Evaluate actions taken by a luxury retailer that had a negative environmental impact and discuss how it may have changed their sense of purpose.? How would y

HBP# RSM076

Exclusivity and Sustainability in the Luxury Fashion Industry:

#Burnberry British luxury brand Burberry came under fire in July 2018 after disclosing it had burned excess stock worth £28.6m (USD 37m). Social media was quick to denounce the luxury fashion house through the viral hashtag- #Burnberry as stakeholders’ trust in the company was put on the line. Could Burberry navigate forward and find a balance between remaining transparent, focusing on sustainability, and maintaining brand exclusivity?

This document is authorized for use only by Sharon Denson in OL-690-10018-M01 Responsible Corp Leadership 2024 D-3 (Jul – Oct) at Southern New Hampshire University, 2024.

Exclusivity and Sustainability in the Luxury Fashion Industry: #Burnberry

Introduction

July 2018 was a rough month for British luxury brand Burberry. The organisation’s annual report had been published the previous month stating that in 2017, a staggering total of £28.6m (37 million USD) of unsold clothes, accessories, and perfume had been destroyed following company orders.1 The news prompted angry responses and sparked heated discussions on social media from consumers, politicians and environmental activists on the subject of wasteful overproduction.

In its initial statements, Burberry clarified that only products carrying the trademark were burned in order to preserve the brand’s value. The company emphasized that the destruction process was ‘environmentally friendly’; it was performed by specialists able to produce energy from the process. Furthermore, the amount of wasted products was unusually high due to a new license with beauty company COTY.2

Burberry was no exception when it came to destruction of excess stock. Other luxury giants such as Chanel and Louis Vuitton were known for similar practices.3 Yet, Burberry became the posterchild for the allegedly ‘common’ actions of the luxury fashion industry as it was singled out and placed under intense scrutiny.

On September 6, 2018, Burberry announced that they would no longer burn excess stock. This announcement was followed by various carefully constructed corrective actions on sustainability, such as the establishment of partnerships revolving around sustainable business initiatives.4 Could Burberry’s renewed sustainable focus prove enough to mitigate the backlash? Was the backlash insurmountable for the brand to recover from the scandal? Could this affect it somehow in the future?

Company Background

Burberry had a unique history. It was founded in 1856 by Thomas Burberry, who invented and patented the breathable, weatherproof and hardwearing gabardine fabric.5 Since the opening of the first Burberry store in London in 1891, the company gradually evolved into a producer of luxury goods aimed at the elite.6

This teaching case was written by Niela Kleinsmith (Case Writer at RSM Case Development Centre), Justin Jansen (Professor of Corporate Entrepreneurship at Rotterdam School of Management, Erasmus University), and Tom Mom (Professor of Strategic Growth and Implementation at Rotterdam School of Management, Erasmus University).

This case is based on field research. It is written to provide material for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

Copyright © 2019 RSM Case Development Centre, Erasmus University. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner. Please address all correspondence to [email protected].

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2024.

Exclusivity and Sustainability in the Luxury Fashion Industry: #Burnberry

The iconic Burberry check, a Scottish tartan design that was featured in countless products such as the Burberry checked scarf, grew to be hugely popular. Aside from the functionality of the trademark fabric, the brand became world famous for the people who wore it. For instance, the Explorer Major F.G. Jackson, best known for mapping parts of the Arctic Circle, wore Burberry during an 1897 expedition.5

However, the Burberry brand was not immune to cloudier patches. The company’s reputation as a luxury brand took a beating in the 1990s and 2000s when the check increasingly got linked to low-income social groups, forcing Burberry to reevaluate its strategic brand positioning.6 In 2006, the brand started to remove their famous check from almost 90 percent of its products, only to reintroduce it shortly after “in an attempt to reclaim its iconic past.”7

Burberry experienced a low period followed by flat growth between 2014 and 2017 after Angela Ahrendts’ departure as CEO from the Company. The situation was on the up again when Marco Gobbetti appointed as CEO in July 2017, doubled down on the goal to “establish Burberry’s position firmly in luxury fashion.”1 Doing so was imperative as Burberry was bombarded with intense competition and a customer base increasingly demanding more “creativity, curation, excitement, innovation and personalization at every turn.”1 Centered on re-energizing their product and enhancing customer experience, Burberry redefined its corporate strategy: ‘The six pillars of our strategy consist of four revenue drivers – product, communication, distribution and digital, and two enablers – operational excellence and inspired people’. Its goal was to “deliver sustainable long-term value for customers, employees and society and reward our shareholders.”1 This was part of the Responsibility Strategy 2022 that was launched in 2017.

Burberry’s annual revenue in 2018 amounted to about 2.73 billion pounds (USD 3.52 billion) when compared to 2.76 (USD 3.56 billion) in 2017. Its revenue in 2019 was 2.72 billion pounds (USD 3.5 billion). It has to be noted that Burberry reported the highest year-over-year FY2016 growth in the Luxury goods sector, at 10 per cent growth. However, in 2017, due to its sale and partnership with COTY, it slid in the luxury product ranking index. In 2018, it was also one of the most followed fashion brands on Twitter with around 8.5 million followers. In 2019, Burberry was the seventh ranked most valuable luxury brand worldwide with a brand value of about 4.7 billion U.S. dollars.8

Luxury with a Conscience

“Modern luxury means being socially and environmentally responsible. This belief is core to us at Burberry and key to our long-term success” — CEO Marco Gobetti4

The self-proclaimed start of Burberry’s responsibility journey occurred around 2004, with the establishment of the ethical trade programme followed by community investment and environmental sustainability programs.9 The first long-term Agenda (2012-2017), launched in 2012, aimed at raising awareness and generating engagement on responsibility across Burberry’s global organisation. Various internal responsibility divisions were established, and responsibility targets were embedded into team objectives.9

The five-year Responsibility Agenda was refurbished and renewed in 2017 as part of ‘Creating

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2024.

Exclusivity and Sustainability in the Luxury Fashion Industry: #Burnberry

Tomorrow’s Heritage’.1 Notably, Burberry’s 2022 Responsibility Agenda was already in place prior to the crisis, one of its prime pillars being to ’reduce and revalue waste.’ The brand prided itself on actively tackling the fashion industry’s waste challenge, stating how they “already reuse, repair, donate or recycle unsaleable products and we will continue to expand these efforts.”1

The shift toward responsible luxury was not without merit. With clothing production doubling from 2000 to 2014, the number of items purchased annually per consumer had drastically increased by 60 percent. In 2014, the total number of garments produced exceeded 100 billion for the first time, which amounted to approximately 14 fashion pieces per person on earth.10

Industry growth came at a heavy price. While the industry was thriving, the amount of waste produced was skyrocketing. Fashion brands were destroying billions’ worth of their own unsold products on a yearly basis. Shorter fashion cycles were partly to blame, pushing high to low-end fashion brands to “constantly put new merchandise out on the market.”11 As a result, companies were faced with vast amounts of excess stock, which were commonly disposed of, rather than recycled or donated, given the costly and time-consuming nature of these latter methods.

Additionally, this practice had significant financial benefits, such as offered by the United States Customs and Border Protection: “If imported merchandise is unused and exported or destroyed under Customs supervision, 99% of the duties, taxes or fees paid on the merchandise by reason of importation, may be recovered as drawback.”12 For luxury companies, there were additional incentives, such as maintaining exclusivity, through perceived scarcity, in an effort to protect and uphold their prestige.

Over the years, various high-end brands had come under fire for their destruction of stock, including major labels like Louis Vuitton and Richemont. The majority, though, had managed to dodge the spotlight for what was a ‘common’ industry practice. It was estimated that nearly three-fifths of all fashion items were destroyed within a single year after production.10

Notably, brands were not obliged to disclose their handling of surplus products nor was stock destruction a topic of public conversation, making accurate quantification of the scale of the problem ‘speculative’ at best.13

Traditional notions of exclusivity were being questioned. Jasmine Bina, CEO of brand strategy agency Concept Bureau noted: "Exclusivity is starting to be challenged…. that goes hand in hand with how luxury itself is being challenged. Access, and those brands who police it, are becoming less and less relevant. Things like health, enlightenment, freedom, social and environmental responsibility – these are the new luxuries, and they all come from within, not without. That's the challenge that traditional luxury brands will have to contend with in the mid-to-long-term future.”12

On the consumer side, younger generations were pushing for socially conscious brands, with 88 percent of UK and US Millennials and Generation Xers expressing the need for companies to drive positive change rather than limit their negative impact.14 These consumer segments constituted nearly 85 percent of global luxury sales growth and were projected to represent 45 percent of all luxury shoppers by 2025.15 This expected market growth as driven by young consumers was acknowledged by Burberry. Their 2018/19 Annual Report highlighted how

4 This document is authorized for use only by Sharon Denson in OL-690-10018-M01 Responsible Corp Leadership 2024 D-3 (Jul – Oct) at Southern New Hampshire University,

2024.

Exclusivity and Sustainability in the Luxury Fashion Industry: #Burnberry

“100% of growth in the luxury market was driven by Generation Z and millennial consumers, compared to 85% in 2017.”16 The brand actively reflected on the perceived high social and environmental awareness of these crucial customer groups emphasizing how “sustainability […] is a key factor in their purchasing decision process.”16

Contradicting this view was the notion that whilst especially Generation Z consumers are highly environmentally aware, these digital natives are easily seduced by “what’s new and now.” This urge to purchase despite apparent environmental engagement presented a clear paradox.17

Equally, there was the widespread consumer type described as ‘indulgers’, which often overlooked social and environmental issues when purchasing luxury goods. For them, the guilt of being aware of unsustainable practices did not outweigh the sheer pleasure of acquiring a desirable product.18 To some, the very notion of responsible luxury may appear a paradox in itself; the associated luxury with self-enhancement values, such as conspicuousness, hedonism and success. These factors could come across as incompatible with the idea of corporate social responsibility, which considers the welfare of others and the environment.19

Regardless of these differences in consumer profile and perceptions of sustainable luxury, key industry shifts included a ‘clean label’ trend. This required companies to be transparent about their supply chains14 and engage in ‘philanthropic luxury retail’, leading to the positive involvement of upscale companies to contribute to their ecosystem.15 This green luxury trend was also catching on outside of the Western world, with a major share of Chinese luxury shoppers- a key target group for high-end brands like Burberry- keen on purchasing ethical brands at a premium price.20

Bracing the numerous changes in stakeholder expectations and purchasing behavior, Burberry prided itself on being ahead of the curve with its Responsibility Agenda. The brand’s efforts on the sustainability front had not gone unnoticed. In June 2018, Burberry commanded the number one spot on the 2018 Dow Jones Sustainability Index, after being included consecutively since 2015.21 But the events of July 2018 caught Burberry off-guard when its alleged efforts at transparency spiralled into a company crisis and a public debate on the (ir)responsibilities of luxury fashion.

. The Scandal

The brand’s long-standing Responsibility Agenda was abruptly compromised by widespread criticism around the significant amount of discarded stock in 2017. Shareholders actively voiced their discontent during the Annual General Meeting on July 12, 2018. The next day, the topic was already picked up by international news outlet Bloomberg, effectively bringing Burberry’s figures on physically destroyed finished products to light.22 Their secrets laid bare, the brand was heavily blasted for their wasteful behaviour by consumers, news media, celebrities, fashion brands, environmental organisations and politicians, in the weeks that followed.

The Backlash

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2024.

Exclusivity and Sustainability in the Luxury Fashion Industry: #Burnberry

Consumers Soon after news of Burberry’s stock destruction surfaced on July 13, 2018 people took to social media to vent their anger. Near the end of July, the hashtag #Burnberry was trending on Twitter and Instagram. Angry consumers tweeted their dismay, noting that while many people could barely afford new clothes and others were dying because of cold, Burberry was burning clothes worth millions of dollars. Many expressed their point of view on what Burberry should have done instead of burning their goods, including donating surplus clothing to charities.

News Media Following the publication of a Bloomberg article on shareholders’ concerns with the amount of discarded goods on July 13, the news quickly spread to major news outlets around the globe.22

High-end news outlets provided a factual description of the events, taking an industry perspective to illustrate the magnitude of the overproduction phenomenon in the framework of the luxury fashion branch. They went on to highlight the “Fashion Paradox” referring to the role of stakeholders in driving excessive demand leading to overproduction and diluted brand integrity and drew on concepts like the circular economy for possible solutions.23

Informal tabloid-like platforms focused predominantly on the sensational aspect of clothing being sold to the “wrong” kind of people instead of focusing on overproduction.24 Additionally, photos of Burberry items being worn by celebrities dominated the media, creating further sensationalism.25

Celebrities Celebrities also expressed discontent with Burberry’s actions. Russell Brand, an English comedian and actor with an 11.7 million following, tweeted about the crisis, stating that the events felt wrong to him. Smaller-scale popular figure Dominic McGregor, co-founder of multi- million company Social Chain, also turned to twitter: "In the year we had the coldest winter on record and an ever-growing homelessness crisis — surely giving the clothes to charities or shelter would have crossed someone's mind?"26

Industry Major brands in the luxury segment declined to comment on ongoing events.27 On the other hand, thredUP, the world’s largest second-hand retailer, condemned the burning of unsold stock via an open letter addressed to Burberry published on July 25, offering the brand to resell their excess stock and donate the proceeds to charity.28

Spotlighting the “environmental crisis exacerbated by the fashion industry,” the letter recognized the “desire to protect…brand image” but took issue with the manner in which it was accomplished, noting that “discounting your product shouldn’t be scarier than putting it on fire.”28 The letter triggered the hashtag #burnberry, fuelling an extensive online protest movement against the brand. Burberry did not respond to thredUP’s criticism or call to action. Furthermore, several other news articles drew attention to the spill-over effect of other luxury brands, such as Louis Vuitton, Nike and Richemont highlighting the commonality of the practice.

Environmental Organizations

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Exclusivity and Sustainability in the Luxury Fashion Industry: #Burnberry

Greenpeace activists referred to the practice of burning clothing as undesirable behaviour that was negatively impacting the environment. The organisation called out Burberry for their disrespectful actions, with Kirsten Brodde (then head of the Greenpeace Detox My Fashion campaign) stating that the label “shows no respect for its own products and the hard work and natural resources that are used to make them.”2 Lu Yen Roloff, also of Greenpeace, commented on the magnitude of the issue, saying “It’s a dirty secret of the fashion industry. Burberry is just the tip of the iceberg.”23 Animal activist organization PETA focused on the waste of animal skins and furs, using the situation to draw attention to the company’s use of these materials as well as their shameful disposal of it.29 Smaller scale platforms such as “Treehugger” also scrutinized Burberry’s behaviour in an in-depth manner, ultimately urging the UK Environmental Agency to “enforce the law and investigate what happened.”30

Government British Labour politician Mary Creagh tweeted about the crisis, calling for a government crack- down. Politician Tim Farron, the environmental representative of the Liberal Democrat party, also shared his opinion labelling Burberry practices as ‘shocking news.’31 However, there were no changes in government policy. Only about a year after the Burberry crisis, governments starting to tighten the reigns on the fashion industry. In June 2019, France announced a ban on the destruction of clothing, accessories and cosmetics from 2023 onwards, setting the stage for other markets to follow.32

During the better part of the crisis, Burberry remained relatively quiet, issuing select and brief corporate statements.

Breaking the Silence: Burberry Responds

Burberry’s response to the critical situation comprised of two main phases, namely the initial response phase immediately following the scandal, and a second phase in which the company outlined and communicated significant changes in its long-term strategy.

The first official statement came on July 19 emphasizing both the ‘responsible’ manner in which products were disposed of and the brand’s efforts to minimize overproduction. Furthermore, Burberry mentioned how only trademark items were destroyed. The company did not apologize and argued that the numbers in 2018 were excessively high due to a large amount of perfume that needed to be destroyed due to a new license with beauty company Coty.33

Following continuous backlash, on September 6, 2018 the brand announced it would immediately end the practice of destroying unsaleable products.4 In a company-issued press release, Burberry attributed this decision to their Responsibility Agenda for 2022 in which the organization vowed to devote itself to tackling the causes of waste. Burberry also announced the news via their owned social media channels.

Aside from the termination of stock destruction, the press release primarily highlighted Burberry’s recent sustainability efforts, many of which preceded the actual crisis. It mentioned how the brand established the Material Futures Research Group with the Royal College of Art, which claimed to strive for the invention of new sustainable materials. The partnership with the Ellen MacArthur Foundation was touched upon briefly, which aimed to make fashion

7 This document is authorized for use only by Sharon Denson in OL-690-10018-M01 Responsible Corp Leadership 2024 D-3 (Jul – Oct) at Southern New Hampshire University,

2024.

Exclusivity and Sustainability in the Luxury Fashion Industry: #Burnberry

circular. In the Responsibility Strategy 2022 factsheet published in August 2019, the company employed terms like ‘positive change’ and highlighted the sustainable measures it had taken. These included becoming carbon neutral in its own operational energy use; reducing and revaluing waste; positively impacting 1 million people more; using sustainable raw materials; aiding environmental sustainability; promoting social responsibility; and drafting policies and commitments.

Ultimately, Burberry praised itself for its efforts by stating that all these aforementioned actions had led to the inclusion of their brand in the Dow Jones Sustainability Index. Remarkably, the press release contained a side note stating that the disposal of goods would continue, in exceptional circumstances.

Looking Ahead

Although the crisis prompted Burberry to re-evaluate its business practices, it remained to be seen whether promises would materialise, and if the fashion industry would follow suit. As stated in the 2017/2018 Annual Burberry Report, for Gobbetti, the crisis was a call to action, a demonstration of “…the passion and determination of our people to respond and learn from them. We are stronger for it.”

Were the recently published Responsibility Strategy 2022 measures enough for the company to appease stakeholders or were they a barrage of actions triggered in a desperate attempt to regain stakeholders’ trust? Moreover, since the Responsibility Strategy was launched a year prior the backlash, could Burberry’s stakeholders trust that the company would not resort to this practice again? Could Burberry continue being transparent and thrive in times of change whilst maintaining brand exclusivity and heritage?

8 This document is authorized for use only by Sharon Denson in OL-690-10018-M01 Responsible Corp Leadership 2024 D-3 (Jul – Oct) at Southern New Hampshire University,

2024.

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Exclusivity and Sustainability in the Luxury Fashion Industry: #Burnberry

Appendix 1: Burberry in the Eye of the Storm: Case Timeline

Timeline A whirlwind of events

June 6, 2018

The release of the Annual Report 2017/2018 of Burberry, including the numbers on disposed of products.1

July 12, 2018

Burberry Group plc’s 2018 Annual General Meeting, where various shareholders express discontent with the high amount of destroyed goods. It is put forward why shareholders are not given the chance to buy leftover goods.22

July 13, 2018

First article surfaces on Burberry Group plc shareholders’ discontent with high amount of destroyed goods, including comments from top-level management members during the meeting (John Peace, Julie Brown, Marco Gobbetti).22

July 19, 2018

Various

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