Fake goods are increasing, the luxury experience is dwindling and blockchain is here for the rescue. In the following article, we will take a look at some key applications of blockchain technology in the luxury industry. These include product authentication, an improved customer experience, and a more transparent supply chain. But first, what is blockchain?
Author - JP Patheja Hellmich
Blockchain! A buzzword frequently thrown around but seldom understood. So what is this technology and why the fuss?
The underlying concept is rather simple: it’s a database. A database in which information is electronically stored in blocks. These blocks have a certain capacity and once filled they are linked to the other blocks², hence the name. This ultimately creates an irreversible (as well as decentralized) timeline of data, which is where the fuss is.
Granted, the above delineation was simplified — nevertheless, this immutable decentralized account of data has a multitude of applications in all industries. For the scope of our article, we will explore some use cases within the luxury industry; an industry known for being traditional and slow to adapt to new technologies.
Luxury goods are notoriously expensive, highly sought after, and therefore often faked. It is estimated that a staggering $4.5 trillion of counterfeit goods are in circulation and of these, 60%-70% are luxury goods alone³.
Counterfeits are detrimental to the image and appeal of luxury brands, as well as their top-line figures, which is why they desperately try to hinder counterfeit goods from entering the market. Furthermore, counterfeit goods are often associated with unethical labor and even occasionally proclaimed to subsidize organized crime⁴.
If these reasons are not sufficient to deter you from purchasing luxury counterfeits, perhaps my somewhat anecdotal opinion may: Luxury goods are luxury goods for their heritage, craftsmanship and the prestige they carry. Fakes on the other hand, only carry an imitation of the ‘prestige’ which for many translates to an imitation of character. Instead, there is a whole industry of premium goods out there that produce top notch quality and can be supported with good conscience for a similar price to many fake goods.
Be that as it may, fake goods are a major problem for the luxury industry.
Surprisingly, but not entirely unexpected, the largest luxury conglomerate by revenue LVMH; the largest luxury group for high end watches Richemont; and the Prada Group have joined forces to form the AURA Blockchain Consortium.
The aim of this initiative is threefold: firstly, the authentication of luxury goods; secondly, a detailed product history and lastly, a more transparent supply chain⁵. This will supposedly help solve some key issues the luxury industry is facing today.
As previously addressed, the luxury industry is plagued with fakes. To combat this, Aura will assert a product ID to each physical product. This product ID will then be linked to a client ID on the blockchain. In Aura’s case, it is a private blockchain secured by ConsenSys and Microsoft. If the consumer then wants to authenticate the product, like in the instance of the LVMH owned ‘Hublot’, they merely scan the product (or barcode, qr code, serial number) and this will be matched with the client ID on the blockchain to certify authenticity.
Beyond authenticity, this can also show details about the product such as warranties or the product history. The latter implies a depiction of the date of purchase and ownership history. This is congruent with the current environmental paradigm, as this could promote the second-hand industry by nudging consumers towards certified pre-owned through a more inclusive purchasing experience. Perhaps this is also the foundation for big luxury conglomerates to incorporate pre-loved (sounds better than ‘used’) products into their business model to capture some of the 28 billion euro luxury good resale market.
Lastly, as sustainable is the new cool, blockchain technology will also be able to incorporate a complete overview of the supply chain into each product ID. This is beneficial for the consumer because they can see exactly where each component of a product is sourced from. Furthermore, companies will be able to have increased insight over the processing times, costs at each node and also over consumer preferences in regards to sourcing. Blockchain technology here is leaner and cleaner.
Aura Blockchain Consortium are not the only ones revolutionizing the luxury industry through blockchain technology. The Paris based group Arianee — also backed by big players such as Richemont and Breitling — aim to use NFT’s to create a digital passport⁷. This passport entails an overview of the luxury goods you own and also provides information such as proof of authenticity, a supply chain overview and other product information. Overall, It is a similar approach but from a different angle.
Fake goods in the luxury industry are about as rare as a grain of sand at a beach — not at all, they are everywhere. Tangibly and intangibly, luxury brands are carrying the costs. Hence, to combat their common enemy, some of the most notable players in the industry have come together to implement blockchain solutions.
Beyond potentially hindering fake goods, the blockchain solution has also introduced the added benefit of enhanced product information for both the consumer, and the brand. This is an excellent opportunity for the brands to interact with their clients and offer a more intimate experience. Which unarguably is what luxury is about — the experience.
It’s not all sunshine and rainbows as some questions are left unanswered. Firstly, what will prevent a product ID from being copied? A possible solution would be to link the product ID with the client. That way, in the resale market, products would only be bought if the seller is the linked client (or custodian) of the product, hindering fake goods as well as stolen goods from being sold. Which brings us to the next concern — data privacy. A simple solution would be to provide unique anonymized user keys for each client.
In either case, although these questions have been left unanswered, there are simple solutions out there. Ultimately, the net benefit — or felicific calculus, if you are so inclined — is indisputably positive. Blockchain technology will revolutionize the notoriously traditional luxury industry, and most other industries for that matter as well.
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