When Protecting Brand Value Leads to Incineration

If you think that all unsold clothes, handbags, perfume and accessories are being sold at a discount at outlets and discount retailers or end up donated to charity, you are wrong. Luxury brands like Burberry, Louis Vuitton, Chanel and others would rather burn their perfectly fine unsold merchandise than let it be worn by the “wrong” people … all in the name of protecting their brands from equity dilution and controlling their authenticity.

According to Newsweek, Burberry burned $37.8 million worth of unsold product last year. Burberry is not the only brand engaged in merchandise incineration. Forbes reports that retail chain H&M has burned 12 tons of unsold clothing since 2013. Richemont, which owns Cartier and Montblanc, also made headlines in May for taking back $572 million worth of watches for destruction within the past two years to avoid markdown prices.

Destroying unsold stock is commonplace for high-end labels. So why do brands torch their merchandise? There are several practical reasons.

1. Making a brand omnipresent across multiple types of retailers (from upscale all the way down to discount stores) obviously discourages full-price sales and makes it harder to control how products are distributed and marketed.
2. Releasing unsold merchandise into the hands of recycling companies puts products at risk of being stolen and sold on the black market.
3. Destroying merchandise makes it less available for its design to be copied. It’s particularly important because counterfeiting is a serious concern. It not only compromises brands’ intellectual property, but it can also involve the exploitation of undocumented immigrants for low-cost labor, often in unsafe conditions.
4. Burning surplus products is easier – and cheaper – than finding new uses for them.
5. Finally, there is a financial incentive for brands exporting goods to America. If imported merchandise is unused and then exported or destroyed, 99 percent of import duties, taxes or other fees can be recovered.
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Overproduction is a big concern for Burberry and likely for other high-end brands as well. But it’s worth noting that waste happens not only when the demand for finished goods is overestimated and a company makes more units than it can sell, but also throughout the entire manufacturing process, with rolls of unused fabric and sheets of leather going up in flames.

The bigger reason that luxury brands destroy – rather than discount – unsold merchandise is likely to protect their brand’s prestige. Understandably, luxury brands want to keep their products exclusive. “Limited edition” supply generates a sense of scarcity which, when coupled with high quality and frequent celebrity endorsements, creates an image of prestige – oh so desired by affluent clientele. Therefore, to maintain their exclusive status, brands need to protect their intellectual property and preserve brand equity. For that reason, they are reluctant to engage in low-price selling through outlets or discount stores. In fact, Luis Vuitton does not sell its products at reduced prices at all (at least not to the public). It either sells a product at a given price or discontinues it. The label’s prestige and always in-demand image would suffer if a boutique that usually sells handbags worth an average two-month salary introduced rows of messy sale displays. Still, is burning unsold goods the ultimate solution here?

Burberry argues that it has “careful processes in place to minimize the amount of excess stock we produce.” The company adds: “On the occasions when disposal of products is necessary, we do so in a responsible manner and we continue to seek ways to reduce and revalue our waste.” Burberry also told the BBC that “the energy generated from burning its products was captured, making it environmentally friendly.” However, there is “no such thing as an environmentally friendly way of burning clothes,” according to Orsola de Castro, co-founder and creative director of Fashion Revolution. She further contends that “harnessing energy is not a really good excuse, because (producing) them in the first place is very energy consuming.”

H&M defends its smoky practice by stating that it burned only those products that failed safety tests and that the power plant in Västerås (a town in Sweden where H&M founded its first store) partially relies on energy generated from the incineration of defective clothes.

In all fairness, some high-end retailers make efforts to reduce, reuse and recycle the waste they create. Burberry partners with Elvis & Kresse, a sustainable luxury company, by donating tons of leather offcuts to be transformed into new products. Also, the company developed Responsibility Strategy 2022, and to help meet its goals, it has partnered with several organizations, such as the Ellen MacArthur Foundation and its Make Fashion Circular initiative. These efforts are honorable but seem hugely inadequate given that the value of Burberry’s destroyed stock has increased significantly since 2016.

The latest news about Burberry and H&M merchandise incineration practices caused an immediate backlash on social media. People are outraged, and while some of them have already boycotted these brands, others decided to donate their luxury items. I doubt exclusivity and luxury will ever lose their appeal, but they might get challenged and maybe even become less relevant. What is perceived as luxury today might not be luxury tomorrow, with values such as social and environmental responsibility, transparency, freedom, health and sustainability gaining importance.

We will need to wait until the smoke clears on this one, but it appears that luxury brands will need to approach their exclusivity strategy differently.

Sources

1. http://www.dazeddigital.com/fashion/article/40778/1/burberry-brands-burning-clothes-sustainability-fashion-revolution
2. https://www.cnbc.com/2018/07/19/burberry-and-other-labels-are-destroying-millions-of-dollars-of-stock.html
3. https://theglowup.theroot.com/burberry-burning-british-retailer-reportedly-torched-o-1827746844
4. https://www.bbc.com/news/business-44885983
5. https://www.newsweek.com/luxury-brands-prefer-burn-millions-dollars-worth-clothes-over-letting-wrong-1032088
6. https://www.forbes.com/sites/oliviapinnock/2018/07/20/no-one-in-fashion-is-surprised-burberry-burnt-28-million-of-stock/#611d90204793
7. https://www.fashionrevolution.org/about/transparency/