Is there a future for Digital Product Passports in the fashion and luxury industry?
The European Commission is currently making progress with its Digital Product Passport (DPP) project. The objective is to be able to monitor compliance with eco-design regulations by associating to the DPP a product's sourcing and manufacturing information. DPPs could make use of blockchains, the decentralised databases that would pave the way for their future marketing and commercial exploitation by labels.
The DPP project was unveiled by the EU on March 30 2022, within a broader package designed to make sustainable products the norm in Europe. Access to DPP data is expected to be made mandatory by 2026. However, it is likely that the DPP will be deployed in a much-reduced version, which will nevertheless be rather costly and not especially productive for labels themselves, said Joël Hazan, associate director at Boston Consulting Group (BCG), speaking to FashionNetwork.com. According to Hazan, while the project’s most basic version will focus on manufacturing and recyclability data, the DPP could open other doors.
“It’s actually an obligation that opens up an opportunity,” said Hazan. “Given that we have to comply with this requirement digitally, with [a tool that] can be made available to everyone, the question is whether we could do more with it. The issue for labels is whether they might be able to develop an entire service policy based on these identifiers,” he added.
Hazan, the co-author of a report on this subject published in January with French blockchain consortium Arianee, thinks that any sector where there is an opportunity to resell or recycle products could be involved, from automotive to apparel. In fashion and luxury, the DPP is likely to generate the most interest in the pre-owned products market.
“A product associated with a non-fungible token, its digital twin, could for example, if I decided to, be featured on a website,” said Hazan, giving the example of a pair of sneakers. “On this website, people could then make bids that might arouse my interest, even if I wasn’t necessarily thinking of selling. This is already happening with some NFTs, and it’s something that could generate plenty of bids,” he added.
Possible solutions and related issues
According to BCG, three routes are currently compatible with DPPs. Firstly, centralised data management, where product-related information would be stored in one or more databases managed by a third party. The issue is that only the third party in question would have the right to access and edit this data.
The other two routes are based on a blockchain-validated passport. A system that, because of its decentralised storage, has the advantage of ensuring greater security, since individual users or database managers would not be able to modify blockchain data. And any data change would be traceable.
With blockchain-based routes, there are two possibilities for the DPP. Firstly, one in which users would be identified as the owners of physical items in a digital database controlled by a label or a service provider. A private blockchain, or one shared within a consortium, the most prominent example of which is currently the Aura blockchain, developed by the LVMH group. BCG however thinks this first type of blockchain approach is rather reductive, because of its closed ecosystem.
“The native interoperability that characterises public blockchains is key to developing future services over time,” said Hazan. He underlined that EU authorities can establish a framework for many solutions, but they don’t necessarily have the means to deploy them. “Private blockchains have been originally created to optimise internal processes. As soon as we head into customer relations territory, private blockchains are dead,” he said.
A second possible route is the DPP’s tokenisation. DPPs would be stored on a public blockchain, and could be handled securely via encrypted access rights. This method would enable labels to keep an eye on their customers, and take advantage of an open ecosystem where new features might emerge in the future. A point that however concerns several labels, fearing that other organisations could thrive on their own customers’ data.
Labels are increasingly aware
The DPP project is, in any event, expected to increase consumer brands' interest in blockchain solutions. An interest that already burgeoned with the metaverse rush prompted by Facebook. Yet, while in practice these solutions are only marginally exploited by consumers, Hazan reckons that labels are already taking a more nuanced approach, as well as adopting concrete applications.
“For many years, people in the watch industry have been wondering how brands can let so much value be channelled off into the resale market. Rolex and Audemars Piguet are currently introducing pre-owned certifications, and blockchain tools are helping make the sale of second-hand watches more secure,” said Hazan.
Blockchains, by providing an increasingly accurate knowledge of consumers and their purchases, can also act as marketing tools to retain customers and generate new sales. “Any label that doesn’t have a direct relationship with its customers has every interest in using the DPP to communicate with them. Retailers will no longer be the sole holders of all customer data,” Hazan said.
It is hard not to make a comparison with the social media revolution. In the early days, most labels, especially luxury ones, happily ignored social media. Nowadays, many of them are dependent on these audience generators, according to Hazan, who emphasised that blockchain solutions instead do not carry the same dependence risk. “The risk is that [a blockchain tool] may fail to become a technology standard, or that data decentralisation may not lend itself to all aspects of the business,” he said.
Then there is the issue of practicality. One needs a digital wallet to store one’s NFTs and cryptocurrencies. Those who have tried this experience in recent years can testify to the patchy functionality and relatively limited practicality of the interfaces available. “This is no longer the case,” said Hazan, who thinks that consumers will by no means compromise on user friendliness. Usage must be as fluid and simple as any website.
The opportunities the DPP will afford are still vague, and its form too remains unknown. The EU is looking for a system that would be accessible to SMEs. Hence the project is still nebulous, and product passports may not even be generated individually, but for batches of identical items, thus limiting the DPP’s wider use.
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