A French law prohibits the destruction of unsold items, now what?
The enactment of a French law that prohibits the destruction of unsold goods (i.e. non-food products) forces brands to look more carefully at the volumes they produce in order to stay within the limits of the law, while avoiding excessive markdowns which they consider as the death knell of their luxury positioning. First passed in early 2020, the Anti-Waste and Circular Economy Bill subjects businesses to a range of new sustainability-focused mandates. , such as those demanding the systematic elimination of automatic paper receipts and single-use plastic in fast food restaurants and the banning of plastic packaging on most fruits and vegetables, followed by the outright banning of all single-use plastics by 2040.
The ban on destroying a range of different types of unsold products, including clothing and accessories, is of particular importance to the fashion industry. To be exact, the law – which was officially approved by the French Senate in January 2020 and officially entered into force on January 1, 2022 – aims to oblige producers, importers and distributors to refrain from destroying unsold goods. The fashion industry has been a particular target of the legislation, according to French lawmakers, who noted that “clothing retailers, in particular, are renewing their products more frequently [than other industries] and often have excess unsold inventory. Mass-market fashion companies and luxury brands have been linked to the practice of destroying unsold goods to avoid selling them at a discount and/or paying to stock them, and as a way to avoid costs cross-border in some cases and to benefit from the “spillover” of certain duties in others.
Before the unsold law was passed, the French government claimed that clothing and accessories companies were among the notable culprits in terms of more than 650 million euros (nearly $740 million) in new consumer products that are destroyed or disposed of each year in France, and the additional $900 million in unsold goods sent to landfill.
As for the expected impact of trademark law, it is not necessarily as striking as it seems. Product destruction has not only fallen out of favor in light of consumer concerns about environmental, social and governance elements, but for some time now brands have been adopting other methods to manage excess inventory. which still allow them to generate income from this. As TFL has previously reported, a slew of brands have chosen to quietly sell merchandise to retailers like TJ Maxx and its online equivalents, or have turned a blind eye when their authorized retailers do so in order to generate revenue for consumers. unsold products at the end. of a season.
Traditionally, brands “tolerate[d] gray market activity in an attempt to improve their short-term results,” Bernstein analyst Luca Solca said in 2018, putting the figure for such out-of-channel sales at “5-10%” of the figure. annual business for many fashion brands. . However, attitudes towards the sale of branded products outside unauthorized corporate distribution channels have begun to change as they seek to regain some of the control that was ceded with the rise of the global market for e-commerce and potentially, booming luxury. also the resale segment.
At the same time, brands have backtracked on discounts on unsold products, as shown by brands’ practice of touting increases in full-price sales. Late last year, Ralph Lauren revealed it had reduced its reliance on off-price sales and was focusing on its own retail sales, rather than wholesale and off-price sales. A representative for the company confirmed, saying it had “‘significantly reduced’ the amount of inventory it sends to discount chains.” Other companies like Armani have raised prices and said they have reduced their production volumes. “We pulled things that traditionally don’t sell,” Giorgio Armani said in an interview last spring. As well as being a potential windfall from an earnings perspective, Armani stressed that “it will have a wider impact on the environment.”
Meanwhile, just last month, Burberry management reported that during the third quarter, its “full-price sales continued to grow at a double-digit percentage from two years ago. , accelerating compared to the previous quarter and reflecting better quality activity”. (That’s not to say discounts aren’t widespread on retailer sites. Bernstein reported in December that Versace, Tods, Michael Kors, Dolce & Gabbana, Salvatore Ferragamo and Givenchy were among the most marked-down items, and Dolce & Gabbana, Valentino, Versace, Tods, Saint Laurent and Prada among the brands with the most products on luxury discount retailer Yoox’s site.)
Where is the current state of affairs for brands that do not want to face the French government and the new law prohibiting the destruction of unsold goods? LVMH’s director of environmental development, Hélène Valade, told AFP that while “the luxury business model is tightly adjusted to demand”, the new law nonetheless pushes luxury brands “to learn more about their customers to better anticipate their purchases and reduce stocks to a minimum”. .”
Ongoing supply shortages and increased consumer willingness to shell out after lockdown periods have likely contributed to lower production and supply, respectively. In December, Chanel fashion president Bruno Pavlovsky said the brand “didn’t have enough product, especially for handbags.” Meanwhile, Valade – pointing to versions of Loewe bags – said LVMH brands are seeing more products, namely leather goods, that are out of stock than excess.
If unsold, AFP says “selling products to staff at lower prices is an option”, especially for LVMH, Kering and other fashion groups that have large staffs.
Beyond that, two avenues seem like obvious options – and neither necessarily requires brands to overtly cut back on their (hard-earned and very marketing) luxury positioning. Primarily: Brands might be advised to use the resale market more strategically in order to move excess products. Secondary market efforts could provide brands with an additional point of access to entry-level luxury consumers in the same way that more accessible, lower-priced products do. Greater activity by brands in this area would give them the possibility of controlling more closely the products offered and the conditions of these sales. And of course, in-house resale efforts and/or partnerships with established resale players could allow brands to somewhat quietly dispose of unsold inventory without having to impose discounted prices on their in-store products.
If brands were aiming to take over the resale space, they could sell unsold goods alongside the products they buy back to retailers (at the end of the season to avoid deep discounts there) and/or to consumers in something of the in the same way as resale platforms. This isn’t really new territory, the merging of used goods and clearance pieces is already happening in the secondary market. In addition to meeting the needs of consumers who wanted to ship pre-owned products, The RealReal has worked for several years with brands and retailers to unload unsold clothing and accessories, hence all “new with tags” products. Seemingly doubling down on this B2B element of its business, a representative from The RealReal previously told TFL that the resale giant had seen “a 30% increase in supply from brands in the six weeks to April 14, 2020 by compared to the same period a year earlier.
More recently, RealReal President Rati Levesque noted that the sell side of things is “a big value driver for us,” namely, through “fine jewelry, watches, [and] handbags,” and says the company expects to “continue to see this trend for the holidays.”
Another option for brands comes in the form of branded subscription boxes, a category that has grown, as indicated by LVMH’s Luxury Ventures recent investment in Heat, the mystery box company that is acquiring the unsold inventory from fashion brands – from Off-White to Balenciaga – and offers them to consumers.
Finally, donation is also an option. As provided for by French law, for unsold essential goods, companies will be required to authorize their use, including by donating them to specifically approved associations that can ensure the use of these products by an end customer. according to their destination. It is of course difficult to imagine that brands will quickly unload in this way on products bearing their brand.
In light of ongoing overproduction issues and nascent legislative attempts to eliminate waste, the fashion industry is witnessing the sustained rise of start-ups – such as Heat, materials resale platform Nona Source and Trove, which partners with brands to create online platforms to sell second-hand goods – which aim to help businesses reduce waste and manage unsold inventory. Efforts like these and others will likely continue to proliferate, and not just because of French law, which can expose companies to financial penalties and the possibility for the regulator responsible for protecting the competition and consumer rights to publish any violations online or in the press to the detriment of the fined company, which could expose the violator to substantial reputational damage, especially as sustainability initiatives continue to prove important to consumers around the world.
There is a good chance that France’s anti-destruction law will be the first of new legislation, as consumers, investors and regulators continue to pay attention to how companies operate on the environment and demand more transparency and , in some cases, action.