Luxury brands using blockchain to fight counterfeiting
By Katerina Mansour - 13 November 2020
The growth of the second-hand market has also lead to a rise in the sale of fake luxury goods. So, could blockchain be the key to fight against counterfeiting?
For the average consumer who dreams of owning a luxury item but can’t quite afford it, second-hand marketplaces have become a go-to. Indeed, buying pre-owned goods is the only way many will ever get the chance to own luxury items. Boston Consulting Group research estimates that the secondary market for luxury goods would be worth $36 billion by 2021, versus $25 billion in 2018.
Beyond searching for affordability, buying second-hand luxury items is also part of efforts towards more sustainable behaviour. Research showed that 59% of luxury customers in both primary and secondary markets say sustainability influences their purchasing behaviour. Indeed, sustainable fashion is becoming increasingly in-demand and popular worldwide.
Yet, with the rise of luxury resale has also come a rise in concerns over the authenticity of these preowned items. Consumers are increasingly buying their luxury items from secondary sources, which makes it even more challenging to avoid counterfeits.
Discerning the real from the fake: an ongoing challenge
According to the Global Brand Counterfeiting Report, luxury brands lose around $30 billion worth of sales to counterfeits online. In 2018, an IFOP survey showed that 37% of French adults have bought at least one counterfeit product without knowing it. All sectors of the luxury market experience varying levels of counterfeiting: the jewellery and watches sector loses an estimated €1.9 billion in revenue every year due to counterfeit products. Château Lafite Rothschild came out with estimates that 70% of its wines sold in China are fake. The World Custom Organisation estimates the global market for counterfeits is worth $600 billion, representing about 7% of world trade.
Counterfeits are not a novel problem and are unlikely to go away any time soon, despite global efforts. One factor that will help counterfeits continue to thrive is simply consumer demand. Many consumers are willing to buy counterfeit products and see no problem with it.
Still, discerning an authentic luxury item from a fake is still a high priority for many consumers. Beyond concerns over judgment from peers if they recognise a knock-off, research from Yale posits there’s a psychological factor behind the quest for authenticity. According to their research, the feeling that comes from having purchased a genuine luxury good plays a role in why consumers want the real thing.
Several strategies have emerged over time for brands to combat counterfeits. Extensive online monitoring, lengthy lawsuits, raising consumer awareness and working with authorities to identify counterfeiting networks are all commonplace measures. But, as new technologies have emerged, so have new approaches.
Blockchain as an emerging tool to fight counterfeiting
Blockchain is a distributed and immutable ledger that can record transactions, track assets and provide transparency. Data is stored in blocks that are all linked to each other, timestamped, and considered as unforgeable. When paired with NFC and IoT technologies, blockchain provides the ability for consumers to access a product’s entire history, whether it’s new or second-hand. They can also contribute to its verifiable history by scanning product tags or including proof of purchase details that are then uploaded to the blockchain.
Corporates have taken steps in recent years to leverage blockchain technologies in their fight against counterfeiting. In 2019, LVMH partnered with Microsoft and ConsenSys to develop AURA, a blockchain-based platform to authenticate luxury goods. The idea is that during manufacturing, each luxury product receives a unique identifier. When a customer purchases a luxury product, they can then access its online certificate which has been cryptographically signed by the brand and all those involved in its supply chain (design, raw materials, manufacturing, distribution). Indeed, for blockchain to be successful in providing full transparency, every party in the supply chain must participate.
Another example is IBM, which developed Trust Chain Initiative with Helzberg Diamond and Richline Group. The blockchain solution involves the mines that produce jewels, the manufacturers that refine them and the retailers that sell them. Blockchain has also helped jewellers certify that their products are ethically sourced, e.g. that no blood diamonds were used.
Luxury brands are not the only ones that stand to benefit from blockchain’s promise of transparency. Concerns surrounding the sale of knock-off luxury products are most widespread when it comes to resellers. As such, businesses involved in the resale of luxury items can strongly benefit from reliable technologies to reassure their customers.
Startups provide their own solutions to the problem
Arianee, rated by Early Metrics in 2019, has made a name for itself in this space. The startup develops a blockchain platform for luxury brands to authenticate their products digitally. Each luxury item gets its own digital certificate with encrypted records that capture all of the product’s details. These include the acquisition dates, insurance, materials and more. Product owners can register their items on the startup’s app, which are then. reviewed by the startup or a third party for validation
The startup’s advisors include executives from Richemont International and Balenciaga. It also bolstered its position on the market by landing several reputable clients. Arianee recently announced that Vacheron Constantin will be delivering all its watches with the startup’s blockchain-based certificates by 2021. Other clients include BREITLING, Audemars Piguet, Roger Dubuis and Mugler.
Shanghai-based VeChain also develops a blockchain platform aimed among other things at fighting counterfeiting. The startup placed in the top 1% of Early Metrics’ rated startups and has secured clients such as LVMH and Givenchy. Chainvine is another example of an up-and-coming rated startup providing bespoke blockchain services. One of its main services is the integration counterfeit prevention in the supply chain of wine producers and other food and beverage players.
Not the end all be all of anti-counterfeiting efforts
However, while blockchain technology seems to be a promising solution, experts highlight shortcomings and challenges inherent to its implementation.
Blockchain technology allows you to ensure information has not been altered, but it cannot ensure the integrity of the information recorded in the first place. If a party enters false information onto a blockchain, it will stay there forever. A wholesaler could simply create an entry for a counterfeit handbag and go undetected. Likewise, consumers could be sceptical of information regarding raw materials, catalogued by a brand’s third-party suppliers. Trust in each involved party’s integrity is somewhat necessary for a blockchain ledger to have its desired effect in the luxury market.
Furthermore, as mentioned above, blockchain requires the involvement of all parties to ensure full transparency. This represents a challenge that some companies might not be able to overcome. Vestiaire Collective reportedly halted its adoption of blockchain due to the difficulty in getting all involved brands to collaborate and share information.
Ultimately, blockchain in luxury is still in its early stages. Awareness and adoption rates need to increase for us to see a tangible impact and fully assess its usefulness. Time will tell if it proves as promising a solution as many stakeholders are hoping.