If you’re looking for some summer T-shirts, check out the new branch of American Apparel, the self-consciously hip clothing chain now spreading through Britain. The bright two-storey shop, which opened last month, is a 6,000sq ft design icon, immaculately curated and packed with the latest in retail technology. Spot a dress that you like, and a touch on a nearby display panel will bring up a colourful interactive web page with all the background information you could need. But what is really impressive is that the store and its stock are built entirely of zeroes and ones. Although it gives its address as a private island called Lerappa, this fashion emporium exists only in the online game Second Life.

You need not be a regular player of internet-based games such as Second Life and World of Warcraft to appreciate why they are redefining corporate marketing. You need merely understand their reach among the millions of consumers proving increasingly elusive to conventional advertisers. For hardcore addicts, there are diminishingly few reasons to leave these "massively multiplayer online role-playing games" for that alternative universe scornfully known as "real life". With their own virtual economies, packed nightclubs and vibrant shopping malls, the games’ residents can hang out with their on-screen mates, score romantic hook-ups, even trade their on-screen accessories for cash in offline auctions.

Suddenly, real-world businesses from banks to record labels are creating a virtual presence that can appeal to players’ in-game avatars. Last month, the Harvard Business Review advised its corporate clientele to get hip to "avatar-based marketing". That’s because virtual personalities are supremely vulnerable to commercial sales pitches, the HRB concluded. Traditional advertising, it argued, is about targeting punters’ "powerful consumer alter egos" – seeking to convince us that Brand X can make us the person we fantasise about being. How much more open to suggestion are we in a virtual world, where our alter egos are already far removed from everyday concerns? Not only that, but the vast amount of data that the games record about us is a powerful tool to help advertisers customise their offers according to our tastes.

In a game such as Second Life, you can already find an entire Yellow Pages of in-game businesses, from private detective agencies to virtual tattoo parlours. The next step will be for that experience to be branded, with other high-street stores likely to follow American Apparel in creating a virtual-world presence. "The potential is amazing and very compelling," the retailer’s web director, Raz Schionning, told a recent panel discussion on avatar-based marketing (Schionning spoke through an avatar on a virtual Second Life island, naturally). "Our store in Second Life is an experiment in how we may establish relationships with our customers in this evolving medium."

The US bank Wells Fargo already has a Second Life branch targeting young customers. Warner Bros has used the game to host a virtual record-launch party, MTV and Newsnight set up shop there, and now Amazon is said to be examining ways to link its real-world goods to Second Life’s digital world. Sure, virtual shops don’t let you try the goods in person. But at least you don’t need to worry about finding a parking space.

david.rowan@thetimes.co.uk

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