Why Did Burberry Burn £28.3 million of Their Own Stock?
In the past week news broke that Burberry had incinerated £28.3 million-worth of their own stock.
The stock that was burnt included finished goods such as: garments, cosmetics and perfume.
Many of the reports were critical of the luxury brand, broadly citing environmental concerns. Further critique was levelled at going to such lengths to not allow the older goods to be sold at discount.
In the current environmental and economic climate; this decision has drawn considerable ire.
The Scottish Herald even went so far as to describe Burberry as “morally bankrupt” because of the activity.
A lot of the coverage also noted, however, that Burberry are not alone in this activity.
In reality, this practice is bizarrely commonplace amongst luxury brands (as well as others).
Without considering the current backlash on Burberry, and the clear reputational damage there… why would Burberry, or any other luxury brand, destroy valuable stock en masse?
Why do luxury brands burn their stock?
Much of the coverage stated that the aim of burning stock is to stop luxury goods falling into the wrong hands.
The suggestion here is that Burberry, and others, would prefer to burn their goods than have them in the hands of “undesirables” via the grey market. (“Undesirables” presumably defined as people who prefer not to buy luxury goods at full price and would circumvent conventional sources.)
The jury is out as to whether this is truly the case. Although the court of public opinion have, perhaps, already made up their mind on this in the wake of the coverage.
The reality, however, is slightly more nuanced.
The reason for burning old stock is that allowing for clearance stock and discount sales can be fundamentally damaging to luxury brands in the long term.
Let me explain.
The Key Attributes of Luxury Clothing Brands
Luxury fashion brands rely on three main attributes. They must be:
- Seasonal – fashion companies offer certain styles only available at certain times of the year. Furthermore, each year’s styles are broadly limited to that year.
- Exclusive – the clothes, being premium goods, are not widely available to everyone. High-fashion companies produce what are generally more unique prestige items.
- Scarce – similar to exclusivity, but concerning how many items are available. Luxury brands have to avoid an overabundance of goods on the market. “Less is more”.
If a large amount of off-season goods entered into the market at discount, this would fundamentally challenge each of these criteria.
Styles would become widely available which are not “in-season”.
The items would be more widely attainable and less exclusive.
And there would be a flood of goods on the market impacting their rarity.
At this point, the brand would soon no longer appeal to its consumers as a luxury brand – and would slowly but surely become akin to an, albeit high-quality, high-street brand.
Crucially, “dilution” likely would cost more to Burberry than the destruction of millions of pounds worth of material stock in the long run.
It is not difficult to argue that brands are centrally important to the fashion sector. Perhaps more so than many other type of businesses.
To the untrained eye, a label and brand can be what communicates the difference between the Armanis and “Primanis” of this world.
It is true that in most cases, luxury clothing costs more to produce than the high-street equivalents.
But this ratio is not reflected in the prices seen in-stores.
Brands allow companies to charge a premium beyond the increased cost-price – allowing for significant profit to be made with less stock being sold.
In lieu of in-depth knowledge of tailoring and fashion, the lay customer places faith in the brand and the values it encapsulates.
The brand offers a promise of certain values, which the product then fulfils. (Whether this is a premium experience for a new customer – or a contiguous experience for an existing brand advocate.)
In this way, a lot of the value of a Burberry scarf does not come from the material and garment itself – but the meanings that the wearer and wider society place upon it.
So what are Burberry *actually* burning?
When Burberry state in their quarterly report that they incinerated £28.3million of their stock – this likely refers to the sale price that the goods would have attracted if bought.
A cashmere Burberry scarf costs £320 (or $420) to buy.
A cashmere scarf costs can be made for roughly £15 (or $20).
Aside from the mark-up that comes from associated costs; much of the value Burberry can command comes from its brand value and status as a luxury garment producer.
(High-street producers typically sell more products at a lower profit margin – by producing them en masse).
So, the material cost of what was destroyed would only be a fraction of the sale price. Perhaps as little as only 1/20th of the amount stated in the press.
(Or if the £28.3million refers does refer to cost price – the value of Burberry’s bonfire might balloon to half a billion pounds!)
As such – we can surmise that much of the value that was actually “burnt” is the added value that is derived from the Burberry brand.
It’s ironic that to preserve its brand, Burberry would have to routinely “purge” its material holdings which are inflated in value because of the brand that is attached to them.
If it had not done-so however, value of the brand would slowly erode, alongside the accepted value of its products in its customer base.
Those looking for exclusives would turn to others for goods that are seasonal, exclusive and rare.
This paradox can require a fair amount of mental gymnastics to comprehend clearly and without the lingering sense of injustice.
Furthermore, this argument still does not allay the valid concerns of critics who take a dim view of the practice.
The positive environmental and humanitarian impact that could have been gained from more ethical use of stock cannot be understated.
Clearly and rightfully, the practice of burning stock as such is viewed critically in all quarters.
However, it is also remarkable that luxury brands (and fashion outlets in general) go to such lengths to maintain the value of their brands.
It certainly goes some way toward expressing how centrally important brands assets, protected by trade marks, are to producers of luxury goods.
In this case, whilst Burberry perhaps unfairly weather the storm of bad PR for an industry-wide practice – their board will be steadfast in the value of protecting their brand.
Broader questions might be levelled at the luxury sector, as opposed to individual actors, in that such radical means are needed to achieve such ends.
This whole debacle does lead to the question, however – which brand will be first to challenge this paradigm and incorporate sustainability into their product life-cycle?
And what might be gained (or lost) in doing so?
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Why Did Burberry Burn £28.3 million of Their Own Stock? was written by Lauren Waterman