Luxury brands are grappling with billions of euros of unsold inventory

The issue of excess inventory is commonly associated with fast fashion and ultra-fast fashion retailers due to their rapid production cycles and the need to constantly introduce new styles. However luxury companies are similarly struggling with substantial amounts of unsold stock, proving the situation is no longer exclusive to the lower end of the market.

Luxury brands, often characterized by their exclusivity and premium pricing, face challenges related to changing consumer preferences, economic downturns, and unforeseen disruptions such as the COVID-19 pandemic. Despite their focus on craftsmanship and quality, luxury companies are not immune to the complexities of the retail landscape. When consumer demand doesn't align with production volumes, it leads to a surplus of unsold inventory.

According to the Business of Fashion (BoF), the combined unsold products of major players like Kering and LVMH have more than doubled from 2014 to 2023, reaching an alarming 4.7 billion euros. LVMH reported 3.2 billion euros of unsold goods in 2023, representing 4 percent of the group's revenue, while Kering recorded 1.5 billion euros, equivalent to 8 percent of its revenue. The unsold inventory includes raw materials, semi-finished goods, and finished products, reported La Conceria.

Billions of unsold luxury goods

The luxury industry's business model, focused on maximizing production efficiency for economies of scale, inherently leads to increased unsold goods. However, aligning supply with the ever-changing demand in a trend-driven industry poses a significant challenge, BoF said. High production volumes, long lead times in manufacturing, and the desire to maintain brand exclusivity by limiting the supply of certain items can result in a mismatch between supply and demand, leading to a pile up of inventory.

The dilemma lies in the belief that overproduction is less costly than potential lost sales due to product shortages. The current alarming situation, exacerbated by the industry's substantial growth, lacks a short-term solution. Traditional approaches like staff sales, friends & family events, and outlets are insufficient, BoF said, and destructive practices, now banned in France and soon across Europe, were once employed to preserve brand image. Claudia D'Arpizio of Bain & Company also highlights the industry's struggle, emphasising the difficulty large brands face in finding a comprehensive solution for their substantial unsold stock.

Luxury brands need to find a balance between maintaining the perceived exclusivity of their products and adapting to market dynamics. Strategies may involve carefully managing production quantities, implementing more flexible supply chain practices, and exploring innovative ways to market and sell excess stock without diluting brand prestige. The goal is to align production with actual demand while preserving the aura of luxury and desirability associated with these high-end brands.