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How Luxury Fashion Learned to Love the Blockchain

Amid growing concern about the proliferation of counterfeit luxury goods, LVMH is reportedly developing a system to authenticate merchandise using blockchain technology, while rival Kering is advising a non-profit with the same goal.
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PARIS, France — Luxury brands were notoriously late to embrace e-commerce and social media. But some of the industry’s biggest players are determined to be ahead of the curve on blockchain.
LVMH, the world’s largest luxury conglomerate, is planning to use the technology to track luxury goods and prove their authenticity, blockchain news site CoinDesk reported last week. The platform, dubbed “Aura,” is expected to go live as soon as May with Louis Vuitton and Parfums Christian Dior, before being extended to the group’s other brands and competitors.
Meanwhile, Paris-based non-profit Arianee, which boasts advisors from LVMH rivals Richemont and Kering, is preparing to launch a similar database collectively managed by participating brands. Pilots are planned for later this quarter.
Arianee and LVMH are addressing the same problem: how to safeguard the authenticity of luxury goods in a market flooded with strikingly similar fakes. The global market for knock-offs is booming, with various estimates totalling annual sales of fakes in the hundreds of billions of dollars. The rise of online resale sites is creating a new market for counterfeits that has resisted traditional methods of policing.
Blockchain is the catch-all term for technology that permanently records transactions in a digital, tamper-proof database. Information is distributed across a network of computers rather than being controlled by a single entity, and is accessible to anyone in the network, but cannot be altered or deleted.
Blockchain’s highest-profile use is to enable Bitcoin and other crypto-currencies, but the technology is beginning to take hold in the global supply chains of large companies. Walmart will soon require suppliers of leafy greens to put their produce on the blockchain, making it easier to trace tainted vegetables back to their source.

What the blockchain can do is form a database that many companies agree with the results of.

In the opaque, highly competitive world of luxury fashion, blockchain’s main role is to connect brands and retailers that normally wouldn’t share information with rivals. For example, consignment sellers and even individual consumers could verify an item’s authenticity by comparing its digital signature to entries in a decentralised database. Brands could similarly track materials to ensure they were produced by ethical manufacturers.

“Many people apply blockchain to a project that a database could be used to do,” said Ken Seiff, venture capitalist and managing partner at Blockchange Ventures. “What the blockchain can do is form a database that many companies agree with the results of.”

In the diamond industry, big brands like De Beers and smaller start-ups like Taylor & Hart use blockchain to help trace their supply chains from mine to shop floor. De Beers led an industry effort, along with five other diamond manufacturers, to develop an open-source blockchain platform called Tracr, announced in May last year.
Taylor & Hart partnered with blockchain start-up Everledger. Currently, the jeweller is using the technology to authenticate the provenance of its diamonds. Chief executive Nikolay Piriankov said he hopes to introduce a “blockchain wallet,” where customers could keep appraisals of their jewellery. An easily accessed, un-forgeable appraisal would help with insurance proceedings, and give customers a greater sense of ownership for custom-made designs.

Blockchain is kind of a buzzword, most people use it without exactly knowing what's behind it.

Of course, a database is only as good as the information entered into it. A blockchain ledger won’t prevent a wholesaler from creating an entry for a counterfeit handbag, or a supplier of exotic skins falsely claiming to have sourced from ethical farms, or a brand’s warehouse manager from mistakenly listing 500 dresses instead of 50. And once in the blockchain, those lies and errors can’t be altered or removed. 
LVMH’s use of blockchain to ensure its products’ authenticity partially side-steps that issue.  Consumers and secondhand retailers would have little reason to doubt that each Louis Vuitton shoe or bag entered into LVMH’s database is authentic. However, trusting the brand’s third-party suppliers to accurately catalogue raw materials requires a greater leap of faith.
The company may also struggle to bring rivals on board. Though the data collected can’t be altered, LVMH would retain ultimate control over the technology itself, potentially dictating what would be tracked.
LVMH declined to comment.

IBM launched a similar service to track shipping containers with A.P. Møller Maersk, the world's biggest shipping line, as its partner. Other freight movers have been slow to sign on, however.

“Most clients didn’t want to jump on a platform because they felt IBM was going to be the one to dictate where the platform was going to move and what they logged onto the platform,” said Steven Zheng, head of research at The Block, a blockchain news site. “You’re basically removing the main selling point of a blockchain system of it being fully decentralised if you’re a centralised company managing the blockchain system.”

The real disruption is actually not the technology itself, but the decentralisation of the governance.

Vestiaire Collective, an online luxury consignment retailer, came up against this issue when it explored incorporating blockchain. The company decided not to move forward just yet, in part because of the difficulty involved in getting brands to coordinate and share data.
“We need the brands to evolve in order to build synergy in the way they work and expand data sharing,” chief executive Max Bittner said. “More recently we’re seeing that more brands are realising this, which opens up a possibility for the future.”
Paris-based Arianee is working on a digital product certification that would be jointly governed by the brands that sign on. The organisation is still in its infancy, but says it is in talks with big luxury brands and conglomerates. The organisation’s advisory board includes executives from Vacheron Constantin, a Richemont-owned watchmaker, as well as Balenciaga and the brand’s parent, Kering. Arianee’s first pilot projects are expected to roll out this quarter.
“Blockchain is kind of a buzzword, most people use it without exactly knowing what’s behind it,” said Pierre Nicolas Hurstel, chief executive and co-founder of Arianee. “The real disruption that comes with this technology is actually not the technology itself, but the decentralisation of the governance.”
Though some recent uses of blockchain may not pan out, the flurry of experimentation is important, Blockchange’s Seiff said.
“It’s just like in the early days of the internet … you didn’t understand it, and it was growing and transforming the world,” he said. “The act of simply dabbling ... is a stepping stone by which companies can begin to understand the transformative nature of this technology, and not get left behind.”

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.

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