image: Burberry
Burberry’s 2017/18 annual report revealed something interesting. Aside from reporting annual revenue of $3.61 billion, the London-based brand declared that the “cost of finished goods physically destroyed in the year [thus far has been] $37.8 million,” that is up from the $35.6 million figure the brand cited for 2017. The number for 2018 includes $13.76 million in “Beauty inventory,” meaning that the rest is ready-to-wear products and accessories.
According to Bloomberg’s Elizabeth Howcroft, “The disposal of unwanted goods shows that Burberry’s turnaround effort under Chief Executive Officer Marco Gobbetti,” who joined the brand from LVMH-owned Céline in January 2017, and designer Riccardo Tisci, who will make his debut in September, “remains unfinished business.” It was also a point of contention for shareholders of the 162-year old, who, according to Howcroft, had “environmental concerns” about the practice.
Burberry is not the first brand to come under fire for destroying unsold items. As Quartz reported earlier this year, Richemont was actively buying-back and dismantling of its pricey timepieces, in an effort to “save their brand value,” at least in part from the tarnishment that comes from the grey market. Louis Vuitton has, for years, been plagued by reports that in order to avoid selling its well-known bags at a discount and risk tarnishing its image as a luxury leader, it burns its excess leather goods.
Still yet, H&M was accused of burning more than 3,483 pounds of clothing on one occasion last year, according to an investigation from Danish television channel TV2’s Operation X program. This is just a small part of larger practice by the Swedish fashion giant, per TV2, which has accused H&M of burning roughly 12 tons of garments every year over the past several years.
But as we noted in a previous article, the destruction of luxury goods may be more than merely a measure to save face in a market that depends largely on appearances. The potential destruction of products by luxury brands could have another facet to it: By destroying unused products, brands that import goods into the U.S. stand to benefit from the “drawback” or the return of certain duties, internal and revenue taxes and certain fees collected upon the importation of products into the U.S., for instance, from France.
In accordance with U.S. Customs and Border Protection, “If imported merchandise is unused and exported or destroyed under Customs supervision, 99 percent of the duties, taxes or fees paid on the merchandise by reason of importation may be recovered as drawback.” Given that some of the highest duties tend to be on imported clothing, brands stand to claim sizable refunds for destroying unsold products.
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