How Blockchain Technology is Applied in the Luxury Goods Industry
In today’s world, ESG is becoming a higher priority for regulators and industries alike. As a result, more companies are looking to ensure every facet of the manufacturing process is transparent, from sourcing raw materials to packaging and shipping.
Trends show that consumers also demand proof that the luxury items they buy are authentic. For example, a Vogue business study showed that authentication of luxury goods was important to 96% of survey respondents who purchased pre-owned luxury goods.
With trust a high priority within the luxury goods industry, blockchain technology enables greater transparency, quality assurance and corporate social responsibility.
In today’s post, we’ll share some of the ways blockchain technology is making a difference to the luxury goods industry.
About the Luxury Goods Industry
The luxury goods industry is one of the fastest-growing economic sectors globally. It had a total market valuation of US $309.6 billion in 2021, and despite the pandemic and other economic shocks, the industry is expected to grow in 2022.
The luxury market is considered one of the few recession-proof industries in the global economy as it has grown for more than a decade without any signs of decline. Unfortunately, a side effect of this growth is a market rife with counterfeits.
The problem with counterfeits
Luxury goods are the second most counterfeited type of good in the global market. The demand for fake luxury goods is enormous, and some estimate their value to be between 20% to 25% of the market. That alone makes counterfeits a multi-billion-dollar industry.
Among the most counterfeited items are luxury watches. Every year, nefarious players introduce 40 million fakes into the global economy. The most commonly copied brand is Rolex, with forgeries accounting for 70% of brand sales. But the problem affects the entire sector and costs companies millions of dollars annually.
The second most commonly affected item is luxury bags. For example, it's estimated that 9 out of 10 printed Louis Vuitton handbags are counterfeit. The counterfeit economy wreaks havoc in the secondary market and is a nightmare for online retailers.
One of the ways these items make their way into the economy is through return policy abuse. Scammers buy a luxury watch or bag. Then, they return a fake. This has become easier in the online world, as the people receiving the bag rarely are the same as those who sold it. Also, staff rarely have the training necessary to spot fakes.
How blockchain technology is being used to fight counterfeits
This is where blockchain technology enters the picture. A distributed ledger can record an authentic item’s characteristics, and, by using a real-world tag that ties the item with the information on-chain, the goods can be authenticated.
The information is captured in a token that represents a unique item, like an NFT. This is precisely what several projects are developing and deploying as a solution. Each caters to a different luxury industry sector to address those specific challenges.
Some examples are:
Luxfi: This project helps owners create NFTs of luxury watches and bags. The information authenticating the item is recorded as the NFT’s metadata, and a QR code is attached to the physical item. The retailer can then prove that the item is authentic, and a prospective buyer can also review the information.
Masterworks: This project creates NFTs of valuable and original paintings. The company tokenizes fine art to resell it, but before doing so, it authenticates the original piece. A team of certified curators inspect every item before it's tokenized. The information is then added as NFT metadata and preserved on-chain.
Fuchsia: This project is a luxury brand that produces women's sandals. They save the information about each pair sold on-chain, and that way each one can be authenticated later. Also, the sandals’ provenance can be proven, as they are handmade and not mass-produced.
Another problem with luxury goods is that they are difficult to resell. Most of the time, owners have to use pawnshops to resell items. Yet, these businesses are notorious for being safe havens for stolen goods and for undercutting an item’s true value.
As NFT verification enables you to purchase authenticated goods via a dApp, those who sell luxury items can gain access to a global buyers’ market.
Luxfi: The project has created an online marketplace for NFTs that represent tokenized luxury goods. In this marketplace, information about items is on display for anyone to verify. As a result, owners can quickly find buyers, and customers can check on the details before making a purchase.
Masterworks: Similarly, this project creates an NFT marketplace for tokenized art pieces. This platform’s unique offering is to fragment the NFT and allow investors to purchase portions of it. For example: people could own 1% of an Andy Warhol work and other pieces by recognized artists.
Blockchain is changing how we trade luxury goods
Blockchain is set to transform the luxury industry. It brings meaningful innovation to one of the fastest-growing economic sectors and changes how people think of the process. This is only one example of how distributed ledgers are impacting economic sectors across different industries.
NFTs are crypto assets just like any other token. Sometimes their more casual and artistic nature can obfuscate this very crucial point. It's important to know that all the same rules and procedures to maintain a good chain of custody of a Defi token, or cryptocurrency, also apply to NFTs. They are subject to many of the same vulnerabilities and oversights.
Core to the issues blockchain technology is solving for the luxury goods industry is NFT ownership and custody is just as important for NFTs as it is for crypto tokens and coins. At Unido, we are supporting Dapps by providing a secure NFT self-custody solution for luxury goods businesses. Be sure to join our Discord community to learn more about how we can support your industry in breaking into the digital assets ecosystem.
About Unido EP
Unido EP takes the complexity and expense out of digital asset management for organizations with sophisticated corporate governance needs. Our patented, end-to-end platform seamlessly automates corporate governance and self-custody of crypto assets so you can securely store, manage and invest in crypto without massive overheads.
Unido EP comes with a web-based dashboard and a decentralized application (dApp) featuring a robust set of DeFi tools, easy-to-set-up authority regimes and iron-clad security. All of this is inside a complete digital asset management platform, built with financial institutions in mind but tailor-made for any organization or individual’s needs.