[Yonhap]
[Yonhap]

Global luxury brands that have long destroyed unsold goods to preserve an air of exclusivity now face a sweeping overhaul of their inventory strategies under new EU regulations. With incineration and landfilling of unsold products set to be banned, analysts say the ability to manage output and make creative use of surplus stock will become a defining competitive edge.

The Financial Times reported that the EU began enforcing a rule Sunday prohibiting the incineration and landfilling of unsold clothing, accessories and footwear — including customer returns.

The regulation was approved in 2024 to curb overproduction and reduce waste, and initially applies to large companies.

Under the new rules, companies must dispose of unsold products through environmentally friendly means such as donation, repair or reuse, rather than destruction. Exceptions are made for goods that pose health or safety risks, counterfeit items and products too damaged to be recovered.

According to the European Environment Agency, between 4 and 9 percent of textiles sold in Europe are discarded before ever reaching a consumer — equivalent to roughly 264,000 to 594,000 metric tons a year.

Court documents released recently also revealed that Chanel had been regularly destroying thousands of unsold products in Hong Kong as part of its inventory management strategy.

Chanel told the Financial Times, however, that "the figures cited in court do not reflect current global operations," adding that it handles hard-to-sell products through its recycling subsidiary L'Atelier des Matières, established in 2019.

Industry observers say the regulation will significantly disrupt the established strategy of luxury brands — including LVMH, Prada and Chanel — that have relied on restricting supply to maintain exclusivity. These companies now face the challenge of either increasing inventory storage costs or managing output with far greater precision.

With incineration no longer an option, there is growing speculation that brands may turn more heavily to outlet and discount sales to clear surplus stock. Analysts say new retail strategies that can efficiently move inventory without eroding brand value will become increasingly important.

Bain & Company and the Italian luxury industry association Altagamma found that up to 40 percent of luxury sales in 2025 were made at a discount, a result of brands leaning more heavily on price reductions and outlet channels as demand slowed and inventories grew.

Luca Solca, an analyst at Bernstein, said the shift could open new business opportunities for operators of luxury outlet villages such as Britain's Value Retail, which runs sites in Europe, China and New York.

Burberry has already navigated this kind of controversy. The brand drew sharp criticism after it emerged that it had incinerated a large volume of unsold goods in 2017, and subsequently shifted to donating surplus stock to the social enterprise Smartworks. It also built a digital product passport system to support resale and recycling.

Some in the industry expect the adoption of AI-driven inventory management systems to accelerate as a result. The thinking is that demand forecasting and output calibration powered by AI could spread more widely as brands seek to minimize surplus stock.

Julia Iuticone, a partner at Heidrick & Struggles' Milan office, said "the sophistication of production and sales planning will itself become a new source of competitive advantage."

The regulation is expected to drive change not just in how luxury brands handle surplus inventory, but across their broader production and retail strategies. As pressure grows to balance exclusivity with environmental standards, analysts say the new benchmark for luxury competitiveness will be how little a brand produces and how efficiently it sells.


rainbow@heraldcorp.com