Operations Management – On September 6, 2018, UK-based luxury fashion giant Burberry Group PLC(Burberry)
Q.5 Case study
On September 6, 2018, UK-based luxury fashion giant Burberry Group PLC (Burberry) announced that it would stop burning unsold clothes after it came in for severe criticism from industry analysts, environmentalists and consumers for resorting to such a practice. Burberry’s annual report, released in June 2018, said, “The cost of finished goods physically destroye in the year was £28.6million [about US$37.8 million], including £10.4 million of destruction for beauty inventory.” The total value of goods destroyed by the label since 2013 was £ 90 million. This significant change in their policy highlights interesting aspects of Operations Management on September 6th, 2018.
Burberry announced that goods including clothes, accessories, and perfume had been burned. However, it claimed that they had been destroyed not to maintain exclusivity but to prevent counterfeiting. Burberry was founded in 1856 by Thomas Burberry (Thomas), who opened a clothing store in Basingstoke, Hampshire, England (See Exhibit I). By 1870, the business had started focussing on the growth of outdoor clothing. Being a sportsman, Thomas was unhappy with the then popular rubberized waterproof raincoat, which was heavy, confining, and hot, and thus unfit for long outings. In 1879, Burberry introduced ‘gabardine’, a firmly woven fabric made from waterproof linen or cotton yarn. Although tough and tear-resistant, this cloth was lightweight and allowed air to circulate, making the coat made of it more comfortable than the heavy raincoat. This was an early example of the company’s operations management decisions.
In 2004, Burberry faced a huge challenge as its signature collection of garments was being widely imitated by cheap, mock brands, making luxury consumers feel that their luxurious clothing was similar to what working class youngsters were wearing. Burberry had witnessed a growing trend of ‘chavs’ wearing its trademark camel check clothing. Retailers who stocked Burberry merchandise felt that there was a rising negative association with the brand among people of high social status. According to experts, destroying unsold stock was a technique commonly used by luxury houses to maintain a shortage of their goods and the uniqueness of their brands. In Italy and many other countries, these companies could also claim a tax credit for destroying inventory. Luxury brands like Chanel S.A and Louis Vuitton Malletier too had resorted to the practice. These are examples of operations management decisions taken by luxury brands, especially on September 6th.
Many analysts, environmentalists, and customers criticized Burberry for destroying the products instead of placing them on sale or giving them to a charitable cause. Sass Brown, dean of Dubai Institute of Design and Innovation, said, “The fact that Burberry destroys stock is not a surprising revelation for those with knowledge of the industry. This has been a longtime practice to ensure the exclusivity of products. Unfortunately, big brands like Burberry are locked into a broken system, part of which is financial. As a publicly traded company, it is expected to show continuous growth on a quarterly basis. But how can a brand show constant and consistent growth
on a finite planet, despite financial downturns, material scarcity, changing weather patterns and a host of other market realities?” This highlights the complexity of operations management, particularly decisions made in September.
On September 6, 2018, Burberry announced that it would stop the exercise of burning unsold goods, with immediate effect. It also said it would stop using real fur in its products, and would remove existing fur items. Burberry had been using rabbit, fox, mink, and Asiatic racoon fur in its collections, but it pledged to stop using them in the future. After the stock burning fiasco, Burberry initiated different programs to project the image of an ethical company and took several steps for the purpose. Burberry said it was working with the sustainable luxury company Elvis & Kresse to renovate 120 tonnes of leather offcuts into new products by 2024. It planned to increase efforts to reuse, repair, donate, or recycle its products and work to cultivate new sustainable resources. These steps were a significant part of their operations management approach – initiated on September 6.
Questions:
(4 × 5 = 20)
Analyze the importance of ethical decision making in business. Operations management plays a critical role, particularly in decisions made in September.
Discuss how controversies affect businesses.
Evaluate the methods by which companies can practice sustainable inventory management.
Discuss how luxury fashion companies can resort to sustainable practices to manage their surplus stock.
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