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
- Have a clear purpose of employing NFTs: 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. Here are some examples:
- Pre-NFT: 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.
- In the NFT era: The National Basketball Association knows that people come to live sporting events less for the sports but more for the experience — to feel that moment with others. Hence, their NFT initiative NBA Top Shots allows you to convert those moments into collectible videos and trade them with others. As a result, demand for these videos surged, with 100,000 users owning at least one highlight.
- 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.
- In the NFT era: Indian NFT company Guardian Link dropped an NFT collection on the comic character Chakra The Invincible that Stan Lee created. Stan Lee is the creator of famous comics like Spiderman, Iron Man, Hulk, and The Avengers. This NFT drop was a collaboration between Stan Lee’s family and Guardian Link.
- Do not dilute the exclusivity: NFTs are closer to luxury brands (Lamborghini) than fast-moving consumer goods (Shampoo).
- Pre-NFT: Luxury brands like Burberry, Nike, and Louis Vuitton spend millions on destroying their own unsold merchandise to preserve their reputation of exclusivity.
- In the NFT era: New York Times sold its first article in its 170-year-old history for half a million dollars. However, they cannot sell every other article as an NFT.
- 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.