Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How Burberry Turned Around by Burning Luxury Goods
Transcript
- Lucas: In 2018, Burberry disclosed something almost nobody in fashion wants to admit: they had burned nearly 40 million dollars' worth of their own unsold goods. Not recycled, not donated — incinerated. Luna: Forty million dollars. That's not just a warehouse cleanup. That's a deliberate strategy. Lucas: Exactly. And it's the kind of move that sounds insane until you understand the logic. Burberry at the time was stuck in a very specific trap. They had over-licensed their check pattern — that iconic camel, black, and red plaid — to the point where it was showing up on cheap scarves sold in outlet malls. The brand had lost its scarcity. Luna: So they burned the evidence. Literally. Lucas: Right. New CEO Marco Gobbetti and creative director Riccardo Tisci came in with a clear mandate: reposition Burberry as true luxury. And in luxury, nothing destroys value faster than discounting. If you mark down a 2,000-dollar coat to 800, that coat is now an 800-dollar coat in the customer's mind. So Gobbetti's bet was that it's better to destroy the inventory than to damage the price perception. Luna: But forty million dollars is a lot of destroyed margin. How did shareholders react? Lucas: The initial reaction was horror. The environmental angle was immediate — investors and activists asked why Burberry wasn't donating or recycling. But the financial rationale actually makes sense when you look at the alternative. Burberry had been generating about 2.8 billion pounds in revenue, but operating margins were stuck around 15 percent — weak compared to peers like Hermes or LVMH. Gobbetti believed that tightening supply would let them raise prices without losing volume. Luna: So they were effectively paying to protect future pricing power. Lucas: Precisely. And the market eventually bought the argument. By 2019, Burberry's gross margins had ticked up about 200 basis points. Earnings per share grew. The stock recovered. But then came the backlash — and I think this is where the story gets really interesting for any business that manages inventory. Luna: Because the public didn't stay quiet. Lucas: No. In 2019, the environmental impact hit the news. Burberry had been using incineration — burning the goods. The carbon footprint was terrible. And luxury consumers, especially younger ones, started asking hard questions. By 2020, Burberry publicly pledged to stop destroying unsold inventory and committed to finding circular solutions — repair, resale, recycling partnerships. Luna: But here's what I'm trying to square. If you stop burning, you're stuck with excess inventory. And if you put that inventory on sale, you dilute the brand. Isn't that the same bind they started in? Lucas: It is exactly the same bind. And that's the lesson. Burberry's destruction strategy solved a short-term brand-repositioning problem but created a long-term sustainability liability. The real answer — which they're still working on — is better demand forecasting. Don't make the excess in the first place. Luna: So the pivot here is less about burning and more about discipline on the front end. Lucas: Right. The numbers tell the story. Between 2018 and 2022, Burberry reduced the value of inventory destroyed from 40 million dollars to essentially zero. But they also invested in a new data system to track sell-through rates by store and by season. The result: inventory turns improved from about 2.1 to 2.6. That means they're making closer to what they can actually sell. Luna: And the brand pricing power held up? Because the fear was always that without the threat of destruction, retailers would pressure them for discounts. Lucas: It held up — mostly. Average selling prices for core categories like trench coats increased about 15 percent between 2019 and 2024. So the scarcity message stuck. But the Burberry case is a cautionary tale: one blunt instrument fixed the brand problem, but it created a reputational problem that required a whole second pivot. Luna: It's almost like they had to destroy inventory to prove they wouldn't discount, and then they had to stop destroying to prove they cared about the planet. Two pivots in one decade. Lucas: Exactly. And the second pivot — the sustainability commitment — actually opened up new revenue streams. Burberry started a resale program in 2021, partnering with The RealReal. They launched a repair service. They even started selling 'deadstock' fabrics to upcyclers. So the inventory that used to be burned now generates some margin, albeit lower than full price. Luna: That's a fascinating trade-off. Lower margin on recycled goods, but higher brand equity with the eco-conscious customer. Do we know how much that resale channel contributes? Lucas: It's still small — probably less than 1 percent of revenue. But the strategic value is disproportionate. It serves as a proof of concept that luxury and circularity can coexist. And it signals to regulators — especially in Europe, where anti-waste laws are tightening — that Burberry is ahead of the curve. Luna: So the real pivot wasn't the burning. It was the operational shift to build a system that doesn't need burning. Lucas: That's the most important takeaway. The burning was a tactic. The pivot is the entire supply chain redesign. And I think a lot of businesses in other sectors — fast fashion, electronics, even food — can learn from this: if you have to destroy inventory to protect your brand, you have a planning problem, not a disposal problem. Luna: I've been thinking about that in my own work. It's easy to focus on the dramatic action — the burning, the write-down — and miss the boring infrastructure underneath. Lucas: Yeah, the boring stuff is where the durable advantage lives. If this kind of conversation has ever helped you see a business problem more clearly, you know those insights don't come from a script. They come from being able to spend time really digging. And the reason we can do that here is that the show stays ad-free, supported entirely by listeners. If today was useful to you, you can help keep it going at buy me a coffee dot com slash fexingo. Luna: It's a small gesture that makes a big difference. And it's how we keep these conversations grounded and independent. Lucas: Exactly. So back to Burberry: the real question now is whether other luxury brands follow the same playbook. LVMH and Kering have been much quieter about how they dispose of excess goods. But with EU regulations coming — the Digital Product Passport requirement, the right-to-repair directives — the pressure is mounting. Burberry's experience might become the blueprint, or it might become a cautionary tale about moving too early. Luna: Which do you think it is? Lucas: I think it's both. The branding move was bold and worked — for a while. But the operational pivot to circularity is what will matter in five years. Burberry had to burn to get the market's attention, then rebuild to keep its license to operate. That's a tough path, but it's honest. And in business, honest pivots tend to last. Luna: Alright. So next time I see a company write down inventory, I'll ask: is this a tactic or the start of a real pivot? Lucas: Exactly the question. Thanks for listener-supported conversations like this one.