Bonfire of the luxuries
When Burberry released its annual report in July, the focus at first was on key financial figures like full-year revenue and profit and whether any progress had been made on the multi-year turnaround strategy outlined by Marco Gobbetti, who was just 12 months into his role as CEO of the British luxury brand.
But soon, investors, consumers and the media became fixated on another number buried within the 200-page report – the £28.6 million ($51.4 million) worth of unsold clothes, accessories and perfume that Burberry had physically destroyed in FY17/18, up from £26.9 million the previous year.
The products were generally more than five years old and had not sold even through discount outlets. More than a third of them were beauty products such as perfume, which Burberry said was a oneoff related to the licencing of its beauty business to Coty in 2017. When the figure started to make headlines, Burberry released a statement saying that it seeks to minimise excess stock and, when necessary, only works with specialist companies who are able to harness the energy from the destruction of its unsold stock (incineration seems to be the method of choice).
But still, the backlash was swift. One investor reportedly asked why shareholders couldn’t buy the unsold items, and many consumers suggested the brand simply donate excess stock to charities. Burberry’s share price fell nearly 4 per cent over the two weeks following the revelation.
The saga came to an end last week, when the luxury brand announced it would stop destroying unsold products immediately and ramp up efforts to reuse, repair, donate or recycle unsold products.
The company referenced its recent partnership with the Ellen MacArthur Foundation’s Make Fashion Circular Initiative and highlighted a new collaboration with sustainable luxury company Elvis & Kresse to transform 120 tonnes of leather offcuts into new products over the next five years. The company also announced it will no longer use real fur or angora in products.
“Modern luxury means being socially and environmentally responsible. This belief is core to us at Burberry and key to our longterm success,” Gobbetti said.
A better solution
As the dust settles on this particular retail scandal, a few things have become clear. Burberry is far from the only culprit; luxury retailers have quietly been destroying unsold goods for years. Kering, which owns several luxury brands, including Gucci, recently released a statement saying it destroys “only a very limited fraction” of goods, and Compagnie Fanciere Richemont, which owns Cartier, has admitted to destroying some unsold watches.
It’s also clear why luxury retailers opt to physically destroy the items they spend so much time and money creating, rather than, say, donating them. According to one argument, brands are simply looking to protect their intellectual property by preventing items from ending up with unauthorised distributors, or falling into the hands of counterfeiters. Another argument suggests that luxury brands have a vested interest in maintaining scarcity and exclusivity in the market, since this is partly how they justify the price of their products.
What is less clear is why brands decided that physical destruction was the best solution to this problem, and why they continue to do so. Why haven’t other luxury brands taken the opportunity to commit to ending this practice, especially given the recent backlash against Burberry? Does this suggest that reusing, repairing, recycling or donating unsold products – as Burberry now plans to do – is actually harder than it seems?
Alison Covington, founder of Good360 in Australia, thinks so.
“You can’t out a business and say you have to do something about it if there isn’t another solution available to them,” Covington tells IRW.
Covington should know. She launched Good360 in Australia in 2015 when she noticed that retailers had few options for clearing excess stock other than their own discount channels or third-party platforms like Catch. This was resulting in brand new items ending up in landfill.
Good360 connects retailers with excess stock to charities in need of donations. The organisation currently works with major mass-market retailers like Big W, but Covington says the three-year-old organisation isn’t big enough to deal with the immense demand for the service in Australia.
Beyond the basics
This raises the question of why retailers – whether mass market or luxury – end up with so much excess stock to begin with? Dr Paul Harrison, professor of marketing and consumer behaviour at Deakin University business school, believes the problem stems from ingrained mindsets, rather than lack of options.
“There has been a culture of businesses not being very sophisticated in their understanding of the market for a very long time,” Harrison tells IRW.
“They create lots of goods and when they don’t sell, they’re willing to bear the cost of destroying them, rather than trying to understand the market better to begin with. It’s like they’re doing their market testing in real time.”
According to Harrison, it is possible to predict the impact of releasing a certain amount of product on the market, but businesses have been slow to adopt this level of analysis, particularly in the luxury space.
“Because it’s a small niche space, they haven’t put a lot of time or effort into understanding their market beyond basic stuff,” he says.
Harrison says businesses make the mistake of assuming that predictive models have to be perfect and abandoning them if they’re a little off. But that isn’t the standard other parts of the business are held to.
“When the finance department does a budget, they’re just saying this is what we think we’ll spend. If they get it wrong, the business doesn’t say, ‘Let’s just not do a budget next year’,” he says.
“The metrics won’t be perfectly accurate but they will be more accurate than if you just throw things out into the market and then destroy what doesn’t sell.”