Blockchain for compliance in the luxury sector
By Vincent Pignon09 juillet 2020
The luxury sector is constantly on the lookout for innovative solutions, and the blockchain appears to be one of the most promising avenues to explore. We have seen Richemont with Vacheron Constantin, LVMH with Louis Vuitton, and Kering with Ulysse Nardin, all adopt blockchain technologies to fight counterfeiting; but the potential of blockchain-based applications is vast and remains largely untapped.
Luxury brands have found that ensuring that materials and suppliers are in compliance with standards can be a strategic asset, allowing for audits without relying on declarations that may, at times, lack transparency. This makes good sense, because when things go wrong, it is the image and reputation of the luxury brands and sectors that are on the line. Witness the damage from the recent report published by the Swiss Federal Audit Office, which brought to light significant limitations in the control procedures for gold imported into Switzerland. In my view, being able to guarantee that suppliers respect their commitments in terms of ethics, traceability, sustainability and compliance throughout the production and supply chain is becoming increasingly critical.
Now, the blockchain is extremely well-suited to conformity auditing, whether in the banking, medical or luxury sectors. First of all, it is unalterable: distributed ledgers ensure the authenticity of information and thus provide an effective weapon against fraud. Secondly, it guarantees transparency throughout the value chain to make sure, at every stage, that supplier components are compliant before assembly. By digitizing and documenting supplier compliance, the blockchain makes it possible to bring more transparency to the products and, above all, to verify their compliance.
A blockchain solution would make the information and certification readily available, at any time, to brands and customers, as well as to auditing authorities. This is something towards which luxury houses should start pooling their efforts, in the form of setting up a consortium to jointly agree on standards to be applied to materials and suppliers. This would give suppliers, retailers, repairers and certification bodies access to this information in order to check, at any time, that the standards are being respected.
In addition to ensuring compliance, the blockchain's transparency and time-stamping features also make it easy to track the value chain. As far as the secondary market is concerned, each product (watch, jewelry, etc.) could become a digital asset and be treated as such, with a listing on a stock exchange and a secondary market for those who wish to resell a piece. Tokenization creates a way of exchanging valuables that simply did not exist before. This application of the blockchain, already in use for other illiquid assets such as real estate or artworks, could facilitate acquisition, valuation, resale and the fight against counterfeiting. According to a recent study, Boston Consulting Group and Vestiaire Collective estimate the second-hand luxury goods market at 36 billion in 2021 with an annual growth of 12%. The blockchain represents not only an opportunity for the luxury industry to showcase its capacity to innovate, but a chance for the sector to tackle major concerns and open up new possibilities.
Vincent Pignon is the CEO of Wecan Group
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