Luxury Brands Burn Unsold Goods. What Should They Do Instead?

LONDON, United Kingdom —  Last year, Burberry dressed more than 250 unemployed women — some homeless, others fresh out of prison, others simply having difficulty finding work — for job interviews that could change their fortune.

But this isn't simply a charity case. The British brand donated these wares to Smart Works, an organisation that supplies free clothes for interviews, not only because it was a nice addition to its corporate responsibility agenda, but because it has to find new ways to offload unsold stock, once destined for the incinerator.

Fashion is a business rife with leftovers. No matter how cool or in-demand a brand is, at the end of the sales season there will be some styles that don't sell as well as others, leaving the label to figure out what to do with the extras. Even a combination of the best brand merchandisers, savvy designers and artificial intelligence can't predict exactly what will and won't sell. Until widespread on-demand manufacturing becomes a reality, there will be unsold inventory.

But now the pressure on the luxury industry to find new solutions is growing, as consumers condemn brands who incinerate product or dump it in the landfill, and governments legislate to stop the act.

In France, new laws banning brands from burning or dumping unsold clothing will affect the big groups — including LVMH and Kering — in particular, as they own a large-and-growing percentage of megabrands generating billions of dollars in sales and producing billions of dollars in inventory each year. Now, brands must either recycle or donate products, according to the new “anti-waste and circular economy” law set to be implemented by the end of 2021. It includes fines of up to €15,000 ($17,050) for illegal dumping. (Though just how stringently it will be enforced is unknown.)

The scale of the problem is huge. Bernstein luxury analyst Luca Solca estimates a “best-case scenario” is that luxury brands will be left with end-of-season unsold inventory worth 10-to-13 percent of full-price sales. The French government said between 10,000 and 20,000 tonnes of textile products are destroyed every year in France, equivalent to the weight of two Eiffel towers.

It's the biggest open secret in the fashion industry, because it proves how inefficient the current system is.

“It’s the biggest open secret in the fashion industry, because it proves how inefficient the current system is; that it’s cheaper to burn these amazing products than to produce less,” said Orsola de Castro, co-founder of advocacy group Fashion Revolution. “We know they burn on at many points, not just end stock, but from the design studios to the fabrics with logos — it’s constant. We demonise fast fashion, without looking at the reality. Luxury isn’t slow, they are using materials that are just as polluting and they are producing plenty.”

For an industry based upon the perception of exclusivity, incineration worked because it protected brands from heavy discounting, grey market sales in unsavoury stores and outlets, and counterfeiters. But now that’s off the table, there is a clear imperative to find new solutions.

This is a “new challenge for brands,” said Bernstein’s Solca. “There is still work to do on this front – especially in Paris.”

Burberry was a first-mover in the luxury sector with its public commitment not to burn any product in September 2018 after public backlash over the long-standing practice. But a year and a half later, no other luxury rival has publicly followed the British-based company, underscoring how endemic incineration remains.

However, there are other brands quietly adopting a no-burn policy. Gucci and Moncler — two brands that refrain from participating heavily in the end-of-season sales cycle — do not currently burn unsold stock, although representatives from the company declined to comment on the record about this.

So, what are Burberry and its contemporaries doing to make the shift?

Moving Toward Zero Waste

To rid itself of the £28.6 million ($37.2 million) of product that would have previously been destroyed, Chief Executive Marco Gobbetti has implemented a "zero-waste mindset" across the business, from staging carbon-neutral fashion shows to partnering with secondhand luxury marketplace The RealReal to encourage extending the use of clothing. Customers who consign their old Burberry clothing and trenchcoats are offered a personal shopping experience in US stores.

Materials are also being recycled: leather scraps are being donated to leather accessories and homeware maker Elvis & Kresse, which then transforms them into larger components that can be hand-woven into a new hide.

Other initiatives include regenerating rolls of fabric into yarns, other fabrics or insulation for material stuffing in car seats. Burberry is also looking into ways of repurposing unsellable finished products. The business is encouraging extending the life of its products by offering up repair and replacement parts for older leather goods and vintage clothes.

Old Burberry fabric is also donated to Progetto Quid, an Italian brand that employs mostly women from vulnerable groups such as victims of violence and drug trafficking, former inmates and refugees. It’s currently repurposing old Burberry fabrics into new clothing.

At LVMH, the world's largest luxury group, unsold stock is offered to employees via private sales — and certain products are donated to fashion and leather goods schools and charity organisations like La Réserve des Arts and La Fabrique Nomade, which employs refugees and uses materials and textiles from Chaumet, Louis Vuitton and Kenzo.

But while 93 percent of the groups’ 102,184 tonnes of waste was recycled, “transformed into energy” or reused in 2018, the owner of Louis Vuitton, Fendi, Celine and Givenchy wouldn’t comment on what happens to the remaining 7 percent. Nor would they comment on the French laws and how they plan to meet them.

Kering, which publishes an annual account of the cost of its business to the planet by tracing and measuring the environmental impact of its supply chain, has committed to be carbon neutral and invests in sustainable materials innovation, as well as recycling and upcycling systems.

The little waste that was incinerated in 2018 and 2019 at Moncler was largely from offcuts and pre-production waste, although unsold product is not burned. Some of it is sold to family and friends of the brand or placed with NGOs to support people in cold, disadvantaged areas, although most of it is placed in the company's own outlets stores.

Using the Outlet Channel Smartly

Of course, Moncler isn’t the only brand to rely on the outlet channel to offload inventory. However, brands must use the channel wisely in order to maintain desirability in the full-price market. Online outlet channels like Yoox make it too convenient and easy to buy luxury at hefty discounts of up to 70 percent, negating the impression of exclusivity, said Bernstein’s Solca. He argued that outlet channels should instead be a place to drop bottle-of-the-barrel items for true bargain hunters only. (For example, irregularly sized items or unpopular styles.) “The unspoken message should be: 'You want the great styles in your size? Go and buy at full price,'" Solca said.

Outlet channels should ... be a place to drop bottle-of-the-barrel items for true bargain hunters only.

At Kering’s top-performing brand, Gucci, it takes multiple seasons — more than a year — to move product to outlets, with the rest offloaded during friends and family sales. The brand’s merchandising strategy — which is less reliant on one-off seasonal items or concept — means many of its products can stay in full-price stores for longer.

Making Less Product Overall

Reducing the amount of inventory on hand in the first place is also a priority for luxury brands. Burberry is releasing smaller, more frequent collections. Moncler's Genius programme — a series of one-off, limited-edition designer collaborations that drop throughout the year — required an overhaul of its entire supply chain. The precise planning, delivery and accuracy has helped reduce inventory across the board. Moncler's overall full-price sell-through rate is around 70 percent. (Typically, it's about 60 percent for luxury ready-to-wear.)

But producing far, far less product in favour of higher quality, longer-lasting clothes whose life can be extended, recycled or upcycled requires some big shifts in thinking for an industry driven by profit and sales.

LVMH said it has much less unsold stock than mass-market brands, and undertakes “fair production” of high-quality, durable, timeless products that preserve ecosystems.

Embracing a Mindset of Transparency

Overall, brands need to be more transparent about where and why waste is occurring across their supply chains. “It has hit the fashion industry like a thunderstorm, the understanding of just how much they are wasting,” according to Fashion Revolution’s Orsola. “It needs 100 percent transparency and 100 percent slowing down of the industry, which means producing less, producing carefully, and having the understanding of everything you’re producing and a solution in order to maximise its life.”

Editor's note: This story previously stated that Burberry donates unsold clothing to apparel brand Progetto Quid. This is incorrect. Burberry has donated old fabric to the up-cycled label.

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholder's documentation guaranteeing BoF's complete editorial independence.

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