Do luxury goods companies need blockchain?

August 21, 2018
Chris Wheal

In an industry where provenance and branding are everything, do luxury goods companies get blockchain? There’s evidence many do. But it’s an uneven picture, up against considerable owner ignorance and brand destruction worry.

Brand roots need not just to be told but, increasingly, proved. Blockchain means, for example, that the stitching and knotting of a Persian rug or a piece of suede can be near-instantly traced to the individual maker, whether they occupied a work bench in Tehran or Burkina Faso.

Starting work on a bespoke leather wallet, Italy

Bullet-proofing the brand

Mark Noorlander is the co-founder of Rotterdam-based Il Mio which provides blockchain counterfeit solutions to luxury goods companies. He works with a number of high-performance brands in Milan, from high-end clothes to supercars.

“They are all very, very interested in blockchain technology. They all understand the business benefit 100%,” he says emphatically. What about the shareholders of high-end companies. Do they understand the business case for blockchain?

“No. Actually, the shareholders are [often] holding them [the company] back. They are more afraid than the companies. The companies know the marketing value and that means sales. But the shareholder worry is that it [blockchain] might be a wrong decision. So it’s the opposite.”

Ferrari Dino 246 GTS, Berlin 2013; counterfeiting worry extends to supercar parts as well as traditional textiles

Risk of job loss

Hysteria levels can, in some cases, be extreme if brand damage risk is sensed, however unlikely or poorly understood. Noorlander – he employs 25 blockchain developers, a huge amount compared to many similar operators in this area – says this tension can cost some staff their jobs. “Some people can get fired if,” he pauses, choosing his words, “they say the company is going to take on blockchain technology.”

Fatto in Italia: provenance is all, especially for smaller companies

In contrast, a smaller company, privately held, stands a much better chance of integrating blockchain tech.

“A lot of brands in Italy are struggling that they are truly Italian. I’m not talking about big-name Italian names where their goods were designed in Italy,” he told OpenLedger. “I’m talking about those which are really made in Italy. Smaller brands. They want that stamp, made in Italy. Putting a label in a shoe doesn’t do it. You can counterfeit it easily.”

High-end watches are vulnerable to copying though quality varies

Rapid response

Ron Millow is the co-founder of CryptoNumiz which buys and sells virtual artwork via a digital cryptocoin (Numi) on the Ethereum network. The art lux sector is aggressively pursuing blockchain with a number of projects “that will open entirely new market tunnels” he says.

Imagine someone sells a piece of digital art using blockchain and the new owner lives halfway across the world. “If that piece somehow ends up being printed into a physical representation and displayed or resold illegally, it would be a question of seconds to find out who owns it and where, and the evidence of its forgery is immediate.”

That’s a no-brainer for the legal profession too, he adds.

From modern art to textiles, a blockchain solution is likely available

Consumer pressure is driving change

Some 900 miles south, Selim Fendi is the CEO of Monaco-based gold production company USAVE. USAVE deploys blockchain to trace and track eco-friendly gold.

Fendi has 20 years’ experience in the precious metals industry; he also knows first-hand how sinuous and volatile the market is. Despite rising Trump-Iranian tensions which, some predicted, would keep valuations strong, the gold price has steadily fallen from around $1,350 in late April 2018 to under $1,185 (late August). That’s a -13% price slip.

Child gold miners in Shinyanga, Tanzania 2010

But the day-to-day per-ounce price matters little to consumers who are increasingly piling pressure on luxury goods companies to source responsibly. “We’d rather refine gold that is 85% pure than 65% because it takes less time,” Fendi told OpenLedger. Gold purity is higher in Africa – Mali, for example – than in Latin America.

He wants the extraction process to be as organic as possible, bypassing use of illegal mercury (which can poison the human central nervous system though the toxicity is often not immediately apparent).

All that glitters – window shopping in Manhattan

The risk of using child labour – around 12% of global gold produced comes from low-tech mines where child labour is regularly used, claims the UN – also needs to be handled.

Control issues

Pressure on strong supply chain ethics brings higher prices, often. “To a certain extent they all [luxury brands] have an interest to abide by a code of responsibility but some aren’t willing to pay the extra premium,” Fendi admits.

The supply chain needs to be trusted, wherever your market is

Even if the supply chain is ethically robust, luxury goods company cannot completely control their inventory. Try as they might to avoid shortages, there are times when there’s pressure to accept second-best. That means many companies want more direct supply chain contact “to double-control that the growth really comes from legitimate sources”.

The blockchain interest is relatively recent says Fendi – many brands were sceptical even two years ago. But broader acceptance got a boost at the start of 2018 when Anglo American diamond unit De Beers confirmed it would track gems and stones via blockchain from the moment they were dug out of the ground.

De Beers move was pivotal

“It’s a bold step going public with a pilot, but we’re going public because we’re interested in the entire industry participating,” Bruce Cleaver, CEO of De Beers, told Reuters.

Keep your edge

Break down the individual piece of a luxury item and you have multiple stories that can be traced and proven:

  • How it was assembled
  • Who assembled it
  • Who designed it

String these narratives together and you increase the impression of authenticity. This surfeit of information has much potential for marketeers and brand trust.

Crocodile tears

Crocodile skin shoes – there’s an industry protocol not always adhered to that a pair of crocodile leather shoes must be made from one crocodile only and the leftover skin be thrown away.

In a while, crocodile – from croc farm to tannery

When supply chain companies register a piece of crocodile leather on the blockchain, the size and date of the skin is detailed. That means several pairs of shoes cannot be made from one reptile, preserving the value of the finished shop product.

The sustainability argument is more open-ended – as are the factory farm conditions some animals are forced to live with, before being killed and the skins sent to tanneries.

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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