Counterfeits in the fashion industry are on the rise
The global luxury resale market in 2021 was valued at USD 32.61 billion and is likely to reach USD 51.77 billion by 2026. In recent years, sales of pre-owned luxury goods have increased rapidly, and the stigma associated with the consumption of used luxury goods has been with disappearing. According to Global Luxury Resale Market Report 2022, the luxury resale market is estimated to grow at a CAGR of 9.68% during the forecast period 2022-2026 [1]. Despite the sustainability associated with this trend, the rise of used fashion goes hand in hand with the rise of the counterfeit market.
According to data from Global trade in counterfeits report by the OECD and EUIPO, trade in counterfeit goods amounted to approximately $449 billion in 2019. The same report indicates that trade in counterfeit or pirated goods accounted for 2.5 percent of world trade and approximately six percent of EU imports in 2019. Although some luxury brands has embraced the resale industry as a growing luxury retailer in the fashion industry, some brands are choosing to be cautious and take immediate action against potential counterfeiting. Read about trademark infringement lawsuits filed by fashion giants Chanel and Tiffany against online marketplaces such as The RealReal Inc. and eBay in this article.
To combat counterfeiting, several brands are trying to develop more effective luxury resale authentication strategies to ensure consumers are getting the real product. One of the most promising solutions currently lies in blockchain technology.
What is Blockchain?
A blockchain is a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems. Blockchain is a perfect way to deliver that information because it provides instant, shared and completely transparent information stored on an immutable ledger that can only be accessed with the permission of network members. The innovation of a blockchain is that it guarantees the fidelity and security of a data record and generates trust without the need for a trusted third party. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, in maintaining a secure and decentralized record of transactions.
How does Blockchain work?
The main concept behind blockchain is to create a single database to be spread across multiple network nodes in different locations. This database contains and preserves the exact and transparent sequence of events that cannot be changed or deleted. Such a record could be a list of transactions, but it is also possible for a blockchain to contain a variety of other information such as legal contracts, government identifiers or a company’s product inventory.
When a new transaction is recorded, it is transmitted to a network of computers spread around the world. This network then verifies the legitimacy of the transaction, and then groups it with other transactions into a separate “block”. The type of data stored in a block varies based on the blockchain. If the data is about Bitcoin, the blockchain maintains information about a transaction such as sender, receiver and transaction amount. These blocks appear in the same chain and each additional block strengthens the verification of the previous block and thus the entire blockchain. This process creates an accessible history of all recorded transactions and prevents unrecorded changes to the system.
How can blockchain help brands resist counterfeiting?
Because blockchain gives a product a unique identifier, it allows tracing its entire history from raw material to the point of sale and finally to second-hand markets. In this way, brands and consumers gain access to digital evidence of the product’s authenticity. Smart tags are used by companies to implement blockchain identification of provenance. They are linked to products to identify the place of production, track real-time location and assign specific information at different stages. When a smart chip is attached to a product, data for each new transaction is sent to the blockchain along with the corresponding time stamp, creating a layer of trust for the data by making it immutable. This makes it easy for affected parties to track a shipment and see its history right from the start.
Many well-known luxury brands such as Louis Vuitton, Prada and Christian Dior are already implementing advanced blockchain technology to combat counterfeiters. Louis Vuitton Moet Hennessy (LVMH), Prada and Cartier teamed up to create Aura, the first blockchain system focused on providing a platform for tracking product history and proving the authenticity of luxury goods. Microsoft and blockchain-native company ConsenSys are providing assistance in developing the technological infrastructure for this platform.
The rise of blockchain technology offers great potential for platforms that offer tailored tools to businesses to tackle counterfeiting. They draw on distributed ledger technology to create a digital footprint for the entire supply chain. Platforms streamline the flow of money and services in the supply chain with automation, eliminating the possibility of fraud. Blockchain-powered solutions designed to combat counterfeiting can be easily integrated with legacy systems. This makes blockchain technology a cost-effective solution for the fashion industry to resist counterfeiting.
