At present, there is a generational, as well as technological change going on in the luxury goods industry. We are seeing a new wave of people move into the market for sustainable luxury goods, as this market is more digitally savvy, as well as conscious of where their products come from.
The process of bringing luxury goods to consumers is often fraught with unnecessarily complex supply chains, and in turn unethical sourcing of goods and materials.
This meeting point of poor supply chain legacy and a new demand by premium goods buyers has seen blockchain technology in luxury goods emerge as a powerful answer to the complex problem of proving sustainability and ethical sourcing for luxury goods brands.
Blockchain, with its ability to simplify and streamline supply chains, as well as provide immutable provenance and proof of ethical sourcing makes it a perfect technology for luxury goods brands — but also for auditors, investors and ultimately their customers.
A New Market, with New Sustainability Demands
Today, traditional legacy supply chains, even for the luxury goods market, are fraught with challenges. The chains themselves are getting exponentially more complex and thus less efficient, but they are also failing to meet the new demands of a changing market and ecosystem for sustainable luxury.
A new demand for proof of provenance of goods, as well as knowledge of ethical sourcing is failing to be met by current supply chain options. No longer is it sufficient to provide the finished luxury goods to customers, there is a growing demand for a sustainable supply chain and sustainable luxury, with customers choosing to spend their money with brands that can deliver on this promise.
Consumers are looking for proof of ethics as well as sustainable sourcing in the creation of their goods. They also demand proof of this from the start of the journey, through sourcing, manufacturing, all the way to delivery.
This is due to millennials setting up in the luxury goods market and Gen Z racing towards it. It is estimated that by 2025, millennials and Gen Z will contribute 130% of the growth in the personal luxury goods market. By 2035, Gen Z will account for 40% of the global luxury goods market. This new customer base is one that is more focused on sustainability and ethical sourcing, but also one that wants to ensure authenticity both in terms of the product, and the authenticity of the promised brand values.
With widespread knock-offs from Gucci handbags and Rolex watches tarnishing the luxury goods market, customers want to know that what they are buying is the real deal, while brands are keen not to lose out on their market share and keen to ensure that their customers can have full confidence in the brand.
The importance of this has grown with customer demand, but also in reaction to the trade in counterfeit luxury goods steadily rising. In 2017, the amount of total counterfeiting reached $1.2 trillion. Counterfeiters are able to exploit the clunky supply chain model as it stands, while unethical producers can also hide their suspect production methods through the manufacturing process, if needed.
Unethical sourcing is such a problem that it has sparked new legislation, such as the Modern Slavery Act, 2015, which calls for companies to be encouraged to be as open and transparent about their supply chains as possible. For many brands, innovations in technology, particularly blockchain technology appears to be the answer.
A New Technology for Sustainability in Luxury Goods
The current limitations of supply chain has meant that more and more retailers and producers are turning to Blockchain technology to give a record of their ethical sourcing practices and help deliver sustainable luxury. Blockchain and sustainability go hand in hand, with its public ledger that is secure, unalterable, traceable, and distributed.
Blockchain is often associated with cryptocurrencies, but its underlying technology is perfectly suited to providing evidence of sustainability and ethical sourcing for luxury goods makers. Primarily, it is blockchain’s ability to provide full oversight through the entire manufacturing process, as well as publicly available transparency, that is most prized.
However, it is not just the goods and materials in the luxury goods market that fall under an ethical scope, fair labour practices can also be expedited in the production of luxury goods. By tracking and tracing the production of goods through the supply chain, the manner in which it was created can also be transparent and enable ethical labour practices.
For example, luxury goods such as electric vehicles, smartphones and laptops — depend on lithium-ion batteries, and thus, cobalt. However, mining for cobalt carries a high cost in human suffering as it comes from small-scale mines in the DRC, where children and adults labor under harsh and dangerous conditions to extract ore by hand.
However, with blockchain’s shared, distributed ledger it is possible to track production from mine to battery to end product, capturing information on the degree of responsible sourcing at each tier of the supply chain.
Downstream companies can access the verified proof that they support and contribute to responsible sourcing practices, which they can then share with auditors, corporate governance bodies and even consumers.
On ethical labour practices, blockchain too comes into its own and is being piloted to give workers a voice. In a garment factory in Mexico, a blockchain-based worker well-being system has been piloted. The idea is to create a mechanism to anonymously and securely track and measure worker well-being with an immutable and digitally authenticated blockchain solution.
There is also a huge movement around blockchain and sustainability. By utilising a shared public ledger to track everything from raw materials to finished products, blockchain streamlines the workflow, which, in turn, enables everyone to see all activity taking place along the chain.
Meeting the demands of sustainable luxury and ethical sourcing is not only beneficial for brands from a moral standpoint, it can also be a way to boost revenue. According to a 2015 report from Nielsen, 66% of global consumers and 73% of millennials said they were willing to pay more for sustainable brands, an increase of 55% and 50% from 2014. And, it must be remembered that millennials are expected to be half of the luxury market’s target audience by 2025.
Digital Product Passports as an Option for Sustainability
Many brands are already turning to solutions such as a digital product passport as one option of proving sustainability, and as a way to boost consumer confidence in their brand and bolster revenue. The idea of attaching a digital product passport to luxury goods solves many of the new customer demands in this market.
Whether it’s a new or second-hand item, a person can trace the origins of their purchase right through the supply chain, ensuring that their item is 100% authentic or that it complies with ethical sourcing and sustainability practices.
These digital passports operate through non-fungible tokens (NFTs), another area of blockchain that has become incredibly popular of late. NFTs, which are a one-of-a-kind token that represents a unique good or asset, are perfect to use as the basis of a digital digital passport where an item’s provenance and sustainability credentials can be authenticated.
Real-time digital certificates can be created for products that enable both brands and consumers alike to view information related to their product, such as source, provenance, ownership, warranties, repairs etc.
These digital certificates are linked to the physical product, can be configured inline with the actual product and can be made viewable via dedicated applications. All this means that customers can have a transparent overview of both the provenance and insight into the sustainability of their product.
Brands on the level of LVMH, Richemont and Prada have already turned to blockchain technology to create digital passports with powerful product tracking and tracing services.
Moreover, Swiss conglomerate Compagnie Financière Richemont – which owns Cartier, Vacheron Constantin, Piaget, and Van Cleefs and Arpels, among other luxury brands is also utilising blockchain technology as it aims to participate in a more seamless resale market by way of its NFT digital passports for luxury goods.
Proving Sustainability and Ethical Sourcing in your Organisation
While applications of digital product passports are increasing month on month, for many luxury brands, knowing where and how to best utilise these innovative solutions can be a challenge.
At Protokol, our experts offer blockchain consulting, NFT consulting and Web3 consulting services as well as our blockchain engineering services to help organisations understand where a digital passport solution could add real value to their business and help deliver on the promise of sustainable luxury.
As an enterprise blockchain service provider, we’re also helping luxury goods makers take the next step when it comes to not only proving sustainability and ethical sourcing of their products, but also utilising innovative digital product passport solutions to enhance the customer experience and unlock new revenue streams.
We can create highly customisable digital passports that are secure, interoperable, user-friendly, and work with your existing IT infrastructures. Our solutions contain all that’s needed to authenticate the source of a product to its transfer history and to help provide proof of provenance for luxury goods, as well as utilising blockchain technology to prove sustainable sourcing. All of which will increase consumer confidence in your brand and help drive growth.
Take the first step today and let Protokol help your organisation uncover the benefits of blockchain or digital product passports for your brand. Book a consultation with our blockchain experts or learn more about the Protokol Digital Product Passport here.