Direct-to-consumer brands dip their toes in the world of NFTs

If 2021 was the year the NFT craze took hold, 2022 is looking like the year that direct-to-consumer brands figure out how they can get involved.

Talk of NFTs (or non-fungible tokens, which are used to prove ownership of an asset, such as a digital artwork) has already hit fever pitch among investors, founders and other members of the direct-to-consumer community.

“NFTs offer new ways for engaging customers,” explains Jaime Schmidt, the cofounder of Color Capital, a venture capital firm that invests in consumer brands and “Web3,” the term that refers to the blockchain-based decentralization of the internet. “For example, NFTs could unlock access to participation in focus groups, [or] private events available only to token holders. This builds community and creates a culture of die-hard, cult-like fans.”

But so far, few direct-to-consumer brands have actually taken the plunge and launched their own consumer-facing NFT projects.

DTCs and NFTs: the story so far

Brands that have dabbled in this space so far have largely focused on two things — raising funds and tapping into the buzz surrounding NFTs.

Skewing towards the former category sits Poolsuite FM, the sister project to sunscreen brand Vacation. In November, it raised $2.6 million through the sale of 2,500 NFTs that gave buyers early access to new Vacation products and in-person events, such as the parties Poolsuite hosted at Art Basel Miami in December. Yerb, a nascent yerba mate tea brand, raised a more modest $7,700 to help fund the first production run of its drinks through the sale of 47 NFTs. In the streetwear space, sneaker startup Flowers for Society is using NFTs as an alternative to pre-orders.

Among those trying to understand the marketing value of NFTs includes direct-to-consumer hair loss brand Keeps, which became the first brand (it says) ever to sponsor an NFT in December. The partnership saw Keeps give CryptoPunk #6457 owner Jeff Krantz a new NFT avatar that swapped the thinning locks of his original CryptoPunk for a full head of hair. Krantz also received $10,000-worth of the cryptocurrency Ethereum, which he says is currently stored in a wallet owned by his CryptoPunk.

Cereal brand OffLimits has been offering its customers free NFT cereal toys, while soda brand Perfy has been mocking up drinks cans for NFT owners that feature the artwork they own, for them to share on their social feeds. The brand’s founder, Vasa Martinez, estimates that 700 NFT artwork owners got in touch asking for a customized digital can — and that venture capitalists, retail buyers and grocery delivery platforms have also reached out after seeing the designs. “The real ROI for me was the amount of impressions and reach, [which] was in the tens of millions,” he says.

Nik Sharma, an investor in brands such as Last Crumb and Maude, has even set up his own NFT project, Bodega Cats, where token holders can get access to industry briefings, meetups with Sharma himself, and tip-offs about brands looking for investment — as well as mystery boxes stuffed with products from these brands, of course. So far, 19 Bodega Cat NFTs have been sold, with prices starting from 0.5 Ethereum (around $1,500, as of January 10th).

“The main reason I set it up was because I know for a fact at some point this quarter, a lot of the brands we work with are going to come to us and say, ‘Web3, what is it and how do we get involved?’,” Sharma says.

Will consumers spend money on NFTs?

The trick will be getting consumers to take interest. As such, it may be that the brands that experience the most success with NFTs — and the least pushback — will be those that focus on using them to foster community, rather than creating expensive assets for people to show off. “Many people want to explore NFTs but don’t know where to start,” Schmidt says, adding that a high price tag is far from essential for an NFT project to work. “Particularly those tied to brands — customers can earn free NFTs through things like loyalty programs [or] rewards points.”

As well as using NFTs as an access pass to their own community offerings, brands could also tap into the communities that already exist around different NFT artwork collections.

Krantz says that avatars such as his essentially serve as cultural signifiers. “People who hold Cryptopunks in general are people that are trailblazers in [this] space,” he says. “If I see someone on Twitter that has a CryptoPunk as their avatar, I can reach out to that person in the DMs and they will almost always respond to me. I find a lot of value in being a member of that community.”

Martinez, who owns a Doodles NFT, says he is interested in exploring partnerships with the creators of these collections. A Doodles artwork on a Perfy billboard advertisement, for example, could serve as a subtle bat signal to others that are familiar with or have brought into the collection.

Making it easier for customers to actually get hold of NFTs will be important, too. With most NFTs being purchased in Ethereum, consumers need to sign up to a crypto exchange, get hold of the currency, and set up their digital wallets before they can buy or start using their NFT.

As a workaround, Yerb’s founder Brett Fink says he let people pay for their NFTs through Shopify — he would then manually transfer it to them via NFT trading platform Rarible. Still, Fink says only 18 of the NFTs sold so far have actually been claimed on a wallet. “[The] rest are just on an email list,” he says.

Tech to the rescue

Attempts to make the buying journey for NFTs a bit smoother are already underway.

Last Summer, the Chicago Bulls basketball team launched a collection of NFTs which were sold via Shopify, rather than an NFT marketplace, and could be purchased using a debit or credit card. The NFTs sold out in 90 seconds, according to Shopify. Since then, the ecommerce platform, which is a favorite among direct-to-consumer brands, has been quietly testing how it can integrate NFTs onto its product offerings.

Others are creating their own Shopify apps to cut the friction. In December, GigLabs launched a Shopify app that lets people easily mint, sell and manage their own NFTs — the app also helps customers to set up a wallet to redeem their NFTs.

Novel, another Shopify NFT app, is backed by VC firms Sugar Capital (which counts skincare brand Starface, disaster kit seller Judy and apparel company Everlane among its portfolio) and Costanoa Ventures. The app allows merchants to create and sell their own NFT collections with just a few clicks. Sugar Capital’s founder, Brian Sugar, says more than 500 direct-to-consumer brands have signed up for early access since it launched its waiting list in November.

Old rules, new tricks

While evangelists for NFTs are busy imagining the endless possibilities of this tech, consumers outside of the crypto bubble are more cautious. They might hesitate to buy into a high-priced NFT project if it's unclear how the price tag will net out in perks over time. For example, people will have to decide if Poolsuite's $800 NFT is worth getting early access to a brand's products and invites down the road.

They may also be reasonably wary of brands rejecting traditional fundraising methods in favor of quickly raising funds via NFTs — mirroring the concerns that have surrounded crowdfunding platforms in the past.

There are environmental issues to consider, too. Ethereum, the cryptocurrency most commonly used to make NFT purchases, is thought to use about as much energy as the country of Libya. A greener version of the platform is in the works, however, it’s not quite clear when this will launch (the original plan was to go live in 2019). It is possible to offset the carbon footprint of your NFT — but given offsets should be reserved for unavoidable carbon emissions, this solution is merely a bandaid.

Other real-world problems can have an impact on the value someone gets out of their NFT. Manufacturing delays mean that Yerb, which put its NFTs up for sale in March of last year, is yet to start sending out the merch, limited-edition flavors and new products that it promised token holders. Its Instagram and Twitter feeds, meanwhile, haven’t been updated since last summer. Fink says the problems will soon be resolved, and Yerb will be available nationwide later this year.

Indeed, both buyers and brands should keep in mind that no matter how popular NFTs become, the laws of our physical world (like the global supply chain) will still remain.

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