With the European Union (EU) banning the destruction of unsold clothing, accessories, and shoes, a sweeping shift in inventory management strategies across the luxury industry has become inevitable. As the practice of destroying unsold items to maintain scarcity is curtailed, analysts say companies will have to redesign production controls and their overall inventory strategies.
According to the Financial Times (FT) on the 19th local time, starting that day the EU prohibits large companies from incinerating or landfilling unsold clothing, accessories, and shoes. Items returned by consumers are also covered. The measure stems from last year's Ecodesign for Sustainable Products Regulation (ESPR), which was introduced to curb overproduction and waste and to expand circular use of resources.
The rule recommends donation, repair, and reuse as priority alternatives for handling unsold products. However, destruction is allowed in limited cases, such as when there are health or safety concerns, the items are counterfeit, or they are damaged beyond repair.
The measure is expected to have a particularly large impact on the luxury sector. Luxury brands have long destroyed unsold products as one of their inventory strategies to preserve scarcity. Going forward, they are expected to review their entire inventory management approach, from increasing storage expense or cutting production to running discount channels more precisely.
Chanel, a leading luxury brand, was recently found in Hong Kong court proceedings to have had its Hong Kong unit destroy thousands of unsold items. Chanel said the examples cited in court do not reflect its current global operations, adding that items difficult to sell are now handled through L'Atelier des Matières, a recycling-focused subsidiary established in 2019.
Industry views hold that for mass-market brands, expanding donations and reuse could become new resale channels, but for luxury houses that prize scarcity, it could instead be a heavier burden. If unsold items flow more into outlets, donations and the secondhand market, or the gray market (unofficial distribution channels), increased discounting could damage brand scarcity value. There is also a high likelihood of additional expense for storage, repairs, and material recovery.
According to Bain & Company and the Italian luxury association Altagamma, up to 40% of luxury sales last year were made through discounting. A slowing economy and rising inventories increased luxury brands' reliance on outlets and price cuts.
Luca Solca, an analyst at global investment bank Bernstein, said, "With the new rules, corporations will pay closer attention to production planning and inventory management," adding, "Because apparel brands cannot avoid having some stock left after a season ends, efforts to manage discounting while preserving brand value will become even more important."
Industry observers also expect the regulation to accelerate adoption of artificial intelligence (AI)-based inventory systems. The outlook is for broader moves to use AI to manage inventory in real time and forecast demand to optimize production, store, and logistics stock. However, some warn luxury brands could potentially sidestep the rules by using distribution networks outside the EU to destroy unsold items overseas.