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Tuesday, October 23, 2018

Strategic CSR - Burberry

The article in the url below shines some light on a practice in the fashion industry that I was not aware of:
"Every winter the Tuscan workshops of Stefano Ricci, a high-end menswear label, box up the year's unsold products—from cashmere suits and silk ties to finely woven cotton shirts—and send them off on trucks to be burned."
I thought unsold items were shipped off to discount outlets although, now it is pointed out to me, it makes sense to burn the clothes (from a business perspective). In fact, there seem to be two main reasons for doing this:
"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. In Italy and many other countries, they can also claim a tax credit for destroying the inventory."
This became a story, however, because Burberry decided to change its policy:
"On Thursday, British fashion label Burberry Group PLC thrust the technique into the spotlight by announcing it would immediately stop destroying unsold stock, bowing to pressure from environmental groups who say it is wasteful. The amount of stock Burberry destroys had risen sharply in recent years, from £5.5 million in fiscal year 2013 to £28.6 million in the last fiscal year."
Although, it seems that the rest of the industry is resisting Burberry's move:
"Other high-end brands, however, 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."
I'm sure the tax write-off is nice, too. While some in the industry will resist, however, Burberry (and Cartier) see value in changing the practice:
"Compagnie Financière Richemont , the Swiss luxury conglomerate that owns Cartier, spent hundreds of millions of euros in recent years buying back unsold watches, which were piling up at retailers because of a drop in demand from Chinese consumers. The company pried off the jewels and melted them down, but is reusing the materials. Burberry's announcement was aimed at younger shoppers who are environmentally conscious and, increasingly, a core demographic for the luxury-goods business. Brands across the industry are abandoning fur; imposing animal-welfare standards on their suppliers; and touting their policies for recycling and reducing waste. On Thursday, Burberry said it too was ditching the use of fur."
For others, however, the business argument is more complex:
"At Stefano Ricci, 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."
Take care
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Burberry Disavows Burning
By Matthew Dalton
September 7, 2018
The Wall Street Journal
Late Edition – Final