23 May, 2018

Burberry Destroy £28m Worth of Stock

Burberry caused a bit of a storm when news of their destruction of £28m worth of stock found its way on the internet. They were slammed, ridiculed and slammed some more. What did they do? Not much. Why? It's difficult handling a nationwide PR storm across social media.

What's interesting though is the fact that it's not out of the ordinary, in fact, it's normal. The world you're looking for isn't why or how but luxury. They are a luxury brand and when you're a luxury brand there are rules. What are luxury products? And why do we love them so much? Argh, I wish I had a Rolex!

Why Do We Love Luxury Products?

A sign of wealth, success or being a member of the elite. Our love-affair with luxury products knows no bounds and thanks to social media platforms like Instagram, it's only getting stronger.

When was the last time you saw any of those products? There’s a reason for this, or rather, reasons.

The idea of driving a Ferrari with a Rolex on your wrist and champagne being carried in a Louis Vuitton Noé bag is a dream for some but a reality for others. How do luxury brands create this desire? More importantly, how do they control it?

A common foe to luxury brands such as Jaeger-LeCoultre, Patek Philippe, Prada and Chanel is Ubiquity. It's a term which makes a luxury company fear for the value of their brand. Ubiquity is where something is everywhere and in the world of Fashion, Accessories, Vehicles etc. that can be a problem.

How Do Luxury Brands Stay Luxury?

There are many ways to stay luxury, we counted 4 and have an example for each one to put into perspective the challenges these brands face which force them into committing these actions.

Richemont is one of the biggest holding companies for luxury watches in the world. They own brands such as Cartier, IWC, Vacheron Constantin, Panerai and more.

Quoted as being an 'extreme measure' for 'extreme circumstances', Richemont started an initiative whereby they bought back their watches which ranged from £1,000-£20,000 with the aim of dismantling them, recycling any diamonds/jewels or destroying their luxury timepieces completely. 

But why are they doing it? 

Ensuring long-term brand equity can cause a company to do questionable things. They want to protect their brand, the prices they can charge and also maintain relationships with retailers, wholesalers and clients. The severity of these actions can multiply when a luxury brand is involved. Here's a few;

1 - Revoking Licenses

Usually, a luxury brand will limit the number of licensed sellers they have so they can keep their exclusivity. Vacheron Constantin, for example, owned by Richemont, only have 6 licensed retailers in the United Kingdom.

There have been times a brand has suffered ubiquity and sought to take control of their brand again. Examples of these companies are Burberry and Gucci. Burberry revoked the licenses they issued and also combat fraudsters during the 90's and early 2000's.

They have since regained the exclusivity of their brand but the problem is still there.

2 - Limiting Production

Another measure they can take is limiting production. This is common among luxury retailers because their clientele is usually exclusive and maintaining that reputation requires your products to be rarely seen.

Even though Patek Philippe has over 200 different models in production, the number of watches they will make will not exceed the several hundred.

3 - Buying Back Stock

A somewhat extreme measure can be buying back your own products. The aim is to control the circulation of genuine products. This can hurt the profitability of a company because they are essentially buying back their own stock at cost.

What they do with the stock is up to them, Richemont, for example, is salvaging what they can before destroying their watches.

4 - Destroying Stock

A critical measure is actually destroying stock. This is where a brand will get rid of their stock to ensure it doesn’t re-enter the market in any way. Richemont has been buying back their stock and also destroying it to the tune of over £400m.

This is not uncommon in luxury goods markets as fashion houses are known to set burn excess stock in order to maintain their exclusivity. 

Final Words

The extreme measures that brands go through to protect their brand just show how much it costs to stay luxury.  

Fashion house Burberry announced they will stop destroying their products which do not sell. This came at the time they received mass media coverage over their handling of excess stock. Why? They destroyed £28m worth of goods!

While this is good news, it still leaves the door open for a greater emphasis to be placed on the other methods.

As the fight against ubiquity continues, there is no doubt that brands will endeavour to protect their long-time value and how they do this is something we look forward to writing about!

Take a look at our article: Richemont Destroys £400m worth of Watches which goes further into this controversial issue.

Fighting Against Ubiquity
Fighting Against Ubiquity
Fighting Against Ubiquity
Fighting Against Ubiquity
Fighting Against Ubiquity
Fighting Against Ubiquity