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Kaleisdoscope diana satellite
May 27, 2019

How Luxury can take over blockchain technology

Through the know-how of its exceptional craftsmen and the strength of its intangible power, luxury creates desire and arouses many desires. There is a problem that threatens its fundamentals and from which its houses are struggling to protect themselves: counterfeiting.

Internet has become a prominent flow channel for imitations of iconic products, which are becoming more and more sophisticated visually, especially in the second-hand market. Beyond the financial cost (60 billion per year in Europe), the resulting banalization of the product deteriorates the brand image and can even, in some cases, seriously damage the health of its buyers.

Considered by retailers to improve the store experience, blockchain can also serve luxury through its authentication role, a role that the LVMH group wishes to use for the traceability of its brands. Enabling unfailing traceability and recording all the alterations suffered by the luxury product, blockchain is able to restore the customer's trust in the brand and its products.

Product counterfeiting: a scourge for the "dream factor" of luxury brands

Counterfeiting is an endemic problem that luxury brands are trying to curb at all costs. In its 2018 report, Cabinet R Strategic Global estimated that sales of counterfeit products represented a worldwide loss of nearly €83 billion for luxury brands, and that this loss is worsening.

The Internet and social networks are the preferred flow channels for product counterfeiters. Ghost Data estimates that nearly 20% of posts on Instagram feature counterfeited products. It has identified 50,000 accounts promoting or selling counterfeits, an increase of 171% since 2016.

Between 1994 and 2011, global seizures of counterfeit products increased almost 45-fold
, from 200,000 to 8.9 million products.

In France
, the loss is estimated at 5.8% of the sales of the sectors concerned (clothing, footwear, accessories, etc.), or €6.8 billion.

The Colbert Committee, which represents more than 80 prestigious brands, estimates that counterfeiting would cause a 10% loss of turnover for the sector.

"Image damages are huge, because our business is to create unique and original products. Counterfeiting trivializes our image," deplores Jean Cassegrain, Longchamp's general manager.

Less well known, but just as worrying, the phenomenon would lead to the destruction of 435,000 jobs in France, according to a study by the European Union Intellectual Property Office (EUIPO).

Beyond the economic cost, counterfeiting is damaging to the reputation of the luxury house and destroys trust in the high quality of its products
. In addition, the counterfeit product poses health risks. Among the product categories of greatest concern to the French respondents, leather goods and accessories are ahead (96%), followed by watches (94%), perfumes (94%) and sporting goods (94%). In Unifab's view, "the consumption of counterfeit products constitutes a real social and health threat because it quietly intrudes into everyone's daily life".

Second hand market: a complex environment with uncertain traceability

More than a third of French people have already bought counterfeit products without knowing it.

When purchasing a luxury product in an official distribution channel, the client benefits from numerous guarantees to reassure him/her: certificates of authenticity, a neat place of sale, marking as to the origin of the product (labels, hallmarks) and brand invariants (patented logos, signatures, technology, shape/colour).

Nothing so sure on the secondary market
, whether in resale between individuals or in parallel distribution channels, maintained by unwanted professional sellers (such as Chinese Daigous), who may not respect the mandatory standards in terms of product quality and distribution.

While it was sometimes practiced when buying bags, counterfeiting now also affects sneakers, these high-end sneakers, resulting from limited edition collaborations (drop) with more confidential personalities or streetwear brands, which collectors are competing for at a golden price on the second-hand market.

On the secondary market, individuals and sales professionals are evolving
. Some, misguided, abuse the disbelief of some customers, persuaded to make a good deal to sell them counterfeit goods.

In a country like France where "made in" is a decisive factor when concluding a sales contract, reproducing knockoff proofs has become the counterfeiter's goal. Thus, some buyers were deceived by shoes stamped "made in" Italy, even though they came from Asia.

This is why e-tailers specialised in the sale of second-hand luxury products have a team of experts who make it a point of honour to detect the slightest counterfeiting and remove it from the distribution channel. Most of the time, the authentication of the parts is done with the naked eye and based on the knowledge of the historical products of each brand as well as on the expert. In case of doubt, the analysis is time-consuming and involves the information of every visible detail of the product (quality of the material, condition of the seams, cleanliness...)

To secure their goods, luxury brands often use costly and randomly efficient tools
such as RFID chips, which are removable by nature.

Products generally have three levels of markings
: the first, accessible, because everyone can see them (brand, logo, emblem), the second, requiring a simple detection device (hologram, date code, magnetic bar codes, RFID chip, or invisible, luminescent marking and finally a third level composed of a coding system (synthetic DNA...). The first and second levels are the most exposed to the risk of counterfeiting.

Blockchain at the service of authentication excellence

Thanks to its data storage and transmission process based on direct sharing, blockchain is one of these new technological levers that can influence the authentication and traceability mechanisms inherent to the requirements of the luxury industry. More and more Luxury houses are relying on the blockchain for its authentication role, such as the LVMH group, which wants to carry out a pilot project for its Louis Vuitton and Dior brands, or the jeweller De Beers.

Unaffected and offering the possibility of conducting advanced digital verification, the blockchain is likely to have a significant impact on the level of uncertainty as to the authenticity of a product and to restore customer confidence in the excellent manufacture of luxury products.

As the expert is, as the saying goes, "the one who is the least mistaken", his control cannot be infallible.

Through its data timestamping service, blockchain is able to certify the origin of the finished product, the workshop through which the product passed, but also to inform the location of producers/suppliers who supplied different raw materials used.

Jeweller De Beers has thus chosen to opt for blockchain technology in order to protect himself from the presence of raw materials that violate the company's quality and ethics charter. Thus, blood diamonds, which are ethically reprehensible because they are linked to armed conflicts, are excluded from its network. The unique registration for each stone is grouped in a shared register that provides information on origin but also on clarity, carat and colour.

The blockchain is able to ensure the traceability of the product throughout the supply chain, from the extraction of the raw material to its place of sale.

The blockchain thus makes it possible to produce a digital certificate of authenticity deemed unforgeable and recording all the history of the product and in particular its possible hazards (transfer of ownership by inheritance, resale or theft, damage).

This data will thus be able to complete the brand's CRM/customer file in order to fine-tune customer relations and thus strengthen customer loyalty.

Blockchain solution for tracking Ownest liability transfers makes it possible to optimally secure products. Ownest's use of open blockchain technology ensures the authenticity and immutability of the data. Indeed, only such a blockchain typology is likely to offer a real probative force to your product in the event of a dispute.

The solution makes it possible to offer a service that goes well beyond the declaratory because, relying on the transfer of individual responsibility of the actors, it is in the interest of both parties concerned to ensure the accuracy of the data so as not to be harmed to the benefit of the other. The digital tracker of its solution allows you to know at any time who has individually handled the product throughout the supply chain. This allows its teams to trace the origin of the product and to know who was the first to send the package.

The blockchain will guarantee buyers that they have acquired an authentic product that respects the brand's quality and ethical charter
, regardless of the distribution channel. This initiative will allow luxury brands to increase their degree of transparency as to the origin of their product and remove any ambiguity.

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