Why Luxury Brands Destroy Their Own Products
Every year, billions of dollars worth of perfectly good luxury products go up in flames. LVMH and Kering alone
Every year, billions of dollars worth of perfectly good luxury products go up in flames. LVMH and Kering alone destroyed €4.7 billion in unsold inventory in 2023. Instead of discounting these items or donating them to charity, the world’s most prestigious brands systematically destroy their own inventory.
This seemingly wasteful practice represents one of the most sophisticated applications of consumer psychology in modern business. Behind every designer handbag sent to the incinerator lies a calculated strategy that exploits fundamental human behaviors around status and scarcity.
The Veblen Effect: When Higher Prices Drive Higher Demand
At the heart of luxury brand destruction lies a counterintuitive phenomenon called the Veblen Effect. For these goods, higher prices don’t deter customers – they attract them. A $10,000 Hermès handbag becomes more desirable precisely because it costs $10,000, not despite it.
The price itself becomes part of the product’s appeal, signaling exclusivity and social status. This creates a psychological trap for luxury brands. If customers can find discounted Louis Vuitton bags at outlet stores, the entire value proposition collapses. The magic happens not in the craftsmanship, but in the guarantee that few others can afford the same item.
Remove that guarantee, and the Veblen Effect disappears.
Scarcity as a Business Model
Luxury brands have perfected artificial scarcity, using destruction as the ultimate enforcement mechanism. Hermès exemplifies this approach with their famous Birkin bags. The company doesn’t just limit production – they create elaborate waiting lists, require customers to establish purchase histories, and maintain strict allocation policies. When excess inventory threatens this carefully constructed scarcity, destruction becomes the logical response.
The psychological power of scarcity extends beyond individual purchases. When customers believe products are rare, they invest more emotional energy in the acquisition process. This emotional investment translates into stronger brand loyalty and willingness to pay premium prices.
Social media has amplified these effects dramatically. A luxury handbag becomes valuable not just as a personal possession, but as content that generates social validation. The destruction of unsold inventory reinforces this dynamic by maintaining the credibility of exclusivity claims.
The Economics Make Sense
From a financial perspective, luxury destruction often makes perfect economic sense despite seeming wasteful. Profit margins on luxury goods typically range from 80-90%, meaning brands can afford to destroy significant quantities while maintaining profitability.
The €4.7 billion in destroyed inventory represents a small fraction of these companies’ total revenue. If discounting these products had reduced demand for new luxury goods by even a modest amount, the financial impact could have exceeded the destruction costs.
When you’re managing brand portfolios valued at over $100 billion, destroying a few billion in excess inventory becomes a reasonable insurance policy.
Growing Pressure for Change
The environmental cost of luxury destruction has become increasingly difficult to justify. France banned the destruction of unsold goods in 2020, forcing immediate strategic changes. Burberry stopped burning products after facing consumer backlash, while other brands now partner with charities or recycling companies.
Consumer attitudes have shifted dramatically, particularly among younger demographics who increasingly prioritize environmental responsibility over traditional status signaling.
Forced to Adapt
Growing regulatory and consumer pressure is forcing luxury brands to find new ways to maintain exclusivity. Some are experimenting with limited production runs that eliminate overstock entirely. Others are shifting toward exclusive experiences rather than physical products.
But these alternatives remain largely experimental. The core challenge persists: how do you maintain artificial scarcity without waste when your entire business model depends on customers believing your products are impossibly rare?
The Future of Luxury
The luxury industry stands at a crossroads between traditional exclusivity models and sustainability imperatives. Success will increasingly depend on innovative scarcity mechanisms that preserve psychological appeal without environmental destruction.
The systematic destruction of luxury products reflects deep understanding of human psychology and the economic value of perceived scarcity. As regulatory pressure intensifies and consumer awareness grows, the future belongs to brands that can master the psychology of scarcity without the environmental costs of destruction.
For business leaders, this phenomenon offers crucial insights into the power of psychological positioning and the complex relationship between customer perception and reality. Understanding these dynamics becomes essential as consumers become more conscious of the true costs behind their purchasing decisions.
