Disgraceful

There’s no other way to describe it. Except perhaps these synonyms I found online:

shockingly unacceptable, shameful, shocking, scandalous, deplorable, despicable, contemptible, dishonorable, discreditable, reprehensible, base, mean. low. blameworthy, unworthy, ignoble, shabby, inglorious, outrageous, abominable, atrocious, appalling, dreadful, terrible, disgusting, shameless, vile, odious, monstrous, heinous iniquitous, unspeakable, loathsome, sordid, nefarious.

That was my takeaway from a recent Wall Street Journal article that looked at what luxury brands do with their unused inventory. The title of the article?

Why Luxury Brands Burn Their Own Goods

Apparently “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.” And as if that’s not bad enough,  “in Italy and many other countries, they can also claim a tax credit for destroying the inventory.” In other words, such reprehensible is actually rewarded.

The article goes on to note that luxury retailers 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.

So if I’m reading this correctly, maintaining their luxury image is more important than helping those in need and harming the environment.

At one luxury retailer, 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, they say. “We do not like to sell our goods in discounted stores,” one executive said. “It’s giving respect to the clients and the workers.”

It seems to me that if you buy a suit for $5,000, that means that at the time you bought it the suit was worth at least $5,000 to you, otherwise you would not have voluntarily entered into the transaction. Once that transaction is completed, the $5,000 becomes a sunk cost, and is irrelevant in the future. If you later see that same suit for $1,500, that should not change the fact that you thought its value at one point was $5,000. If you don’t feel that way then you should not have paid $5,000 for the suit to start with.

So rather than showing respect for its customers, to me it shows a lack of respect, believing that your customers don’t understand the concept of sunk costs.

And if the luxury retailer is worried that if they don’t destroy the leftover goods that people will wait until they discount the items, then maybe it’s a sign that your goods aren’t worth the original price you were trying to sell them at.

Of course, much of the problem could be minimized by better forecasting what the demand will be for your goods, and then matching production with that forecasted demand. That way leftover inventory is kept to a minimum, and the retailer does not have much of a problem to worry about. And as a result they can think of something better to do with those goods rather than burn them.

The good news is that some companies are starting to change their policies.

British fashion label Burberry Group, after admitting this summer that it had burned tens of millions of dollars of unsold goods, announced this past week that it would immediately stop destroying unsold stock.

And Gucci parent Kering says it unloads unsold clothes through discounts for friends and family and through outlet stores.

And Cartier, the luxury watch retailer, pried off the jewels of its unsold watches and melted them down, and is reusing the materials.

Another option is to just donate the goods to the homeless and others in need. If the luxury firms are so worried about their image, such actions would likely generate lots of free, positive publicity.

And changing the tax break so that the firms are rewarded for giving the leftover goods to charity would seem to be a step in the right direction as well.

So I hope more retailers follow the lead of Burberry. This way they no longer have to have “the companies hired to incinerate the clothing film the destruction so that brands can prove to the Italian tax authorities that their inventory has truly gone up in smoke.”

As I said, disgraceful.

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