Burberry Destroys £28.6 Million In Stock – Why Not, The Stock Is Cheap, It’s The Brand That’s Valuable

There’s a certain amount of shock being expressed at the idea that Burberry destroyed £28.6 million of stock last year in order to “protect the brand.” Further, that many other such luxury brands do much the same thing. The argument being that burning some portion of what doesn’t sell is more profitable over time than selling it off cheap. About which we might say a few things, the first and most obvious being that if those who do this for a living think it a good idea then we’ve really got to have some very strong evidence to gainsay them. They do, after all, know their own business better than we do.

Burberry, the upmarket British fashion label, destroyed unsold clothes, accessories and perfume worth £28.6m last year to protect its brand.

It takes the total value of goods it has destroyed over the past five years to more than £90m.

Fashion firms including Burberry destroy unwanted items to prevent them being stolen or sold cheaply.

That the energy from that burning is captured is an irrelevance, despite it appealing to currently fashionable nostrums.

Designer brands often destroy unwanted stock to stop it being sold at discounted prices and maintain the exclusivity of their products so they are not sold to the “wrong people,” The Times reported.

In its annual report, the luxury clothes maker, renowned for its checked designs, $1,800 trench coats and $250 polo shirts, stated that it destroyed $13.76 million in beauty products and $24 million in ready-to-wear products and accessories.

That’s really where the point is. Sure, Burberry makes expensive things out of expensive cloth and so on. But a decent enough polo can be bought from a Bangladeshi factory for $1 in any sort of bulk. Say that Burberry’s paying $5 for their really special ones. There’s a lot of margin between that and the $250 they charge for one, no? Which is where the solution to the puzzle is:

Luxury brands destroy unwanted products to protect their intellectual property and brand values, according to insiders. Designer labels, it is claimed, do not want their products to be worn by the “wrong people” after emerging on to “grey markets” at knockdown prices.

Well, yes, except. What Burberry is really selling is a Veblen Good, that’s one that people desire because it is expensive. It is possible to show your economic – and thus in humans, to a large extent at least, your social one – status by wearing something obviously expensive like Burberry. Things stop being Veblen goods if it ever becomes known that they can be bought cheaply.

We can combine that with the obvious cost structure of the business. Very little of the money being handed over goes to the manufacture of the actual items. Almost all of it, in fact, goes on the publicity, advertising and marketing to create that Veblen good image. Destroying unsold stock is thus a very cheap method of protecting the actually valuable thing, the brand.

Which is why these brands destroy stock to protect the brand. The stock is the cheap stuff, the brand the expensive. Destroying cheap stuff to protect expensive makes great sense which is why they do it.