A brand can be one of a company’s most valuable assets. As written in a previous post, the value of a brand has the potential to cover millions of dollars in debt and fees during liquidation events, and can even represent values greater than 100% of a company’s publicly reported asset values.

Traditionally, the value that a brand (including all accompanying trademarks, copyrights, etc.) provides to a company can be boiled down to 2 main categories; ability to charge premium prices, and diminishing marginal marketing costs as a company expands. A strong brand can allow a business to charge premium prices for its products and/or services, above and beyond what a consumer would typically be willing to pay. The most obvious example of this branding power at play is with Apple. Fanatics (myself included) will argue that Apple products are superior to the competition in many different ways, which results in higher priced phones, computers, tablets etc. While superior product features certainly contribute to the company’s premium prices, it is undeniable that the brand – which has become synonymous with quality, design, and innovation – drives consumers to pay excessive prices.  The value of the Apple brand is on full display when looking at industry profit statistics. According to an Investor’s Business Daily article published in February of this year, Apple claimed 87% of total industry-wide smartphone profits while only accounting for 18% of unit sales in the previous quarter.

Given the immense value that a well-established brand can provide, it is unsurprising that many companies take extreme measures when it comes to protecting that asset. The traditional measures that companies take to protect their brand include setting strict internal regulations on how the brand is used, as well as air-tight restrictions on how the brand is used externally for brand representatives or licensees. A good example of these “traditional” brand protection efforts is the Louis Vuitton lawsuit against My Other Bag, claiming that the parody handbags dilute the “distinctive quality” of the Louis Vuitton trademarks. In fact, many companies actively police the use of their trademarks and copyrights by employing staff to search for instances where such use does not comply with their standards in an effort to intervene and avoid any lasting damage to the brand.

Aside from these traditional efforts, some companies take brand protection to the next level. According to a recent BBC article, luxury fashion retailer Burberry literally burned £28.6 million worth of clothes, accessories, and perfumes last year. In an effort to protect the Burberry brand from dilution via unwanted discount sales or theft, the company incinerates its excess stock in a specially designed furnace that captures the energy from the process for re-use (which does little to please the environmental proponents who oppose this process). Over the past 5 years, it is estimated that more that £90 million worth of Burberry goods have suffered the fate of the furnace – which gives us a pretty good understanding of just how highly the company values its brand. For further context, we can examine Burberry’s most recent Annual Report, dated June 6, 2018. The company reports roughly £19 million and £40 million in “Additions” to its “Intangible assets in the course of construction” over the last 2 years. From this, we gather that Burberry incinerates tangible goods for the sake of protecting its brand that are valued at amounts nearly equal to, if not greater than, the amount it spends on developing new intangible assets.

It is important to note that Burberry is not alone in the practice of destroying its unsold goods for the purpose of protecting its brand. Constant pressure from shareholders for expansion and production often pushes fashion companies to produce excess stock – presenting them with the choice between costly inventory repurchases (regularly followed by destruction) or running the risk of brand dilution and devaluation. The measures that these companies go to in order to protect their brand is a clear indication of just how valuable they are. Burberry and its peers watch tangible value go up in flames to secure the massive future cash flows made possible by their intangible assets.