The global luxury goods market has been marred by its own success. The years spent building brand awareness – with the world’s wealthiest customer base onboard – have made these brands out of the league for the masses. A strong desire to possess their merchandise, has subsequently, fueled a counterfeit industry that is endangering the integrity of the original brands.
But counterfeiting is not the only struggle that the luxury industry grapples with.
Over the years, the luxury and fashion industries have also been on the receiving end of severe backlash from a chorus of business leaders, human rights activists, and environmentalists due to the non-sustainable practices that are rampant in their production centers. The monumental impact of these two issues is mistrust among clientele.
Consequently, the industry is now trying to reposition itself in a positive light by promoting its ethical stance along with investing in ultra-sophisticated tech solutions such as nanotechnology, artificial intelligence, and blockchain to counter the rising tide of the counterfeit industry. Given that blockchain offers a foolproof way to keep assets secure and sustainable, luxury brands are betting on this disruptive technology to be on their side.
Luxury Goods and Counterfeiting – An Almost Intractable Situation?
Now, fake Rolex watches, ersatz Jimmy Choo shoes, spurious Hermés scarves, and knock-off Gucci handbags have always existed. But owing to their quality, cost, or shady store locations, such goods were always easy to spot. However, as products from the original brands became more unattainable to the public, the demand for counterfeit products started being driven by customers seeking affordable counterfeits.
To add insult to injury, a perverse impact of the worldwide internet penetration and globalization is that the current volume and the sophisticated technology being leveraged to produce counterfeit goods is unprecedented.
The
Trends in Trade in Counterfeit and Pirated Goods, a joint report released by the European Union Intellectual Property Office (EUIPO) and Organization for Economic Co-operation and Development (OECD) places the value of ersatz goods worldwide at over $509 billion. In fact, the trade in counterfeit goods is now 3.3% of all trade globally. That’s about
$4.5 trillion, out of which counterfeit luxury merchandise makes up for more than 60%. These numbers are only expected to rise. The Global Brand Counterfeiting Report 2018 projected that the total value of fake goods would reach USD $1.82 trillion by 2020. And the range is just mind-boggling – from counterfeits of defense equipment to cheap knock-offs of luxury watches.
The rise of eCommerce has made it even harder to crack down on fake goods producers. Brands have been stuck in
an endless loop where as soon as they bring down a knock-off luxury good listed online, an identical listing pops up. For brands to regain the trust of clients, they must reassure them that they are buying a genuine article, especially online.
However, trust goes much further than separating an ersatz Louboutin copy from its original pair. Customers want to know that their prized possessions conform to the highest ethical values as well. For instance, whether the companies are compensating their employees appropriately, or if the raw materials like precious metals, diamonds, and animal skins are sourced from no-conflict, sustainable practices?
The Fashion and Luxury Industry – The Ethical Dilemma
Saying or branding a label as “sustainable”
doesn’t make it so. The burden of evidence lies with the manufacturers. Waste and water management, tracking the use of raw materials, and proper use of chemicals – the environmental footprint of brands, that is, have all become part of the brand story and as such, the source of competitive advantage. That being said, when spurious goods come into the picture, they don’t just tarnish the brand name but also put a dent on the craft, origin, and quality best practices followed by the brand.
Can the Anonymity and Security of Blockchain End the Woes of the Luxury Industry?
Blockchain cannot be bought off a supermarket shelf. It needs to be built and implemented to suit the business requirement. It’s a tool that enables brands to fight back against counterfeiting and protect their identities. Through blockchain, it is possible to create a unique digital identity that gives luxury brands the confidence to stand behind their goods. The key here is transparency.
And how is this transparency achieved?
Through digital certificates or non-fungible tokens (NFTs).
As technology evolves, the world is transitioning from physical values to digital assets. This way, a real-world asset, like a Vacheron Constantin Kallista that roughly amounts to about $11 million, can be stored in a digital format with either a single or multiple owners. This certificate of ownership is recorded on the blockchain with NFTs where not only the ID of the buyer is recorded but also that of the object.
With this enhanced level of transparency through NFTs, luxury brands will not just bring down knock-offs but also keep the
high-priced, better-quality fakes . at bayThese goods are generally close enough to the genuine products in appearance and price and do a great job in fooling customers, thereby cannibalizing the sales of the original manufacturers.
This transparency is poised to drive the re-engagement of estranged customers with the brands. Through credible and transparent information, customers will be able to sell, collect, and buy items with one-hundred percent certainty that their purchase is one-of-a-kind, sourced from sustainable practices, and created by people who take pride in their brand. This will also open new business avenues and empower brands to target new markets.
The potential of blockchain also has positive legal implications for luxury brands. Once the industry normalizes selling physical luxury goods in the digital marketplace, the legal transfer of ownership will also be enabled. This means that ownership will not just be limited to being enforced by handing over a physical transaction but even with NFT transfer from one digital wallet to another. This will make passing family heirlooms easier, since now instead of the physical Certificates of Authenticity, there will be secure and non-destructible NFTs in place.
NFTs can also hold information pertaining to when an asset was bought along with a timestamp as well as information about the present owner – something that is lacking in the Certificates of Authenticity. Not to mention that these certificates can also be forged. Blockchain accomplishes all of this anonymously so that there is no room for fraud, forgery, and stealth.
Blockchain and the Luxury Goods Industry – The Road Ahead
On April 20, 2021, LVMH, Cartier, and Prada came together to form the first global luxury blockchain consortium in the world. The Aura Consortium, as it is christened, will offer a comprehensive solution for customers to verify the authenticity of their purchased goods. The Aura Consortium has received tremendous support and participation from other notable brands such as Hublot and Bulgari. Next to the Aura Consortium, other blockchain solutions arise that are specially tailored for similar purposes:
Arianee.org is an impressive solution to follow.
KORE Technologies has developed a one-stop-shop solution LuxeID through which the luxury goods companies can transition from the world of physical to digital certificates. As the technical bridge between luxury brands and the relevant blockchain protocols, KORE ensures a seamless integration. Available as an app on both the merchant and customer devices, the digital certificates can be issued and made accessible with just the tap of a button. The robust interface makes the generation of new wallets and integration with existing enterprise systems seamless, secure, and user friendly.
The next five to seven years are going to be very exciting for the NFT and Blockchain world. Experts predict the incorporation of tokens and transformation of physical possessions to digital assets across all industries, not just luxury goods.
The luxury goods industry can also harness the commercial benefits of transparency that blockchain brings for supply chain optimization as well. By relocating production to cheaper countries, luxury firms have severed ties with their centuries-old origins. The offshoring of supply chain to destinations thousands of kilometers away has relaxed controls over manufacturing and design, giving more leeway to counterfeiters and unfair, non-sustainable practitioners. By etching the journey of their products digitally on the blockchain, every transaction can be recorded securely. This way, producing counterfeit goods and passing them off as genuine articles will be nearly impossible.
Once the lifetime journey of luxury goods is brought to the surface, the faith of customers in the brand and its values can be rekindled. In a contentious marketplace, setting such a precedent will help install confidence and bring the brand back firmly into the spotlight.
