What needs to be restored to the market is trust and transparency, and blockchain technology seems to be blazing the trail for that

Counterfeit luxury goods are one of the biggest problems in the luxury industry. According to a report published in 2016 by the Organisation for Economic Co-operation and Development and the European Union’s Intellectual Property Office, the market for counterfeit goods is worth an astonishing $461 billion. This is equivalent to as much as 2.5% of world trade in 2013, which is a noted increase from 2008 when it was worth 1.9% of world trade.

For comparison, just 26 countries in the world have a gross domestic product (GDP) more than $461 billion, according to the International Monetary Fund World Economic Outlook (May 2018). The counterfeit goods market makes more money than the likes of Norway, Pakistan, Greece, Denmark, Portugal, and New Zealand.

Unfortunately, the counterfeit goods market is largely unavoidable. The industry is ubiquitous. Counterfeit goods are no longer relegated to questionable shop fronts and sellers with goods laid out on blankets, trying desperately to appeal to tourists, too awestruck at their new surroundings to discern a real luxury item from a fake one.

Among the several luxury products that have received their fair share of heavy counterfeiting, luxury handbags seem to be ranking high. It’s nearly impossible today to distinguish between a fake and original handbag except to the trained eye.

Brands like Louis Vuitton and Chanel have been ranked the most counterfeited handbag companies with Gucci, Hermes and YSL coming right behind. These luxury brands and several others have had more to deal with, in combating this problem of counterfeiting. Not only does it affect sales, but also the brand image of these brands as consumers become more weary in purchasing them for fear of counterfeits.

The Factors Encouraging Counterfeit Goods Production

One of the factors in this is the way in which the counterfeits are made. Speaking to Vogue UK, Cassandra Hill, a lawyer at Mishcon de Reya who specializes in intellectual-property litigation, explains that the manufacturing partners of a luxury brand may make 10,000 of a legitimate product before rushing to make 2,000 additional items and selling them off cheaply. Hill notes that “They’re not too bad in terms of quality, because they’re coming from exactly the same factory.”

Also read: 7 common questions about VR, and why it is a great platform for luxury retail

The experts also cite e-commerce as another significant factor in why the counterfeit luxury goods market is so large. There is a proliferation of websites selling supposedly luxury items offering cheap prices and alluringly quick delivery times, while the makers of fake luxury goods also use existing online retailers to sell and promote their wares. Not only are these listings deceptively convincing, but it’s also twice as hard for people to know what they’re buying is valid when they’re viewing it behind a computer screen.

Could you tell the poor stitch-work of a handbag when the image is slightly pixelated? When the weight of a Birkin bag is considered one major ‘tell’ of whether it is real or fake, you’re going to have difficulty testing it until you’ve handed over your money and the product is in your hands.

It’s also worthy to note that most of the sales of fake luxury handbags are done mostly online, making it even harder to detect their status of authenticity until delivered.

An Irreparable Effect with Counterfeited Luxury Goods

The moment a shopper realises they’ve purchased a counterfeit is more than just frustrating or even mildly disappointing. It destroys their trust and faith in the luxury goods market. They think to themselves, ‘shouldn’t the authorities be doing something about this?’ or ‘why weren’t the authorities able to realise that these goods aren’t legitimate?’ and ‘how can these sellers and manufacturers of fakes keep getting away with it?’ Unable to find answers, they avoid the luxury goods market for fear of being conned out their money again.

Luxury goods brands like Louis Vuitton, Chanel as mentioned earlier, suffer greatly due to this lack of trust. For instance if the quality of a fake handbag isn’t up to scratch and the owner didn’t realize it was a poor-quality fake, they’ll think that the real brand just makes poor-quality products that break easily and won’t want to buy that brand’s products again. Alternatively, if they want to resell those “luxury” bags in future, either selling them to another retailer of second-hand luxury goods, they will be unable to, because of the product’s counterfeit status. Likewise, purchasers of second-hand luxury goods will be reluctant to if they are concerned about being tricked by a fake.

Blockchain Technology Creates Transparency In this Industry

The situation is untenable and harmful to the personal luxury goods industry as well as the customers spending money within it, which is why a number of companies are moving to provide solutions to this ever-growing problem. However, with the advent of the blockchain technology and its disruptive tendencies, several blockchain startups are looking to take advantage of the technology in tackling the counterfeit epidemic, considering the current traditional centralized setup hasn’t achieved much in bringing the situation under control.

In tapping into the possible solutions blockchain can provide, startups like LUXCHAIN is creating a decentralised verification solution for the personal luxury market. With their framework, personal luxury products like handbags can be authenticated by verifiers who will upload the information about the handbag to the blockchain as a Digital Asset.

With Digital Assets, anyone can view detailed information that proves the handbag’s provenance and authenticity as potential buyers can see relevant data including the serial number, point of origin, and authentication history. Then, the bag will be tagged with an unforgeable QR code which would mirror all of the information previously stored on the blockchain. The QR code is created in such a way that it cannot be copied or forged by ambitious forgers; When a copied or forged code is scanned by the LUXCHAIN application, it will be revealed as a fake.

Aidaa Wong, co-founder of Luxchain stated that, “By combining blockchain with its immutable, unalterable data properties and the creation of Digital Assets, LUXCHAIN aims to combat the counterfeit luxury market head-on.”

Also read: Can blockchains significantly improve e-commerce security?

The picture this paints is, a consumer looking to buy a luxury handbag can easily scan the QR code using the LUXCHAIN application and the bag’s entire information already stored on the blockchain will be displayed (Digital Asset). With this, you can know for sure whether or not you’re getting an authentic handbag.

This is for sure a win-win situation for the blockchain technology and the luxury goods industry. Information on the blockchain cannot be altered, which promotes trust. Buyers will not need to go through any form of training in spotting fake luxury handbags or the likes. Brands also would worry less about competing with fakes as they would now have a means of guaranteeing authenticity and distinction from fakes.

Customers are understandably unhappy with being duped and the lack of available methods to verify the products (other than their best guess), but decentralised solutions like these pave way for a trustworthy and accessible way of finding out whether a product is legitimate (or not).

What needs to be restored to the market is trust and transparency, and blockchain technology seems to be blazing the trail for that. Brands, too, will be able to grow their businesses with transparency in the life cycle of the products. Embracing more decentralised solutions might just be the breakthrough needed for the luxury industry.

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