Maintaining the value of your stock, without incinerating it
Keen followers of the world of fashion, or the BBC news website, will have noticed that Burberry have hit the news on a couple of occasions recently. The first was for their abandonment of serifs in a bold new brand redesign. The second was the even more shocking report that the company has resorted to fashioning one of the world’s most expensive bonfires out of old Burberry stock to prop up its prices.
We’ll ignore the first piece of news for the moment, but you can read my thoughts on minimalist design monoculture and why it’s an awful idea here. Instead, let’s look at why anyone would want to take the drastic action on show in the second piece, and whether there are more environmentally friendly/less bizarre ways of retaining exclusivity and value in stock.
Why would you burn it?
- Supply and demand: if the market is full of last season’s pashminas, the likelihood is that it will (1) be less interested this season’s pashminas, and (2) be negatively affected by the oversupply of your pashminas generally. Old stock cannibalises future sales, and reduces consumer hunger overall.
- The grey market: brands often have agreements with other companies to sell off old stock (TK Maxx lives for this), so long as this stock complies with strict presentation, quality, geographical and various other restrictions. The more stock that is out there, the harder it is to police these agreements. The more agreements that are out there, the less likely they are to be tailored and effective. Genuine stock will be popping up in poor condition, at a low-low price, in a territory that you thought you had ruled out completely. This unauthorised stock forms part of what is known as the “grey market”.
- The black /counterfeit market: just as an increase in available stocks can result in a lack of control over grey market distribution, the same increase can contribute to increased difficulties in monitoring the production and distribution of counterfeit goods. It’s more economical to produce a good copy from a grey market product than an original and, with an already flooded market, black market prices appear consistent with off-label or old stock.
- Storage is expensive: If you don’t want to pay for warehousing in the hopes that one day your green tiger-print velvet flares come back in, then it probably is cheaper to burn them than to warehouse them. Outbound warehousing can often account for nearly a quarter of a retailer’s operational costs.
- To create energy: no, seriously, Burberry apparently recaptured much of the energy from the incineration of its old lines, as the BBC reports. No details as to exactly how this has been achieved have been given yet. Perhaps Doc Brown’s Mr Fusion device has finally become a reality.
What to do if setting it all on fire proves to be… unpopular?
- Improve forecasting: not always possible in FMCG or low value goods. For luxury brands, it should be (reasonably) possible to allocate an expected income figure to a product range, and run that range until it is exhausted. At the very least, it should be possible to get a little closer than £28m-worth of incorrect forecasting. Harvard Business School have plenty of papers on the subject – but this one does a good job of highlighting the importance of demand uncertainty analysis, and of using sales data to improve estimates.
- Recycle: there has to be an alternative use for all of that material. Most luxury brands are doing this to some extent now, and it looks like Burberry have tied up a deal with Elvis & Kresse to reuse unwanted leather.
- Register your brands and designs: in every territory touched by your supply chain. Registered rights (and the certificates that evidence them) are critical for securing the help of courts and customs in blocking leaks and rip-offs.
- Improve licensing structures: clearly worded contracts, clear boundaries for brand use, clear reporting obligations, and clear consequences for breach are essential. The aim is to discourage a leaky supply chain. Admittedly, chains are becoming increasingly more complicated: manufacturers, distributors, transporters, retailers stretching from China to Seattle. But, each link in the chain should be assessed and a suitable set of agreements drawn up tailored to secure it.
- Focus on monitoring and take action: often your consumers are your best tool when it comes to monitoring. Take notice of reports of unusual pricing or quality control issues. Beyond this: make sure that you are checking for similar trade marks being registered in your territories, have boots on the ground in each of them and, when issues arise, take action against infringements and breaches. Those contracts (above) should provide you with usable remedies against your own people, and your registered rights should deal with everyone else.
Tighten up on all of this and you may not have to torch SS2018 in AW2018, and if you need any advice contact our IP & Media team