The gatekeeper to trust: How blockchain could infiltrate luxury

For the luxury industry, blockchain technology can provide an invaluable assurance of trust.

In luxury, an industry in which customers want to feel confident about where their items are made, their authenticity and their backgrounds, the blockchain can act as an official keeper of that information along every step of a product’s journey, verifying whether or not something is what the brand claims it is. At least that’s the promise, anyway.

“The word ‘blockchain’ is just the latest bright, shiny thing,” said Jason Kelley, the gm of blockchain services at IBM. “Put the word aside and think about the outcomes: The customer wants to make sure they can have confidence in a brand, in an industry, in what they just purchased, especially when something is high value. They want to make sure they can trust it.”

Blockchain is an open-source distributed ledger that, for consumer products, can compile and track every movement and piece of information related to a specific item as it travels through the supply chain, validating each point of the journey from sourcing to manufacturing, to retailer, to consumer. Once submitted to the blockchain, no information can be changed or removed.

“Blockchain acts as the gatekeeper in the emerging trust economy, where the supply chain plays a central role. The efficiency of a supply chain relies on trust between different stakeholders, and it can assist in increasing the traceability and reliability of information along the chain,” Patrick Laurent, a partner and technology leader at Deloitte, wrote in the company’s 2018 report on blockchain and the Internet of Things.

The problem, of course, is that blockchain requires open-source cooperation among participants to ensure that every point of interaction along the supply chain, from source to retailer, is accounted for. The luxury industry isn’t known for freely sharing secrets among competitors. But through technology like IBM’s new TrustChain platform, which uses blockchain technology to create a network of information surrounding product history, the fine jewelry industry is getting on board with the idea of a trusted database. As the network gets off the ground, it could serve as a template for other facets of the luxury industry to open up.

The power of authentication
What blockchain can bring to an industry like the diamond, gold and fine jewelry industry is a permanent digital record. The supply chain is often a complicated web of different players, and typically, records, transactions and data are kept siloed among each point of the supply chain, like the mine, the refiner, the manufacturer and the retailer.

“There’s so much power in data that you know is absolutely correct, especially in this industry,” said Kelley. “You can’t have one brand saying, ‘We’re going to fight counterfeits.’ It’s not going to work. In a blockchain network, all points are now connected, different companies are sharing their data, and that increases the level of transparency to be traced and tracked. You can then, to the consumer, give context and transparency.”

As the luxury industry begins to put emphasis on sustainable manufacturing and sourcing practices by eliminating fur from collections, opening up vertically integrated fabric labs, suppliers and manufacturers, and cleaning up their supply chains, the blockchain creates a level of accountability for practices that have been historically tricky to prove. Blockchain is at the core of startup investments at luxury accelerators, as well, demonstrating an interest but lack of internal capabilities.

“There is huge potential for luxury on the blockchain,” said Julie Rodgers Vargas, the director of digital solutions at Avery Dennison. “People buy and discard clothing from H&M without thinking much about where it’s from. When you’re spending thousands of dollars on a Birkin bag, that changes. You could learn where each piece was made, what it’s made from, who designed it and when it was made. That really matters in a luxury purchase.”

According to Kelley, as the TrustChain onboards its first official partners in the fine jewelry industry, including Asahi Refiner, Helzberg Diamonds and the Richline Group, having a detailed ledger of an item’s history on the blockchain isn’t going to be the first factor that convinces a customer to make a purchase — that will always be price and style. But transparency could be the tiebreaker.

Adopting the digital handshake
Mark Hanna, CMO of the Richline Group, attempted to get every company in the group, which owns diamond and gold manufacturers and marketers, to log its records in a cross-company server in 2006. Called The String, the product program would transparently track every action in the supply chain process in an internal database. The goal was to have a universal record that held individual diamonds’ paths from mine to manufacturer to retailer. It didn’t really work.

“It was premature for the retail world; it made them nervous, so it wasn’t a commercial success,” said Hanna. “We didn’t push it out in a big way, either, because we didn’t want to be accused of greenwashing, but our attempts at transparency were sincere.”

Hanna helped coordinate Richline Group’s participation in IBM’s TrustChain after recognizing that blockchain in fine jewelry had to be an industry-wide effort, considering how many different hands touch these pieces at different parts of the journey. For that, Hanna said blockchain’s potential in the industry extends beyond building customer trust. For everyone involved, it makes the process more efficient.

“Our goal was to not be a paper-based company, but to be a digital, data-based company across this entire chain. The benefits of this are far greater than showing your customer you sell a trusted product,” said Hanna. “We can create a greater level of efficiency because of the digital handshake. It’s opening up a chain of communication that couldn’t have happened before.”

On the customer end, that internal efficiency supports external transparency. Hanna said that Richline’s retail partners, which include major jewelry retailers like Helzberg Diamonds, can pull up an engagement ring’s full history of authenticated information, including the diamond’s composition and its sourcing. There’s also a customer-facing web database that can be used by customers to explore product history.

“The younger customer does much more research around each purchase, and that research should and will include the integrity and the ethics of each company they’re supporting,” said Hanna. “You can’t overestimate it — in 10 years, documenting sustainable practices for the consumer will be a requirement.”

Creating a template
While the TrustChain’s first execution is centered on the fine jewelry industry, Kelley said that it can be applied to any industry with a complex supply chain. The next step is convincing companies that the payoff is worth the upfront investment.

“Getting started is the obstacle. This is a new business model and new is not easy. The outcome is high when you think about it: It provides an increased level of trust to an industry where trust is critical,” said Kelley. “But it’s not easy to bring the players across an industry together. Getting started in that process is the biggest hurdle.”

Companies like Burberry, LVMH and Farfetch have started investing in blockchain technology, but getting it off the ground is genuinely a team effort. Clashing competitors will be the hardest hurdle to overcome.

“Even in luxury, we’ll start to see different companies overcome their hesitations about ‘open-source,’ said Laurent. “It’s happening in sustainability. This is the natural next step.”

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