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OM in the News: Setting Inventory on Fire

September 12, 2018

A Korean Burberry store

Every winter the Tuscan workshops of Stefano Ricci, a high-end menswear label, box up the year’s unsold products—from cashmere suits and silk ties to finely woven cotton shirts—and send them off on trucks to be burned. “Destroying unsold inventory is a widely used but rarely discussed technique that luxury companies perform to maintain the scarcity of their goods and the exclusivity of their brands,” reports The Wall Street Journal (Sept. 7, 2018). In Italy and many other countries, they can also claim a tax credit for destroying the inventory.

Last week, British fashion label Burberry thrust the technique into the spotlight by announcing it would immediately stop destroying unsold stock, bowing to pressure from environmental groups who say it is wasteful. The amount of stock Burberry destroys had risen sharply in recent years, from £5.5 million in  2013 to £28.6 million last year. Other high-end brands, however, say destroying inventory is a necessary evil. Goods that end up in outlet stores or in the gray market, priced at a steep discount, contradict the industry’s main sales pitch: that luxury goods command higher prices because they are inherently more valuable. Executives see the destruction of inventory as a service to the customer. Clients don’t want to spend thousands of dollars on a suit, only to see the same item a few months later selling at an outlet store for half the price.

Burberry’s announcement was aimed at younger shoppers who are environmentally conscious and, increasingly, a core demographic for the luxury-goods business. Brands across the industry are abandoning fur; imposing animal-welfare standards on their suppliers; and touting their policies for recycling and reducing waste.  Burberry said it was also ditching the use of fur.

Classroom discussion questions:

  1. What should Burberry do with unsold inventory?
  2. Why do apparel makers burn their stock?

 

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