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The fashion industry at a dead end: New products worth millions destroyed

By Regina Henkel


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Business |OPINION

Another fashion company that intentionally destroys its goods: Burberry announced in its current annual report that it destroyed finished goods worth 28.6 million pounds (32 million euros) in the financial year 2017/18. Destroying one's own products is a desperate step, but above all, it shows in which dead end the fashion industry has meanwhile managed to maneuver itself.

Remainders: a growing problem

This number is even higher than last year. Then, goods totaling 21 million euros were destroyed; additionally, cosmetics worth 10.4 million pounds (12 million euros) landed in the trash.

The annual report does not provide any further explanation. According to news magazine Bloomberg, outgoing chairman John Peace said at the AGM that the destruction of stock is "nothing we take lightly". The new chief executive officer Marco Gobbetti mentioned at least that leather scraps were donated to a company that makes new products out of production waste.

Burberry is far from being the only company that takes unsold stock off the market in this radical manner - H&M, Amazon and luxury labels other than Burberry have come under fire in recent months due to similar practices.

The problem cannot be solved easily

They all face the problem what should happen in the end with unsold goods, defective products and returns? Outlets absorb some of them but they cannot wait forever for a buyer. Then what, on to the discount store or donating them? How would a Burberry customer like it if she would find her brand - let's say - outside her target group? What would retailers say and how would prices develop if more goods were on the market than could be sold regularly? Cut out the labels and resell the goods in the gray market? There are specialised companies for that as well. They promise the brands that their products will never be seen again in the important markets but for a globally operating luxury company like Burberry, this is not easy and only works for products that do not have a high recognition value.

Destroying products is a desperate step and it can be assumed that no CEO trifles with the destruction of capital. However, the fact that companies nevertheless take this action has to do with them having to spend billions on marketing in order o win the favour of consumers and retailers. One does not easily jeopardise this. It shows, however, above all, in which dead end the fashion industry has in the meanwhile managed to maneuver itself.

The current fashion system is overheating

Ever faster product development, more and more collections, constantly changing assortments in the stores: the dynamic of what is ‘in’ and what is ‘out’ is so overheated that the market perverts itself. How can we speak of added value if the goods are so quickly not worth anything anymore? It is said that the consumer has become unpredictable. The rules of the past no longer apply. It often takes 15 months for a product to reach the market. By then, the trend has long gone and fast fashion brands and retailers have adapted it millions of times. Thus, the fashion industry continues to lower production costs, migrates to the poorest countries and ends up accepting after all that only massive discounts will have products find buyers. Fashion design means betting on the future. Therefore, companies intensify their search for enigmatic designer personalities and other influencers because only they manage to create relatively strong purchasing desires. This is less and less successful through the product alone.

For a long time, verticalization seemed the recipe for success. Companies incurred retail margins and thus generated higher product profitability (although one has to become a retailer of course, which is neither easy nor inexpensive). Brands need to have their own online shops in any case. Economically speaking, brands simulated success like this for a while. Contentwise, this did not change the problem. Or as Hans Peter Heimer from consulting firm B4B BusinessforBrands GmbH pinpoints: “Verticalization compensates for market saturation”.

What to do?

The advice today is: back to the consumer! We were at that point earlier when fashion was not bought in a shop but at the tailor's. When personal contact gave some information about why a pair of pants did not sell and what exactly the problem was. Today, digital technologies are supposed to help re-establish that customer contact. Digital 3D product development is bound to become much faster, more precise and more creative. This does not mean that goods will be delivered earlier (no winter coats in August), but that it is possible to start later with their development. That creates more trend security. Reacting faster to bestsellers also means allowing quantities to shrink. If the costs of necessary depreciation and verticalization measures are taken together, one could invest in a more efficient domestic production again. Such micro factories near market regions could help meet demand rapidly. Some innovative companies from Adidas via Nike to Uniqlo are already working on exactly this but there should be a few more.

Photo: Burberry Facebook