“If only we could find the dumpster before they light the match.”
This was the joke that was circulating a few years ago when it emerged that Burberry Group Plc had burned millions of dollars value of expensive designer products that he couldn’t sell.
But the practice of destroying unsold luxury goods is no laughing matter. Trainer of Tapestry, Inc. apologized recently after a story broke on social media platform TikTok about the American label cutting her handbags and throwing them away.
High-end retailers have traditionally sought to destroy products they could not sell in order to preserve their exclusivity. It was deemed better for unwanted designer handbags, shoes and dresses to go up in smoke rather than branding, ending up in low-end stores, or being worn by the less wealthy. Seeing a brand’s logo in any of these scenarios would jeopardize its value, so the thinking went.
To say the least, this point of view has aged. The brand’s cachet is no longer limited to being exclusive; consumers care more about inclusiveness and ethics. Any monetary gain that might come from eliminating the oversupply is now outweighed by the outrage of buyers at the harmful practices. Millennials and Gen Z are the most likely to question whether a brand is polluting or preserving the planet. France bans the destruction of unsold non-food items next year.
Burberry was criticized by some investors in 2018 after revealing in its annual report that it had destroyed Â£ 28.6million ($ 38.9million) of merchandise. Coach came under fire last month after a video suggested the company cut bags that customers returned to stores. Because they were deemed damaged, they could no longer be sold or donated, the company replied.
It is difficult to place a monetary value on what a brand earns by preventing the sale of products through unofficial channels and what it loses due to negative consumer reaction. But there are a few clues.
According to YouGov’s BrandIndex, consumer sentiment towards Burberry and the company’s overall reputation plummeted in July 2018 after the issue of inventory destruction emerged. Coach brand buzz has also waned in recent weeks.
In September 2018, Burberry announced that it end the practice of burning bags and pledged to step up efforts to reuse, repair, donate or recycle unsold products. He also said he would no longer use real fur. These commitments helped the Burberry brand value soar in 2019, according to consulting firm Interbrand. Of course, Burberry also hired a new designer in 2018, but its eco-friendly policies probably made a difference as well.
This is because more buyers, especially younger ones, are concerned about going green. According to Tensie Whelan, director of the Center for Sustainable Business at New York University, having a reputation for being environmentally friendly elevates clothing brands, as does Reformation and Patagonia. Shares in green sneaker maker Allbirds, Inc. increased by 93% on its first day of trading Wednesday of last week.
Fortunately, fashion groups can make sure in several ways, 1.) that they don’t have too much excess stock, and, 2.) that they ethically dispose of any excess supply.
Preventing overabundance begins with inventory control. According to McKinsey & Co., 40% of all clothing produced ends up in storage or disposed of in some way. For example, companies like Kering SA, owner of Gucci, which prohibited destruction of unsold goods, are already investing in artificial intelligence to better predict how many dresses or bags they will be able to sell.
The remaining products can then go to a brand’s discount stores, private sales for employees, or donations to charities and fashion schools. Earlier this year, Coach started a program for goods he couldn’t sell or give away, called Reloved, where damaged items could be refurbished and resold. About 40% of stores donate their damaged bags to the program, but the company says it is committed to increasing that number and will no longer destroy returned merchandise that cannot be sold or given away.
Luxury groups also reuse and recycle materials, such as the metal hardware of the bags at Gucci and old sneakers at LVMH Moet Hennessy Louis Vuitton SE, the biggest brand of Louis Vuitton. About ten years ago, Hermes International created Small H to create new elements from end of lines and material remains, including scraps of leather and silk.
But fashion could go further.
Gucci, for example, through its online concept store Vault, personalizes certain vintage pieces for resale. Why couldn’t the same approach be taken for unsold inventory? Repackaging items from past seasons in creative ways could change them from discount to desirable. The rise of luxury resale platforms, such as RealReal, Inc. in the United States and Vestiaire Collective in Europe, creates an alternative channel to traditional outlet stores.
Perhaps the most striking position has been that of Italian cashmere maker Brunello Cucinelli SpA, who unsold clothing donations of the first half of 2020, estimated at around $ 35 million, to those in need. Yes, such projects take effort and resources, but high-end groups on both sides of the Atlantic have seen a sales rebound in the wake of the pandemic. They can afford it.
Amid growing consumer environmental and social awareness, donating unwanted luxury goods to the less fortunate is more likely to appeal to shoppers than to alienate them. – Bloomberg