MAY 2024

Cracking Down on Illicit Trade: How New Solutions are Revolutionizing Retail Security and Customer Trust

The retail industry is constantly fighting illicit trade, a multifaceted challenge involving unauthorized diversion and counterfeiting that erodes consumer trust, damages brand reputation, cuts into revenue, and may even harm consumers. Omnichannel trade strategies, enabled by the growth of use of mobile devices and online e-commerce, are only making matters worse. Advanced technologies are increasingly taking center stage to confront this threat, offering innovative solutions that reassure customers through significant attempts to secure our supply chains.

Emerging authentication technologies are addressing the vulnerabilities of traditional methods, such as barcodes and QR codes, which can be easily damaged or duplicated. eBay, for example, employs NFC tags to verify the authenticity of items like sneakers. Yet the pursuit of even more secure solutions that do not disrupt product design has led to the development of materials capable of creating discrete, permanent product fingerprints that are tamper-evident and functional across various industries.

Advancements in this area include technologies developed by companies like DUST Identity, which link a digital twin to physical objects through an unclonable security tag featuring a ‘fingerprint’ mapped by engineered diamond dust. This innovation ensures product authenticity and facilitates easy access to verification data at any stage of the value stream. Such next-generation solutions not only combat counterfeits and minimize retail losses but also enhance the customer experience by instilling trust and transparency, fostering customer loyalty, and helping to mitigate the impact of potential negative experiences that can quickly spread online.

The critical role of new authentication technologies is underscored by the substantial risks posed by counterfeit products throughout the retail sector. Known as “inventory shrinkage,” this type of theft amounted to approximately $142 billion in retail losses in 2023 alone. An illustrative incident occurred early that year when a customer at Target purchased what they thought were AirPods, only to discover a counterfeit replacement inside the packaging. The incident, which gained wide attention on social media, highlighted the challenges retailers face in detecting fakes before they reach consumers.

For small businesses or in scenarios involving significant fraud, such adverse experiences can severely impact customer loyalty and profitability. This emphasizes the necessity for more secure authentication methods to prevent product diversion and ensure effective tracking throughout a product's lifecycle, highlighting the vital importance of reliable product authentication in maintaining business stability and consumer trust.

Ophir Gaathon Ph.D.

Co-Founder & CEO
DUST Identity

A New Way to Authenticate

The Counterfeit Impact

While traditional tools like barcodes and QR codes are convenient, they present significant security risks, making them less than ideal-solutions. RFID technology, though offering improved tracking capabilities, is not without its challenges. It can be ineffective on metal or liquid-containing items due to interference with radio waves and antenna functionality. Moreover, RFID systems are generally more costly to implement and manage, presenting a barrier to widespread adoption. These limitations fuel the exploration of more advanced solutions that can overcome these obstacles without compromising the usability and accessibility essential for retail operations.

The retail industry must embrace modern technologies that provide more secure and efficient methods of authentication and verification. These innovations are crucial in protecting brands while ensuring consumer safety and loyalty. They are integral to sustaining consumer confidence, preventing losses, and ultimately enhancing the overall product and brand experience. The proliferation of illicit trade and its negative impact on brands and the retail industry can be mitigated with new tools - addressing the consumers’ demand for better protection and trust.

The Limits of Mainstream Authentication Tools