Aura Blockchain: End of All Counterfeit Luxury Products?

On April 20th, 2021, Cartier International, Prada Group and LVMH Moët Hennessy Louis Vuitton jointly announced the formation of the Aura Blockchain Consortium, a universal blockchain-based authentication standard for the international luxury products industry. The initiative brings luxury labels in line with digital currencies, smart contracts and digital finance, and Aura is open to any luxury products brand to join.

 

Blockchain authentication ensures the highest standard of protection against counterfeiting and resale, while providing consumers with a clear, transparent record of the products’ design, manufacturing process, (including the sourcing of its materials) and its ownership history. Aura Blockchain also functions as a digital insignia, making it an essential aspect of branding.

 

The technology provides a streamlined platform to track and verify each item, and as China shapes up to be the world’s premier luxury product market, Aura Blockchain will ensure the continued integrity of brand value and consumer protection. Aura is also likely to play a role in expanding the market and enhancing brand value as consumers become more engaged with their purchases and more confident in their value.

 

Blockchains are powered by Distributed Ledger Technology, a framework for recording and sharing transactions across a connected network without a central point. This ensures that transaction records cannot be unilaterally edited without validation across the network, and effectively prevents fraudulent or unauthorized activity. The ledgers store information in packages known as blocks, which connect across the network, forming a chain.

 

All information in the blocks is synchronized with the chain, and every new transaction forms a new block, connected to the rest of the chain. Any interaction with the blockchain creates a new block, and editing previously saved data within the chain is impossible. The integrity and effectiveness of the mechanism powers the growth of currencies, most notably Bitcoin, which is well known for its astonishing leaps and bounds in recent years.

 

Blockchain is now the most effective value consensus in a hyper-competitive, fragmented and often polarized global society.  According to Cyrille Vigneron, CEO of Cartier International, the Aura blockchain “Represents an unprecedented cooperation in the luxury industry.” Vigneron feels that luxury product manufacturers have a shared interest in preserving the timeless value of their work and encourages all luxury brands to join.

 

Aura Blockchain will likely bring down the entire counterfeit industry as the digital authentication standard becomes an intrinsic aspect of luxury branding. Counterfeiting has been a persistent concern among apparel manufacturers in the China market, and while the government has been strengthening copyright protection legislation and stepping up enforcement, Blockchain verification prevents counterfeit products from gaining marketshare to begin with.

 

According to the OECD, the counterfeit products market is worth USD 4.5 Trillion. While major conglomerates are able to invest millions of dollars to protect their brand integrity, smaller luxury labels do not have the resources to do so. Aura Blockchain both guards and levels the luxury product playing field setting a simple maintenance-fee based structure all brands.

 

Ownership records within the blockchain also serve to discourage intermediary purchasing, known as ‘daigou’ shopping, where agents acquire items in a duty-free jurisdiction and resell them online, circumventing local distributors. By establishing a clear, chronological record of provenance, blockchains prevent the disruption of supply and distortion of pricing in regional markets.

 

Since Blockchain records also provide transparent details about the sourcing of materials and location of production facilities, luxury brands will also be able to demonstrate the cultural value and historical authenticity of products manufactured according to heritage standards in their original historical locations, according to the Harvard Business Review. Daniel Langer, a professor of Luxury Marketing Strategy at Pepperdine Business School, emphasizes the crucial importance of storytelling in Luxury Brand development.

 

Langer also emphasizes the critical importance of complexity, consistency and digital competitive advantage. Generation Z consumers, a highly influential demographic that will account for the majority of luxury item sales by 2030, makes 95% of its decisions through digital shopping, and compelling narratives are essential.

 

To reach the most sophisticated, most discerning young customers, brands need to be authentic and convey relevant content and messaging.

 

While Blockchain records do not tell stories by themselves, they imbue luxury products with a consistent, authenticated narrative, while solidifying the value of sourcing, manufacturing and history alongside the branded product itself. As we have noted in our previous article on China’s rapidly expanding luxury products market, which is now driven by savvy, digital native consumers, products from smaller brands with a demonstrable sense of heritage and effective storytelling hold an advantage over mass produced aspirational brands.

 

Aura Blockchain helps new players in the market codify their most attractive attributes, improving industry standards overall, while also creating an unprecedented degree of opportunity for new brands to establish themselves.

 

China’s luxury products market presents one of the most exciting opportunities we have seen during our time assisting businesses in Europe and Asia. Should you have any interest in exploring the market or developing a new product, we would be delighted to assist with a free initial consultation anytime.

 

 

 

 

About the Author:

 

Mr. Philip Yu

Managing Partner

 

Mr. Yu holds a Bachelor of Commerce (Hon.) from the University of Toronto and L.L.B. (Hon.) from the University of London, and is a member of the American Institute of Certified Public Accountants, Certified Public Accountants of Australia and the Hong Kong Institute of Certified Public Accountants. Philip is experienced in handling cross border taxation issues, corporate restructuring and other cross border business solutions. He undertakes additional posts as Company Secretary, Authorized Representative and Independent Non-Executive Director for several listed companies on the Hong Kong Stock Exchange. He joined our firm in 2001 and currently the Managing Partner of the firm.

 

 

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