Back in 2018, the luxury brand Burberry was called out for burning roughly $36,500,000 (RM162,571,000) worth of unsold clothes. This caused a great outrage, with many people getting angry with the brand for doing something so wasteful, and harmful to the environment.
After this happened, Burberry said that they would finally put a stop to this practice, alongside removing real fur from their production. But even though it was rectified, Burberry isn’t the only fashion brand to practice this. Companies like H&M, Urban Outfitters and other luxury brands destroy unsold products. The question is why do they do this? A recently posted thread on Twitter by user @/hosun_chung helped to detail a few reasons. So let’s dive in!
Duty Drawback
First things first, what is a duty drawback? According to the U.S. Customs and Border Protection’s official site, it’s essentially when a company receives a refund on products that have not been used. In other words, they get money back. There are three categories of duty drawback: Unused Merchandise, Manufacturing, and Rejected Merchandise.
The category that luxury brands can benefit from is the Manufacturing Drawback. As long as a product hasn’t been used, a company can receive a refund for any product they destroy. This is where fashion brands can turn it to their advantage. By using the Manufacturing Drawback, they can profit more than by selling items at a discount.
The “Gray Market”
The “gray market” refers to the resale of authentic products—such as a Gucci bag—without the company’s consent. Generally, luxury brands want to avoid their products ending up in this market. Why? Because luxury brands are defined by their exclusivity and high prices. They are known for being exquisite, and this premium image is a key part of their appeal.
In the “gray market”, resold products are often sold at lower prices. According to this article on Counter Diversion, this can tarnish the brand’s image, making it seem of lower quality to potential buyers. Not only that, but the brands don’t earn any profit from these resellers.
Product Exclusivity
Lastly, with resellers, there are more products available for everyone. When this happens, the price is dragged down. It’s easy to get the product, which makes it lose its exclusivity. According to an article on Forbes, without exclusivity, there’s no value to the product. After all, a large selling point of luxury products is that they’re hard to get. They’re expensive. It’s a sign of social status. If it’s so easy to get your hands on what’s supposed to be a highly valued product, then it’s not really that impressive, is it?
All the factors listed ultimately lead to a brand’s profits decreasing, and that’s something they want to avoid at all costs. So the solution is to destroy all the unsold products. In doing so, fashion brands are able to gain money, and protect their best interests.
Sources: BBC, Times Entertainment, Vox, The Guardian, U.S. Customs and Border Protection, Counter Diversion, Forbes
Janae Lee contributed to this article.
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