Opportunities for Blockchain in the Fashion Industry
Blockchain is hailed as a ‘trust technology’ as it redefines the way transactions work by disintermediating middlemen and kick-starting an era of radical decentralization. Even though the technology is still in an initial stage, blockchain’s immutable ledger can represent a one-of-a-kind opportunity for giving the fashion industry a makeover.
As pointed out in the latest issue of McKinsey’s State of Fashion, 2019 is a year of awakening for the fashion industry with respect to a number of enduring strategic and operational challenges.
First of all, concerning the environmental sphere, the textile industry is still built on a linear, take-make-waste model. Less than 1% of material used to produce clothing is recycled while the equivalent of one garbage truck of textiles is landfilled or burned every second.
From an ethical point of view, the opacity on where clothes come from conceals challenges having to do with human rights and working conditions. The Rana Plaza tragedy in Bangladesh in 2013 epitomizes the terrible risks associated to massive outsourcing to low-wage countries.
Such a globalization of the fashion industry has gone hand-in-hand with the shadowy business of counterfeits: in the European Union alone, the clothing, footwear and accessories industry loses approximately €26.3 billion euros of revenue per annum due to counterfeit goods, which is equivalent to nearly 10% of total sales.
Against this backdrop, not to be overlooked is the inherent vulnerability of SMEs and artisan companies, which are held back by limited headcount, R&D budget, and international experience.
Taking stock of those interdependent challenges, LINKS Foundation for TCBL released a research note that provides a comprehensive window onto the possibilities ushered-in by blockchain towards a more sustainable, fair, and competitive fashion industry. Going beyond the wild volatility and stratospheric hype of cryptocurrencies, blockchain is hailed as a ‘trust technology’ as it redefines the way transactions work by disintermediating middlemen and kick-starting an era of radical decentralization. Even though the technology is still in an initial stage, blockchain’s immutable ledger can represent a one-of-a-kind opportunity for giving the fashion industry a makeover.
Blockchain in the fashion industry: possible applications
Recognizing this game-changing potential, the study maps existing blockchain initiatives taking place in the fashion industry to identify emerging application areas for the community of TCBL Associates and distill actionable insights on how to adopt blockchain as a strategic lever for improving their competitiveness (Figure 1).
Looking at main findings, three main application areas are:
- Value chain management — Blockchain is harnessed to guarantee transparency and traceability along the entire value chain. One the one hand, blockchain brings visibility on the various production stages to help the customer in shining a light on who cut, sew and assemble garments. On the other hand, blockchain certifies product authenticity, thus protecting brands against counterfeiting.
- Access to market — Blockchain facilitates interactions and commercial exchanges among companies (B2B) and between companies and their customers (B2C). It favors disintermediation while it allows to verify the trustworthiness of all involved actors in order to streamline reputation management, loyalty programs, and compensation to influencers.
- User engagement — Blockchain incentivizes users to adopt virtuous behaviors in a community and allows them to participate in company’s governance as well as day-by-day operations. Tokens become the means to align the incentives of shareholders, employees and clients with the aim to unlock value and make businesses thrive.
In addition, the research note analyzes how the interest in blockchain-enabled services varies across different types of fashion companies. In particular, the study examines large premium brands, fast-fashion companies, and ‘challengers’, defined by McKinsey as emerging brands deploying a non-traditional go-to-market model competing against established incumbents. Zooming in on ‘challengers’ — which represent the reference archetype for the community of TCBL Associates — they tend to prioritize ‘access to the market’ applications as they need to come to grips with new ways to emerge in a very competitive market by obtaining cost savings, avoiding rent-seeking intermediaries, and reaching more easily their target customers. They may be interested also in ‘value chain management’ applications meant to ensure transparency so as to demonstrate that they take a stand for environmental and social justice. Furthermore, forward-looking emerging brands appears inclined to explore ‘user engagement’ opportunities as well, either to tap into collective intelligence (e.g., crowd design) or to experiment with new fundraising avenues (e.g., crowdfunding).
Even if the research note looks primarily at the outside world, TCBL developments during the grant period highlighted room for blockchain in a number of business models tested within the scope of the project. Without any claim to be exhaustive, blockchain can be instrumental to the implementation of the radical transparency paradigm from farm to retail, can allow granular control of personal data in predicting offering platforms (e.g., My Yorkshire Wardrobe), and can redesign incentive mechanisms in peer-to-peer transactions taking place within the TCBL ecosystem (e.g., short-runs, independents).
Not by chance, this nascent breed of opportunities has been corroborated by the advent of blockchain-based offerings that TCBL Service Providers make available to Associates. Provenance, for instance, uses blockchain technology to enable secure traceability of certifications and other salient information in supply chains to prove authenticity (is this product what it claims to be?) and origin (where does this product come from?). Another TCBL Service Provider harnessing blockchain is Seratio, which issued a token with the ability to capture the social value resulting from transactions involving people, products, processes, and organizations.
The research activity presented in this post was conducted in the context of the TCBL project, an H2020 initiative funded by the European Commission.
To access the full research note, please follow the link below.
https://tcbl.eu/sites/tcbl.eu/files/doc/blog/blockchain-fashion-industry-tcblfoundation.pdf
OverTheBlock is a LINKS Foundation’s initiative carried out by a team of innovation researchers under the directorship of Enrico Ferro. The aim is to promote a broader awareness of the opportunities offered by the advent of exponential technologies in reshaping the way we conduct business and govern society.
We are chain agnostic, value-oriented, and open to discussion.
