Could blockchain be the answer to sustainable luxury goods?
By Lars Rensing, CEO of Protokol
For luxury brands, winning over Gen Z consumers is a critical business objective. This generation of buyers is a significant step change from Millennials or Gen X, not only are they digital natives, but they are also more belief-driven than ever before. In fact 62% of Gen Z prefer to purchase from sustainable brands.
Many have turned to blockchain to create new digital experiences for consumers – from Prada NFTs to Dolce & Gabbana fashion shows in the Metaverse, and Gucci becoming the first major brand to accept ApeCoin.
However, brands viewing this technology as simply a new experiential tool are missing a trick. Brands who look at holistic ways to implement Web3 and blockchain technology can use it as a critical tool for creating not only an enhanced customer experience, but also meeting environmental, social, and governance (ESG) goals.
This is because blockchain is, by design, transparent and immutable, giving brands the chance to build a record of their supply chain, products and processes to reliably demonstrate their sustainability efforts, meet their ESG goals, and evolve into a futureproof business.
The sustainable promise of NFTs
NFTs have certainly had a wild ride over the last two years. However, despite general market decline, demand for NFT products still remains high. NFT sales soared to almost $1Bn in January 2023, an impressive surge of 44.96% from the previous month, setting the stage for a lucrative year for NFTs. This is because of the strong use cases for the tech itself beyond digital art.
The same technology that bestows verifiable, unique ownership to NFTs can be applied to verify the ownership and provenance of physical goods. Digital product passports (DPPs), for example, leverage the secure, transparent nature of blockchain to create a record associated with unique products, which can be used across its lifecycle. Everything from verifying details of the supply chain and tracking sustainable sourcing, to adding value to the vintage and resale market with authentication and previous ownership checks, can be designed using blockchain technology.
Blockchain technology can also be used to improve customer experiences by providing more detailed information about the products they purchase. For example, when source materials enter the supply chain, information about where they came from can be recorded on the blockchain so that consumers can verify that they’re made from ethical, renewable components. The manufacturing plant and its location can be recorded, to prevent hidden use of unethical labour in developing countries. Rather than simple ‘Made in X’ tags in the item, each component part can have a richer, more detailed history that consumers can verify at the push of a button.
The Digital Product Passport can also be updated each time a luxury good is repaired, altered or resold. This gives a better idea to would-be customers of the history of the item they are purchasing on a second-hand market and veracity that repairs are high-quality.
How can customers have their say?
Governance is another use case of blockchain that is still coming to its prime. In the luxury goods sector, brands can leverage blockchain technology to bring customers into certain aspects of corporate governance.
For example, customers can participate in the decision-making process on collaborations with other businesses or designers or in determining where philanthropic donations should be directed. This can turn customers into stakeholders and more loyal brand advocates.
Businesses could do this by creating a ‘Decentralised Autonomous Organisation’ (DAO). DAOs function by issuing voting tokens to customers, which can be based on the number of products owned, the length of time an account has been held, or the length of time a product has been owned. Customers can use these tokens to vote, with blockchain storing an immutable log that ensures fairness and transparency in the result.
Allowing customers to vote this way on collaborations, philanthropic recipients, or even to gauge opinion on new lines can effectively turn customers into stakeholders and, therefore more loyal brand advocates.
Blockchain for the bottom line
It’s not all about long-term goals, blockchain has the ability to make a quick impact on the bottom line. While the opportunities for ESG outlined above are compelling, there are also some promising reasons that investment in blockchain could see quick results in the luxury goods sector, not least because of the opportunity it provides to enhance the customer experience in ways that today’s consumers value.
Blockchain could be the future of sustainable business practices. If product authenticity can be confirmed by a tamper-proof record stored on blockchain, as well as ownership records, brands could seize an opportunity to resell their own vintage collections to consumers, creating a circular economy and increasing revenue. This also signifies the longevity and quality of a brand’s products, as well as the timeless appeal of luxury goods articles, increasing brand value.
With a digital product passport twinned to each product that can be easily and quickly verified, counterfeits can be swiftly identified; lowering their value, as buyers of the counterfeits are denied access to resale markets, quality assurance, and Web3 experiences from the brand.
Not only are counterfeits bad for the environment, often stemming from unethical labour practices and low-quality materials, they undermine revenue and brand value for luxury brands. Profits can therefore be bolstered by taking technological steps to make products more difficult to fake.
Web 3 is more than just a trend
Blockchain is the key for luxury goods brands to create a sustainable future – both in terms of meeting ESG goals and creating a long-term, loyal customer base. By creating a transparent, immutable record of their products and involving customers in aspects of governance, businesses can enable circular economies, increase transparency and trust, and promote sustainability.
Luxury brands are facing a rapidly evolving customer base and regulatory environment and we’ve reached the point where social responsibility is no longer a nice to have. Companies that embrace technology, to both enable and prove their sustainable business practices, will be well-positioned to succeed.