Sustainability versus exclusivity in the sharing economy: Should leftover luxury fashion products be destroyed?

Abstract

In the luxury industry, fashion brands like Burberry and Cartier are reported to destroy leftover products at the end of the selling season (Scenario BC). This helps to maintain products’ exclusivity image but creates a loss of goodwill because consumers in the market commonly value sustainability and responsibility. In the sharing economy, luxury fashion brands can sell their leftover products to certain platforms and generate revenue (Scenario PL), but doing so reduces the image of product exclusivity. In this paper, we establish stylized models and analytically investigate this operational problem. In the basic model, we consider the case in which the luxury fashion brand can choose between Scenarios BC and PL with deterministic leftover-product-handling effects. We find that Scenario PL outperforms Scenario BC in terms of both benefit and profit risk (i.e., mean–variance dominating) when (i) the inventory service level in Scenario PL is sufficiently small and (ii) either the demand volatility is sufficiently large or the loss of goodwill cost is sufficiently large. In the extended models, we first generalize the two-period model to a multiple N-period model. We then explore another case in which the leftover-product-handling effects brought by Scenarios BC and PL are stochastic, and we highlight the impacts of the associated uncertainties. Finally, we consider a third scenario in which leftover products are donated for charity. We find that the main insights derived from the basic model remain robust in all of the extended models. In short, in the sharing economy, with an alternative way of using the product leftovers and consumers commonly treasure sustainability, we argue that luxury brands should no longer destroy product leftovers. Our proposal is also in line with the current measures imposed on the luxury brands by European Union in which it is no longer legal for luxury brands to “burn” the product leftovers.