Why Unsold Products Are Destroyed By Luxury Brands

Disposing off unsold products by burning them down is a practice in the luxury companies that is practiced widely but rarely discussed. The aim of such a drastic tactic is to uphold the scarcity of their goods and increase the brand exclusivity.

Luxury companies also claim tax credits for burning off their inventory in countrie3s like Italy and many others.

This practice was brought in to the spotlight on this week by British fashion label Burberry Group PLC after the firm announced that it would not destroy its unsold stock immediately as a mark of conceding to demands and pressure from environmental groups who claim that such a tactic is wasteful. In recent year, there has been an increase in the volume of unsold inventory that is destroyed by Burberry. The firm destroyed unsold products worth £28.6 million in the last fiscal year from about £5.5 million in fiscal year 2013.

“Modern luxury means being socially and environmentally responsible,” said Burberry Chief Executive Marco Gobbetti.

Destroying inventory is a necessary evil, say other high-end brands. The argument behind this that the main sale pitch of luxury products commanding higher prices than the average because of their inherent value is contradicted when unsold products end up in for sale in outlet stores or in the gray market and are priced ay very heavy discounts.

Hundreds of millions of euros in recent years was spent in buying back unsold watches from retailers by Compagnie Financière Richemont, the Swiss luxury group that owns the Cartier brand. the products had remained unsold because of a drop in demand from China. the company extracted the jewels form the watches and melted them to reuse he materials.

The environmentally conscious younger consumers were the target of the announcement by Burberry. This group is now transforming into a core demographic for luxury brands. To appease this customer segment, fur is being widely discarded by luxury brands across the industry, introducing benchmarked levels of animal welfare in their supply chain and opting to choose and announce policies for recycling and reducing waste. Burberry also confirmed its pledge for non-use of fur.

The luxury brand Gucci attempts to reduce destruction of unsold inventory destruction by reusing cloth and leather, said Francois-Henri Pinault, the chief executive and controlling shareholder of Gucci parent company Kering SA.

“The part that is truly, truly destroyed is relatively small,” Mr. Pinault said in an interview last year. “It’s shocking to destroy products of that quality,” he adds.

Discounts for friends and family and outlet stores are the modes that are used by Kering to dispose off unsold clothes, the firm said after the announcement by Burberry. “Thanks to the efforts we provide on the supply-chain side, only a very limited fraction of goods needs to be destroyed,” the company said.

(Adapted from WSJ.com)

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