Getting Rid of Goods: An Overview of How Brands Unload Surplus Goods

At the height of the pandemic, H&M had nearly $ 5 billion in merchandise, and it wasn’t the only one. With stores temporarily closed due to government mandates and a striking drop in sales as consumers shifted their shopping priorities amid a global health pandemic, brands have racked up stacks of clothing and accessories with zero draw. anywhere to go – and in many cases the options were grossly unsightly. Businesses can either stockpile less seasonal products in the hopes of selling them at full price at a later date (and rack up storage costs in the process), or they can mark items all the way to move them. – by reducing margins and potentially, potentially incurring a black mark in the eyes of consumers (depending on the brand).

While the pandemic has brought to the surface a range of thorny issues in the fashion industry, the problem of excess merchandise is not new to mass market entities like H&M – who have signaled that they have $ 4.3 billion in unsold clothing in 2018 – or for high fashion brands, as companies at all levels have long struggled to keep production volumes under control.

Part of the problem stems from the fact that “for the production of fast fashion and high fashion clothing, it is cheaper to double the volumes with a factory and deal with the excess later,” according to Sophie Mellor of Fortune, who noted that “before the pandemic, many retailers tended to overorder on seasonal purchases, selling half at full price while the rest are cut into end-of-season sales to attract a low-cost customer.” .

The outcome of this predicament for a brand shortage is a question of whether to discount or throw away unsold – or potentially look away when unsold ends up in the gray market. These three options seem to be running out of steam, at least when it comes to luxury goods.

Down with the sheds and out with the destruction

Consistent promotions and deep discounts are presented as the antithesis of luxury and as’ contradicting[ory] of the industry’s main selling point: that luxury goods sell for higher prices because they are inherently more valuable, ”as the Wall Street Journal recalled in 2018. As a result, the labels of sales have been relegated by many luxury brands, notably Burberry and Prada, which are in the midst of the move to move upmarket.

(It should be noted that discounts always prove to be a solution to offloading unsold merchandise for some brands. Tod’s, Dolce & Gabbana, Brunello Cucinelli, Givenchy and Michael Kors, for example, are among the brands that have scored poorly. results on the recent iteration of the Bernstein Price Discipline Index, a monthly ranking that takes into account the number of products brands offer for sale – on their own, or probably more likely, on third-party retailer sites.)

An alternative to delivery is destruction, which is, of course, plagued by many issues from a consumer perspective. Burberry, Louis Vuitton, and brands under the Swiss group Richemont, for example, have made headlines in recent years for allegedly destroying products in an attempt to avoid selling their products at a discount, while also profiting. of the “inconvenience” or the refund of certain duties, internal and fiscal taxes and of certain royalties collected in relation to the products which they export beyond their markets of origin in the European Union.

As recently as this week, Coach damaged unsold or returned handbags before throwing them away for the apparent purpose of (1) preventing others from using / reselling them; (2) avoid selling them at a reduced price as part of a sustainable overhaul to reposition the brand; and / or (3) benefit from the same “tax shelter as if [the products] were accidentally destroyed ”, according to Newsweek. (A representative for Coach denied the latter, saying, “The company does not claim any tax benefit for in-store returns that are unsaleable and cannot be donated that have been destroyed in-store.”)

As the Coach debacle and the Burberry backlash before it seem to indicate, the potential PR fallout that accompanies the destruction of unsold merchandise could outweigh the benefits. Like Burberry, which faced criticism in 2018 after it reported destroying nearly $ 75 million worth of merchandise over a two-year period, Coach has since pledged to “immediately stop destroying returns by store of damaged and unsaleable goods “. Aside from brands that are (somewhat) voluntarily withdrawing from product destruction practices, in some jurisdictions destruction may go against the law, thus taking it off the table as an option, except loopholes that lawyers for luxury goods brands can find; France, for example, has introduced a new law that prohibits the destruction of unsold goods.

Finally, brands have long – but quietly – bet on the sales of their products on the gray market (that is, by retailers outside their authorized distribution chain) in order to recover revenue that could otherwise be lost on unsold products. This is also starting to change. “Very aware of the gradual thinning of the exclusive varnish that they have worked hard to establish and which has already been partly diluted by the strong discounts on off-season inventory by department stores and outlets”, the New York Times’ Elizabeth Paton wrote this summer, many brands are less inclined to turn a blind eye to such unauthorized sales, but they are striving to develop “new ways to combat the gray market”, including harmonizing prices across the world .

So what now?

As the industry’s long-standing model of destroying unsold products continues to lead to public relations disasters that make headlines and in light of attempts by many brands to withdraw – or continue to sell. ‘move away – from discounts, and away from the gray market more and more, how are brands supposed to unload the constant surplus they have left in each season (aside from production reduction)?

Two avenues seem like obvious options – and neither of them necessarily requires brands to openly trim their luxury positioning (hard-earned and heavy on marketing). First of all: brands might be advised to use the resale market more strategically to move unsold products. In addition to providing brands with an additional point of access to entry-level luxury consumers in the same way as more accessible and cheaper products, and the ability to more closely control the products offered and the conditions of those sales , internal resale efforts, and / or partnerships with established resale players could allow brands to somewhat quietly dispose of unsold inventory without having to apply reduced price tags to their merchandise.

As I noted in a recent post, if brands were to aim to take greater steps to own resale space, they could sell the unsold products alongside the products they are repurchasing from retailers (by the end of season to avoid big discounts there) and / or consumers in the same way as resale platforms. Not exactly new territory, the merging of used goods and closing parts already seems to be happening in the aftermarket. As TFL reported in 2018 that in addition to reaching out to consumers who wanted to ship second-hand goods, The RealReal was working with brands and retailers to get rid of unsold clothing and accessories, hence all the “new with labels” products. .

Apparently doubling this B2B element of its business, a representative from The RealReal told TFL last year that the resale giant saw “a 30% increase in brands’ supply in the six weeks leading up to the April 14, 2020 compared to the same period a year earlier.

Another option for brands comes in the form of branded subscription boxes, a business that the site focuses on commerce PTMNTS addressed recently, noting that in an attempt to “innovate around the issue of dead inventory discounts, a growing number of subscription companies are combining the inherent appeal of subscription commerce with the thrill of unboxing to turn unsold items into a hit. surprise ”. The subscription box trend has intensified in 2020, according to PYMNTS, starting in the streetwear space before eventually “moving into luxury goods, as brands from Balenciaga to Palm Angels and more are curated and sent to subscribers who don’t know exactly what [they are getting]. ”

Ultimately, if brands want to avoid these kinds of problems, a review of their production is probably the only way to go; Unsurprisingly, there has so far been no major push among the industry’s biggest brands – at either end of the spectrum – to do less.

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