Luxury Brands Try On Blockchain

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Blockchain has taken the financial world by storm over the past decade. The growing popularity of bitcoin and the proliferation of other cryptocurrencies has been the most visible piece of this transformation.

Blockchain technology has many potential uses beyond cryptocurrency, though. Earlier this year, three of the most prominent names in luxury goods (LVMH, Prada Group, and Richemont\’s Cartier brand) announced a partnership to use blockchain to give customers a secure way to learn more about the items they are buying.

[callout]If luxury heavyweights want to transform the industry and retake as much business from counterfeiters as possible, they should start by rolling out the Aura blockchain platform as broadly as possible within their own businesses.[/callout]

Most importantly, blockchain could be luxury brands\’ best option for countering the rising tide of counterfeit goods. However, for the new Aura Blockchain Consortium to become a game changer for the luxury market, the founding companies need to be more aggressive about turning the Aura platform into a universal standard for all luxury items.

A Seemingly Intractable Problem

Sources differ on the size of the market for counterfeit luxury goods, but all agree that it is massive. Frontier Economics estimates that the total counterfeit goods market is will approach $1 trillion next year. As of 2017, luxury goods accounted for $98 billion of the counterfeit market, and the volume of counterfeit goods is growing rapidly.

Luxury brands have recognized counterfeiting as a major problem for many years. For example, LVMH has a team of at least 60 lawyers dedicated to anti-counterfeiting measures.

However, the growth of ecommerce has made it harder than ever to crack down on counterfeiters. Many brands have gotten caught in a game of whack-a-mole where they succeed in getting ecommerce sites to take down listings for fake goods only to see virtually identical listings pop up shortly thereafter.

Customers make the counterfeit market disruptive. Historically, many counterfeiters have sold knockoffs at absurdly low prices. Only the most gullible consumers might believe such items are genuine. Instead, this market segment is driven by consumers seeking out cheap knockoffs that look approximately like luxury brands\’ merchandise.

Brands can try to combat these knockoffs, but the market for cheap fakes is so enormous that it\’s hard to make a dent in the flow of merchandise. It\’s also hard to justify the effort. Realistically, people who seek out $50 knockoff luxury handbags won\’t pay for the real thing.

However, another segment of the counterfeit market is more troubling for luxury brands: higher-priced, better-quality fakes. These items are close enough to genuine items in price and appearance to fool some consumers and can thus cannibalize luxury brands\’ sales. Fortunately, to the extent that buyers of these items are being duped into buying fakes, luxury brands have a much better shot at cracking down on this type of counterfeiting.

A New Blockchain Consortium

In the past, luxury brands have used certificates of authenticity to help consumers distinguish between genuine items and fakes. However, such certificates themselves can be counterfeited.

LVMH, Prada, and Cartier have formed the Aura Blockchain Consortium to address this issue. Participating brands create a unique digital ID when an item is produced. The product\’s history (including secondhand sales and any repairs), sourcing and sustainability information, and proof of authenticity will all be recorded in a digital ledger using multi-nodal private blockchain technology. Essentially, the information is stored in a decentralized fashion and cannot be erased or changed, making the system extremely secure. Customers will be able to log in to the platform to view the details for their items.

Aura began as an in-house project at LVMH a couple of years ago. Rather than trying to make the blockchain system a point of differentiation from other luxury brands, the conglomerate opted to turn it into an open platform to boost its adoption and minimize customer confusion. This was the right idea. Building consumer awareness of the Aura platform is paramount, so that anyone thinking of buying a luxury item will know that they can verify its authenticity through the Aura blockchain system.

Indeed, the three partners say they want to \”promote the use of a single global blockchain solution open to all luxury brands worldwide to provide consumers with additional transparency and traceability,\” according to a joint press release. They have held discussions with Kering and numerous smaller luxury brand owners about joining the consortium.

Better Than NFTs

Using blockchain technology to enable consumers to authenticate the provenance and sourcing of luxury goods may seem like a fairly obvious move. But over the past year, the potential for luxury brands to capitalize on blockchain technology by creating and selling NFTs (non-fungible tokens) has captured far more media attention.

An NFT is a unique digital asset. Whereas one bitcoin is worth just as much as any other, an NFT has an identification code that distinguishes it from every other NFT, potentially giving it scarcity value. NFTs have taken the art world by storm this year. In March, a collage by digital artist Beeple — who had never sold a piece for more than $100 at this time last year — sold for an incredible $69 million in a Christie\’s auction.

Some luxury brands have already started to experiment with selling NFTs, viewing them as the next generation of \”skins\” that online game players can buy for their avatars. A fashion NFT might entitle the buyer to post pictures of themselves \”wearing\” a digital garment using augmented reality or virtual reality technology. Alternatively, the buyer\’s avatar in a game could wear the outfit.

NFT enthusiasts — and the entrepreneurs behind various NFT-focused startups — believe that digital fashion holds almost limitless potential for luxury brands. However, this looks like wishful thinking. For one thing, there is limited overlap between crypto enthusiasts (who are mostly young, male, and not terribly wealthy) and traditional buyers of luxury goods.

Meanwhile, luxury brands need to balance the growth potential of NFTs with the risk of brand damage. To be blunt, NFTs may prove to be a fad. If so, brands that dabble in NFTs could come off as desperate to cash in on their brand names and logos rather than creating products with high-quality materials and workmanship. Luxury brands can\’t afford to alienate their core customers or cede their aura of exclusivity. (Just ask Michael Kors.)

The concept behind the Aura Blockchain Consortium is less flashy than NFTs but far more promising for luxury brands. It gives them a potent tool for fighting counterfeiters, potentially enabling them to grow their core market by reclaiming revenue currently being lost to high-quality knockoffs.

Will It Catch On?

Looking forward, one of the biggest unanswered questions is how many brands will use the Aura platform. The founding companies are certainly talking a big game, offering to let any luxury brand join the consortium, including smaller independent brands.

Yet for all their talk of a \”single global blockchain solution,\” LVMH, Prada, and Richemont have hardly gone all-in on their Aura Blockchain Consortium. Only three out of LVMH\’s massive stable of brands are active on the platform. Similarly, only Prada\’s namesake brand and Richemont\’s Cartier brand have signed on.

If these luxury heavyweights want to transform the industry and retake as much business from counterfeiters as possible, they should start by rolling out the Aura platform as broadly as possible within their own businesses. The goal should be for luxury customers to automatically ask to see an Aura blockchain certificate before making any big-ticket purchase. Half measures won\’t get the luxury industry there.

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