Impinj: Authenticating the World of Fashion

Counterfeiters have long been a threat for the fashion industry, diverting sales and damaging the brand equity of top retailers. The rise of ecommerce and social media has made high fashion more visible than ever and provides the conditions for a counterfeit luxury good industry to flourish. The proliferation of counterfeits increases uncertainty in transactions in the secondhand market and hurts both buyers and sellers that care about the authenticity of their products. The global market for counterfeit products is estimated to be $600 billion per year, of which the luxury subsegment accounts for $12 billion. With the rise in counterfeiters diminishing the exclusive nature of luxury products and damaging retailer brand equity, companies must find ways to ensure the authenticity of their products.

ID’ing the Problem
Impinj is an industry leader in high performance mixed signal solutions for radio frequency identification (RFID), security, and digital processing products. Their products see usage across a variety of industries including retail, supply chain and logistics, aviation, automotive, healthcare, and industrials. Pressures in the industry to advance technological offerings have pushed Impinj to invest in research and development at the expense of necessary commercialization efforts. Market adoption of Impinj’s proprietary platform have been slower than anticipated, with limited top-line growth over the past three years and negative profits since 2015. To remain financially viable, Impinj must find new markets in which to sell their product: an end-to-end solution that provides retailers and other users with a platform to manage their radio frequency identification (RAIN) network.

RAIN is an RFID technology that enables devices to communicate wirelessly and identify and track tags attached to objects. These tags are made of a radio transponder, a receiver and transmitter. To access the data, an RFID reader emits an electromagnetic pulse which triggers the tag to send data back to the reader. This pulse allows the tag to be out of the line of sight of the reader. RFID technology includes a variety of frequencies and standards, including RAIN and near field communication (NFC). The luxury retail industry should use Impinj’s proprietary Monza Chip to certify the authenticity of luxury goods in order to combat rising counterfeiting risk.

Technology Threads
Impinj should create a partnership with incumbents in the luxury goods industry and utilize its proprietary RAIN technology to verify the authenticity of products. Among previous partnerships within the retail industry, Impinj worked with La Chapelle to integrate RFID technology into the company’s supply chain, improving warehouse efficiency and reducing labour costs. Partnerships with luxury goods companies could result in economies of scale due to recent consolidations within the high-end fashion industry. RFID technology has not yet achieved widespread penetration and represents an opportunity to capture market share for luxury product authentication. The ability to authenticate a product means the good-faith consumer can verify a seller’s claims. Contrastingly, those who deliberately sell counterfeit products will face a higher risk of being prosecuted by the authentic retailer as the counterfeit seller is engaging in illicit activity.

Case Study: The Genius of Moncler
Precedent for the value of authentication can be seen in the case of Moncler, an Italian fashion brand primarily known for its luxury down jackets. Despite the construction of Moncler products being predominantly comprised of very technical fabrics, the company has also struggled to keep the counterfeit market at bay. This is partly because a portion of sales occur online and result in a lack of transparency for consumers. In 2009, a new form of identification tag provided by a third-party company, Certilogo, was implemented on all Moncler products. Following the success of that partnership, Moncler decided to move the operation in-house and introduced their own proprietary codes in 2013. The most recent update to the tags occurred in 2015 when Moncler added an RFID chip into their tag. A tangible financial impact was realized that same year in a landmark case against a particular counterfeiting organization when a Beijing court awarded Moncler €420,000 in damages.

Moncler’s ability to effectively mitigate counterfeit losses is assisted by their industry-leading stance on authentication over the past decade. Their efforts have resulted in over 100,000 counterfeit sellers being delisted from search engines, and over 5,500 counterfeit retail websites being shut down entirely. If a brand like Chanel can replicate Moncler’s success in authentication, they could recapture a significant fraction of the value being lost to counterfeit sellers.

Partnership Avenues
In order to prove the value proposition of its RAIN technology, Impinj should first look to partner with Chanel, a brand with an established image in the luxury space. Chanel has been slowly integrating technology into its product mix over the years, creating its own app and investing in 3D printing. This proven interest and capacity for digital transformation makes Chanel the ideal target for a partnership with Impinj.

Counterfeiting has traditionally represented an issue for Chanel, requiring the dedication of significant financial and human resources. The brand has claimed that it is “at any given time” involved in multiple lawsuits against counterfeiters. For certain Chanel products, supply is also often limited in retail storefronts, inclining buyers to turn to second-hand retail markets. This increases their risk of exposure to fake goods, thereby driving down customer perception of both quality and exclusivity. Thus, a solution specifically focused on authentication will help to preserve Chanel’s brand equity and protect it from material losses as a result of counterfeiting.

Authentic Style
Impinj should begin their Chanel partnership as soon as possible to integrate chips into the upcoming clothing season. The two companies should create an official app that will allow users to individually authenticate the product at any time, thereby protecting prospective buyers.

The cost of implementing this into a supply chain will likely be minimal for Chanel while resulting in a material return for Impinj. Mini bags in the Chanel Summer 2020 collection start at $3,725, and Chanel has operating margins of approximately 29 per cent. Each tag can be sold at a price of $0.20 per unit to guarantee lifetime authentication. At $0.20, each unit would reduce margins for Chanel by only 0.005 per cent on the mini bag—a negligible amount. This will not have a material impact on variable cost for Chanel and serves to protect the brand from the potential damages of counterfeiting.

Chanel’s 2018 revenues of $11.1 billion represent approximately three per cent of the estimated overall luxury goods market. Applying that 3.0-per-cent ratio to the $12 billion lost by luxury brands due to counterfeiting implies that Chanel potentially lost approximately $360 million, or about 3.2 per cent of its current revenue. The average market selling price is around $0.1501 and Impinj can increase the selling price to $0.20 per unit given the lifetime service it will provide Chanel. This can be expanded to other product lines such as ready-to-wear clothing, which adds another line of revenue for Impinj.

In the long-term, Impinj should continue to target mainstream luxury brands like fashion conglomerates LVMH and Kering. The high value of these brands makes implementing an authentication platform a worthwhile pursuit for the retailers and would give Impinj the exposure it needs to continue expanding in other domains.

Stitching It All Together
Impinj should capitalize on a strategic partnership with the luxury fashion market to achieve top-line revenue growth. This partnership represents a tangible solution to a material problem for brands as they have losses totaling an estimated $12 billion due to online counterfeits. As sales of high-end products continue shifting towards ecommerce, protecting brand equity and preventing counterfeits become increasingly important for global fashion houses. Ultimately, this symbiotic relationship allows Impinj to commercialize their technology in a new market segment while simultaneously protecting the brand equity of global fashion houses.