Why Burberry Destroyed £30m of its Products - An Introduction to Artificial Scarcity

How companies artificially rig markets to work in their favour- and how it gets a lot darker than just burning handbags...

Burberry has recently caused quite a stir after a controversial business practice was recently revealed. News broke that the British high-end luxury fashion brand has incinerated as much as £28m of its own cosmetics and fashion products over the past year, to protect the brand and eradicate counterfeiting.

While these latest revelations have drawn attention to Burberry, this practice of destroying one's own stock is not by any means new in the fashion industry. H&M has a deal in Sweden to burn its own unwanted stock to produce energy. Slashed shoes were found disposed outside a Nike store in NYC. And Richemont, the group whose portfolio includes luxury watchmaker Cartier, has reportedly destroyed more than £400m of luxury watches over the past 2 years.

The most significant threat of these surplus products to a company like Burberry is not the aiding of counterfeiting, rather the potential effect the sale of such items on the grey market could have on the brand. The grey market, unlike the black market, is not necessarily illegal- rather it is a market which sells goods obtained unofficially. Some argue that popular retailers such as TK Maxx are examples of the grey market- obtaining genuine branded items, some of which are from unofficial channels, and selling them for less than the brand itself.

Burberry's concern is this: if their goods found their way to a shop like TK Maxx, and were sold for a fraction of their actual price, what would be the perceived value of the bags which it sells for full price? The appeal of a luxury brand is exclusivity; the grey market offers anything but this. What's more, it is highly unlikely that the original brand gets any of the grey market revenue at all.

Considering all this, Burberry's incineration of its own goods is an investment in the company's brand, protecting its goods from reaching the grey market and helping to maintain high prices. This is artificial scarcity.

Why is this scarcity artificial?

Well, the fact that the surplus goods existed shows that Burberry can produce than it is putting onto the market. Through artificially reducing supply (burning it), Burberry can keep demand, and thus prices, high.

To provide contrast, an example of genuine scarcity could be the recent CO2 shortage confronting many beverage manufacturers. The shortage of carbon dioxide has restricted the production of fizzy beverages, which, if prolonged, may force producers to raise prices.

The spread of Burberry's brash act in the news has brought practices that ensure artificial scarcity to light, but in reality, pretty much every business enforces some type of artificial scarcity. Few companies (perhaps, except Tesla) genuinely produce at their maximum capacity, whether to protect their brand as Burberry does, or to protect costs.

Disregarding the contemptible waste of material involved in some methods of creating it (think of how much leather Burberry burned), one could argue artificial scarcity is too substantial an issue. When it comes to luxury brands, for example, few people suffer from not being able to afford a £1000 handbag.

Where artificial scarcity does come into issue is in industries whose products we depend heavily upon. The pharmaceutical sector is an example; producers with monopoly power over certain drugs can in effect hold its users at ransom by restricting production and sending prices rocketing. Investigations have found this to be happening with medical products as widely used as stents, where some US firms were found to be exporting an increasing number of stents to India, but distributing fewer, despite demand increasing.

The Organisation of Petroleum Exporting Countries (known as OPEC) also leverage artificial scarcity to their benefit. Its members, which include Saudi Arabia, Venezuela and the UAE, are able to control global oil prices through co-ordinating their output. If it is decided that a rise in oil prices would benefit members, all members reduce their output of oil, and if an oil price cut is desired, they increase output. Such organisations are known as 'cartels'- illegal in most instances due to their lack of competition, but uncontrollable in the case of an organisation as influential as OPEC.

Artificial scarcity is always working in favour of businesses, rarely (if ever) working in favour of consumers. In the consumer world, it can cause massive waste, but little other genuine threat to consumers themselves.

However, when artificial scarcity is a tactic leveraged in potentially life-changing industries, such as pharmaceuticals and natural resources, it exposes capitalism at its most vicious- wealthy producers holding consumers depending on their product at ransom, and benefiting from their desperation.

Pros & Cons #6: Buying A House

House ownership is traditionally seen as a sign of steadfast finances and, well, a settled life. So why did 2017 see house ownership in the UK fall to a 30-year low- and is this really a problem?

House ownership among the British population has been in decline over the past decades, culminating in the home ownership rate of 62.9% in 2017, according to the English Housing Survey. This is the lowest ownership rate since 1985, the midst of the turbulent Thatcher premiership. This decline comes despite efforts of successive recent Conservative governments to push home ownership through various incentives (for example, the Help To Buy policy designed to help first time buyers get on the property ladder).

So, why is home ownership at such a low level? The Institute for Fiscal Studies (IFS) asserts that the youngest adults in society are those at the greatest disadvantage compared to those of their age in previous decades. The purchasing power of the young has been disproportionately hurt by the failure of incomes to keep up with the rising costs of living. According to the IFS, "almost 90% of 25-34 year-olds faced average regional house prices of at least four times their income, compared with less than 50% twenty years earlier".

fig.1 - source: Resolution Foundation

Research from the Resolution foundation (fig.1) suggests home ownership among 25-34 year olds is currently at its lowest rate since the 1960s.

Other factors also contribute to the decline in home ownership- for example the decline of construction of new homes, foreign investment in large city centres (both of which have contributed to high prices), and also a changing attitude among the younger generation towards home ownership. Even among those who have the financial capacity to purchase a home, the decision to go ahead with the purchase is becoming less clear cut.

Germany is known for its renting culture- a 2013 study found just 43% of Germans were homeowners- and it could be possible that in the long term, the UK is heading in a similar direction. So what should you weigh up when deciding whether or not to purchase a house?


PRO: Your (Relatively) Stable Asset

The belief that home ownership represents stability is not an old wives' tale- indeed, owning a home means that you own an asset that, in usual circumstances, should be reliable and in fact increase in value over time.

What's more, when you own your home you have full autonomy over what you want to do with it. Renting leaves you dependent on your landlord- if they don't want you to put a nail in the wall to hang up a family photo, you can't. Although there are laws to protect those who rent (tenants), the landlord can also make you leave the property, even against your will. No one can do this to you if you live in a property you own (except the bank, if you don't keep up with your mortgage, that is).

Owning a house leaves you with a fall-back in case of financial catastrophe- it is a valuable asset that you can sell to downsize and shore up emergency funds, or sell to have a helpful hand further up the property ladder. A common practice among people approaching retirement age is to sell their home and downsize- leaving them with a tidy financial benefit to enjoy retirement with.


CON: Responsibility

As the saying goes, "with great power comes great responsibility"- and a house is no exception. Owning a house means you are responsible for it completely- you've got to deal with any issues that arise, whether that means a broken window or a fault in the structural integrity of the whole building. If you don't invest where necessary in the maintenance of your home, the value could tank.

On the other hand, tenants enjoy the freedom to pass over (most) issues of maintenance to the landlord, who has the responsibility to sort these things out. Furthermore, while the tenant doesn't take a share of any increase in the value of the property they are renting, the tenant is also protected from any fall in value- it is the landlord who has to absorb this cost.


PRO: Favourable Finances

Depending on when you purchase your home, you can benefit financially from favourable economic conditions.

The most common advantage taken by homebuyers is low interest rates- these are influenced largely by the base interest rate set the Bank of England, which essentially uses it as a tool to either stimulate or reduce demand in the economy. Low rates mean borrowing is cheap, encouraging people to take out loans to purchase houses, generating more activity in the economy.

Furthermore, taking up a fixed interest rate enables a clear idea of payments that are to be made over the time of your mortgage- as opposed to renting under a landlord, where the rent can change upon their whim. Home buyers need to decide, however, whether a fixed or variable (changing) interest rate suits them best- a variable rate helps when the Bank of England lowers its rate during the period of the mortgage, but increases costs should the Bank of England do the opposite.


CON: Lack of flexibility

Purchasing a home is not suited particularly well to a young generation that is more mobile than ever. A 'job for life' was a reality for previous generations that has become increasingly rare for today's youth. This is due not just to increasing job insecurity, but a young workforce that is more willing than ever to relocate regularly- in part thanks to phenomena such as social media tying people down less to 'home'.

Purchasing a home is neither a short nor flexible process- the average mortgage repayment period is 25 years. On the other hand, most renting agreements are 12 months long. Thus, renting offers a more appealing and feasible option to young people who may be changing careers every 2-5 years, or those hoping to upsize their home relatively soon.


PRO: Satisfaction

Studies indicate that home ownership brings a greater sense of security and happiness- a YouGov poll from 2017 found 73% of home owners to be satisfied with their standard of living, as opposed to just 53% of renters. 

Lessons From A Sandwich Year In Work

Taking a 'Sandwich' course that includes a year in work can provide a fantastic kick-start to your career. Having recently completed his placement year, our Editor-in-chief Mohammad Lone explains how you can make the most of it.

Regrettably, most undergraduates' sandwich years have little do with the actual sandwichery.

Adding a year to a traditional Bachelor's degree to spend a year working in industry is an increasingly popular option for many undergraduates in the UK. For some courses in some universities, it is becoming the norm- around 70% of my Economics cohort at the University of Bath go on to do a year long placement.

A year in industry can provide some great opportunities for personal and career development, but given that more and more students are deciding to go down this path, it is becoming increasingly important to stand out and make the most of this year. Simply having a position and an employer's name on your CV may well not be enough to compete in the competitive grad job market.

I've just completed my industrial placement working for a niche management consultancy firm. The year was at times fascinating, at others daunting and occasionally gruelling- here are three of the lessons I've learnt along the way.

1) People

It is highly likely that as an undergrad placement student, you'll be one of the youngest employees in your office- meaning it can be very easy for you to hide yourself out of view and go quietly unnoticed. The common insecurity faced by any young employees is that their older, more 'experienced' colleagues and superiors always know better, and so they should never be challenged or questioned.

Forget your age- yes, you may not be as experienced as your older colleagues, but you are still there to contribute, to ultimately leave an impact. Be sure to reflect on your own skillset and areas where you actually may be stronger than others- be it creativity, use of technology, or anything else, and leverage this. Value yourself, don't be afraid to speak up and make yourself heard.

This means not being afraid to ask questions, contribute ideas in meetings, and being open with your colleagues. Yes, you will not be spinning gold with every question or idea you have, but those you do release will be valued by colleagues and superiors, and make sure they remember you specifically.

What's more, being interactive with others will open the door for you to maximise your network while on placement. Get to know your seniors, and gain their trust. Don't be afraid to reach out to important people you might not work with, like your area Director or even CEO. Ask them to meet for a quick coffee chat to learn from their experiences- if you write the invite succinctly and politely, the worst result you'll get is a "sorry, I'm too busy" but the best result could be an insightful chat, and a connection made.

Also, don't be afraid to get to know colleagues around you on a personal level- even those who you don't directly work with. Work is not always easy or enjoyable, so at least being in a friendly environment can keep spirits up.

2) Feedback

Don't forget why you're on placement. Up there with networking and getting to know important people, you're there to learn. Learn about the world of work, about a particular career or sector you are pursuing, about yourself and your own abilities. The placement experience is part of the learning experience of university- hence why it's engrained into the course. What you learn, and how you develop with these lessons, is what later adds value to you from a future graduate employer's perspective, making you more 'employable'. Even if the career you go on to have is wildly different from that in your placement, there will be transferrable skills.

One of the primary ways you will learn is from feedback- and this is why you should regularly seek out feedback, from your colleagues and particularly your seniors. There are certain times where feedback is absolutely necessary- notably in the first weeks of your placement, and towards the close. However, you should seek feedback throughout the year. This may be on a weekly or monthly basis, whenever your team closes a project, or some other landmark occasion. 

Asking for feedback consistently enables you not just to learn what you do well and what you can improve on, but it allows you to put into practice what you've learnt- it allows you to develop.

Don't forget that feedback can also come from yourself- so keep a diary of your daily activities and notes, with any lessons you learn on the job noted down for future reference.

3) Freedom

Freedom? Isn't being tied to a desk (if you're unlucky) from 9am - 6pm 5 days a week the opposite of free? Especially compared to a university life of free Wednesday afternoons and regular lie-in opportunities?

Well, the hours may not present you as much perceived freedom as university, but you can in fact take advantage of even more freedom if you recognise and utilise the free hours you have. Unlike university, most jobs will not require you to take work home, meaning you will have truly free evenings and weekends. Without the worry of preparation for any upcoming class work or test.

Of course, given that you will be at work, it's crucial to apportion some of this time for rest and relaxation, getting you recharged for the next day of work. 

But, your job itself isn't the only source of personal development on your placement year- your free time can be, too. You can use it to hone a certain skill or hobby you have, or find new ones. You can join sports clubs, whether at your work or in your local area. You can even, if you're real keen, read up throughout the year on your final year course content*.

You could very easily breeze through your placement year, doing the minimum required and just letting time pass by- trust me, I've been through periods of this myself. But if you take a moment to reflect and remember why you're delaying your studies, and actually your graduate life, for a whole a year, you will understand that to make the most of it, you have to work hard and go over and beyond the basic requirements. You'll need to actively question and contribute to discussion, develop connections, collect and utilise feedback for self development, and make the most of the free hours you probably won't have when you go back for final year. This will help you make the most of your placement.

* though, do remember to relish your year free of formal studies.

The Plastic Resolution

As we discussed in the previous piece, plastic is so engrained in our lives and in the modern global economy, that it seems impossible to imagine a modern world without it. But we can, and in fact we must, if we are to avoid some of the catastrophic damage that lays ahead due to our excessive plastic use and wastage.

So, how can we reduce our reliance on plastic- what is the Plastic Resolution?

Firstly, we can establish that change has to happen on multiple levels of society. We can broadly categorise these into three: the individual, the business, and the government.

Secondly, we must understand that plastic will not go away tomorrow. As it has taken decades and decades for plastic to find its way into mass usage, it is likely to take even longer to find substitutes for all the various plastics we use for different purposes. But every effort has to start somewhere!

To start the war against plastic, it's most important to approach and resolve the most frequent offender- single use plastics. As the name suggests, these are plastics which are simply used once and then are disposed.

Single use plastics are what comes to the minds of most when we envisage the harm caused by plastics to wildlife. We all have heard of plastic soft drink bottles piling up in our seas, animals dying after mistaking plastic bags for food, or getting trapped in plastic packaging. Single use plastics are so dangerous to the environment in large part because there is such high demand for them. Every time you get a coffee to go, every time you go shopping, every time you buy a bottle of water, another single use plastic is added to the wastepile after you finish.

The government's 5p plastic bag charge, introduced in 2015,
proved successful in reducing use of plastic bags

The British government has already begun to take on single use plastics. The 5p minimum charge for plastic bags introduced in 2015 was designed to encourage shoppers to use reusable bagging, and it saw dramatic success-with an estimated 83% reduction in plastic bags issued by the country's biggest retailers. The government will be extending this charge to include small businesses this year.

Further legislation was also put in place in January 2018, including a ban on the use of microbeads in cosmetic products.

While such actions are indeed crucial steps for the governments of the world to take, many argue further can be done by the government, specifically to influence business behaviour. Some believe the stick approach works best- for example, making businesses pay for the recycling of the plastic packaging they sell. Others argue for the carrot- a more incentives-based approach. This could mean a policy like setting targets for businesses to reduce plastic waste, and rewarding them appropriately.

However, without research and development, businesses could be left with no choice but to continue using harmful plastics. With its unique properties and versatility, there's a reason why plastic is so commonly used in products- and to find equally cost effective and versatile substitutes is no easy task.

There is a strong argument that businesses should bring back materials previously used- such as glass for soft drinks, paper for grocery bags, or steel for cups. While such materials may well see a comeback, they have their foibles- and to find a substitute for plastic that keeps all its benefits, a lot of research and development will need to be done. This will need to be supported by the government, but equally businesses are responsible for funding and supporting such activities.

So we've now moved onto business- what can business do to reduce plastic waste?

This is a complex question; specifically because for most businesses, plastic is the most cost-effective material for packaging. Thus, investing potentially considerable resources into finding an alternative will not be an appealing prospect from a strictly financial perspective.

This is when Corporate Social Responsibility (CSR for short) comes into play. As entities that both give and take to society, businesses must accept the role they have played in creating the current chaos (with relative innocence, it can be argued), but more importantly accept the role they now have to help society fix those problems- by investing in finding alternatives to plastic. This may not be a profit-driven decision (though it could well be, as we'll explore shortly), but it is one that is crucial for our society's resolution to the plastic problem.

The government, through offering financial incentives for environmentally friendly behaviour, can ease this transition for businesses. However, the primary customers of most businesses are ultimately us- the end individuals, as consumers.

Therefore it is imperative that we as individuals are careful about what we consume. We should avoid single use plastics- and the best way to do this is to reuse. Get a reusable coffee cup, get a reusable solid liquid container, get a reusable bag, and make sure you recycle whatever plastic you can't substitute. Even something as small as buying a bigger plastic tub of yoghurt rather than several small tubs can help- as buying in bulk generally reduces the packaging-to-content ratio.

And when businesses aren't conscious about minimising their plastic waste, we should be conscious not to award them our business. As consumers we often forget our power, when we act in unison. Businesses acting irresponsibly should be punished for their failure to serve the environment, and businesses doing their bit should be rewarded. This serves a similar purpose to financial services offered by the government to businesses; it makes it easier and more financially appealing for businesses to minimise plastic waste.

However, it is often easier said than done to be entirely conscious about your plastic usage as an individual. The large majority of people still use single use coffee cups, for example.

Here, businesses can help us to behave more responsible. For example, reward schemes for using a reusable coffee cups are standard across many major coffee shops in the UK, and you can get supermarket loyalty points for reusing any carrier bags. These things make it more appealing and easy for us as consumers to avoid plastic, or at least use it responsibly. At the same time, government policies such as the 5p plastic bag charge push us to be more considerate.

Single use plastics remain the primary issue the world needs to tackle; once we are able to confront this, the battle for a future less clogged with plastic bottles is half-won, and we can perhaps continue to look at phasing out plastic entirely.

The fact is that the main onus is on businesses, as the primary producers of these plastic products, to reduce plastic waste. And of these businesses, the largest and most influencial hold the most responsibility. Once a company like 'Coca-Cola' takes a clear stance against plastic waste, for example by replacing all plastic bottles with glass bottles, the industry will be sure to react. The government, and we as consuming individuals, need to do our best to foster the conditions in which such a decision might be made.

The fight against plastic waste is a classic example of how the government, businesses and individuals can, and must, all interact as members of society to incentivise each other to behave better. By each accepting their responsibilities and burdens, the unity of these three groups has the long-term potential to create our Plastic Resolution. 

The Plastic Nightmare

Plastic is something we deal with at almost every moment of our lives. From our household goods, to our cars, computers, Amazon packages and more, plastic is a seldom-appreciated phenomenon of the modern human age. A miracle of modern chemistry, plastic is arguably the most versatile material out there.

However, our use of plastic in today's world exemplifies one of our greatest weaknesses, actually raised out of one of our greatest strengths: we can make the world and its resources bow to our needs, but we often fail to attend to the needs of the world. This behaviour has put a whole host of parties at risk- from the earth itself, to our co-habitants, to our very own future generations of humankind.

The most prominent example of such behaviour, and rightly so, is the phenomenon of pollution. Air pollution scars the lives of many inhabitants of today's sprawling metropoles of the world, while putting the very future of our entire Earth at risk.

Though a known concern for many years, the way we use plastic has come under the spotlight in recent months. The primary issue with plastic comes with its lack of biodegradability; meaning, left undealt with in landfill or in oceans as it is in many places today, it will not go away. Plastic waste will simply pile up.

And boy, has it been piling up.

We produce over 300 million tonnes of plastic each year; 8 million tonnes of which is dumped into the ocean, according to plasticoceans.org. At the current rate, it is estimated that by 2050 the plastic waste in our seas will outweigh all the fish.

Yes, an increasing amount of waste plastic is now being recycled; but still, a shocking 91% of plastic worldwide isn't recycled. This is usually due to one of two reasons; poor recycling infrastructure and organisation, or the lack of recyclability of many plastics, such as those used in most coffee cups, due to its waterproof nature. We may be encouraged to place our coffee cups in recycling bins, but in reality, just 1 in 400 coffee cups are actually recycled.

As one would expect, this massive influx of plastic waste has has profoundly negative effects on the environment and wildlife.

The Great Pacific Garbage Patch

The Great Pacific Garbage Patch (GPGP) is one gargantuan example of our failure to deal with our excess plastic. The GPGP is a massive collection of debris, the majority of which consists of plastic. While we tend to imagine this as a mass of plastic bottles and the like drifting in the sea (as pictured on the right), the majority of the GPGP is made of 'microplastics'.

While plastics do not biodegrade, they are broken into smaller and smaller pieces continuously. This results in a dust-like material that never disappears from the oceans.

Microplastics also come from everyday items we use. For example, it was very common for many skincare products and toothpastes to contain microbeads, that supposedly improved the feel of the product on the skin and visual appeal. However, research suggests that microbeads blocked digestive tracts of animals who consumed them- so these luxuries came at an exceedingly high price. On a positive note, more people are coming to realisation about this, as bans on the use of these materials come into play in many countries of the world.

This waste in the oceans wreaks havoc with wildlife. Unaware of the dangers and toxicity of many plastics, small pieces of plastic are often confused with food. A 2015 study found that as many as 9 out of 10 sea birds had plastic in their guts.

There are countless further tragic stories of animals falling victim to our plastic waste. From poisoning to asphyxiation, plastics are the causes of death for estimated millions of animals, both on land and in sea. Whether they are in the form of microbeads, plastic bags, packaging or something else, plastics pose a significant threat to biodiversity, and in the long term could threaten entire species if left undealt with.

Our success in making plastic serve so many of our needs is coming at the cost of our planet. As our land and seas become landfill sites for plastic waste that will never go away, millions of animals are dying, suffering from pains as simple as becoming entangled in plastic six-pack can packaging.

Plastic has indeed served the human race well- but it is time to move on.

So, how can we confront this massive problem of plastic, when we are so dependent on it? We'll discuss what governments, businesses, and we as individuals, are doing and can do to end this chaos in next week's article.

To see how you can influence and get involved in the fight against plastic, join the community at A Plastic Planet.