# The over-distribution trap and brand dilution
In 2018, Burberry admitted it had destroyed roughly 28.6 million pounds worth of unsold clothing, accessories, and perfume in a single year. The company burned the goods rather than sell them cheaply. To outsiders it looked insane. To luxury finance teams, it was a rational (if ugly) defense of something that does not show up cleanly on a balance sheet: brand equitybrand equityThe commercial value your brand adds beyond functional product attributes: the price premium, preference and loyalty it generates.Voir la définition complète →.
That same decade, Coach ran the opposite experiment. It flooded outlet malls with discounted product, grew revenue fast, and then watched its pricing power quietly collapse. Two companies, two strategies, one lesson: in luxury, volume can be the enemy of value.
In most consumer businesses, more units sold is good. Fixed costs get spread thinner, margins improve, everyone is happy.
Luxury inverts this. The product is not just an object. It is a claim about scarcity and status. When you sell more, you can erode the very thing customers are paying a premium for.
Two terms to define up front:
The core tension: distribution (how widely and how cheaply you sell) directly affects both. Push distribution too hard and you trade durable pricing power for a temporary revenue bump.
In the 2000s, Coach expanded aggressively into outlet centers. Outlet stores are physical shops that sell brand merchandise at persistent discounts, often 40 to 70 percent off. Some outlet product is even made specifically for outlets, never sold at full price.
The strategy worked, at first. Revenue climbed. But it created a structural problem.
Imagine two ways to sell 1,000 handbags.
Scenario A (scarcity): Sell 1,000 bags at 400 dollars each. Revenue: 400,000 dollars. Assume cost of goods sold (COGS, the direct cost to make each unit) is 100 dollars. Gross profit: 300,000 dollars.
Scenario B (volume): Sell 700 at full price (400 dollars) and 300 through outlets at 160 dollars. Revenue: 280,000 + 48,000 = 328,000 dollars. Same COGS of 100 per unit. Gross profit: 210,000 + 18,000 = 228,000 dollars.
You sold the same number of bags and made 72,000 dollars less. Worse, you trained customers to wait for the outlet.
That last point is the trap. Once a meaningful share of buyers knows the outlet exists, full-price demand softens. The reference price in the customer's mind drops. You have not just discounted 300 bags. You have repriced the brand.
By the mid-2010s, Coach faced falling comparable sales and a diluted brand image, and it undertook a widely reported repositioning: closing underperforming department store doors, pulling back on discounting, and rebranding the parent company as Tapestry. The public narrative was consistent: the brand had become too available and too discounted.
The financial signature of over-distribution is subtle. Total revenue can keep rising even as the business gets sicker. Watch instead for:
Revenue growth masks all three until it does not.
Now the Burberry side. Why destroy perfectly good product?
Because the alternative was worse. Selling excess inventory into discount channels ("the grey market," unauthorized resellers who buy overstock and sell it cheap) would have put Burberry product on shelves next to prices the brand did not set. That undermines full-price boutiques and the perception of scarcity.
Burberry's stated reasoning was also about protecting against counterfeiting and controlling brand presentation. Destroying goods kept them out of channels that would cheapen the label.
The decision was financially defensible and reputationally toxic. After public backlash, Burberry announced in 2018 it would stop destroying unsold products and would expand reuse, repair, donation, and recycling. You can read the BBC's contemporaneous coverage for the details.
The lesson is not "burn your inventory." The lesson is that the decision reveals how luxury firms value brand equitybrand equityThe commercial value your brand adds beyond functional product attributes: the price premium, preference and loyalty it generates.Voir la définition complète → relative to short-term recovery of costs. They will accept a total loss on units to avoid a partial loss on the brand.
You do not need to run a fashion house to use this. When evaluating any premium brand, distribution strategy is a leading indicator of margin health.
1. Where can I actually buy this?
Count the channels. Own boutiques and a tightly controlled website signal discipline. Widespread department store presence, marketplace listings, and heavy outlet networks signal dilution risk.
2. How often is it discounted?
Habitual seasonal markdowns train customers to wait. Brands with real pricing power rarely discount their core product. Note: some do "quiet" markdowns through outlets while keeping the main line clean. Look at the whole system.
3. Is volume growth coming from new customers or deeper discounting?
This is the crucial split. Growth from geographic expansion or new product categories can be healthy. Growth from discount channels borrows from future pricing power.
4. What is the full-price sell-through trend?
If a brand sells a shrinking percentage of goods at full price, the premium is eroding even if revenue looks fine.
Here is the ratio that matters most, in plain terms:
Full-price sell-through =
(units sold at full price) / (total units available for sale)
Falling trend over multiple seasons = dilution warning
Rising outlet-channel revenue share = confirmationNo advanced modeling required. The signal is directional, not precise. When both lines move the wrong way together, the brand is likely spending its equity to buy revenue.
Vérification des acquis
1. Why does selling more units in luxury sometimes destroy value, unlike in most consumer businesses?
2. Burberry's decision to destroy unsold inventory rather than discount it is best understood as an attempt to protect what?
3. What is the central relationship between distribution and pricing power in luxury?
4. Select ALL correct answers about brand equity and pricing power as defined in the lesson.
Sélectionnez toutes les réponses correctes.
5. Select ALL correct answers describing why Coach's aggressive outlet expansion became a structural problem.
Sélectionnez toutes les réponses correctes.
Every premium brand sits on a spectrum between two failure modes.
Over-distribution: Sell everywhere, discount often, grow revenue now, erode pricing power later. Coach's 2000s path. The damage is slow and compounds quietly.
Over-scarcity: Restrict supply so tightly that you leave growth on the table, frustrate loyal customers, and cede share to more available rivals. This is the less-discussed risk. Extreme scarcity can also starve a brand of the revenue it needs to invest.
The best operators manage the tension deliberately. A common playbook among the strongest houses:
LVMH and Hermes are frequently cited examples of disciplined distribution and durable pricing power, though specifics vary by maison and year and you should treat any single figure you see quoted with caution.
Brand dilution used to be treated as a "soft" marketing concern. It is not. It flows directly into the numbers finance teams live by:
The over-distribution trap is dangerous precisely because it is invisible on the top line. A CFO celebrating revenue growth can be presiding over margin decay. The discipline is to look past revenue to the quality of that revenue.