Luxury brands have spent decades building businesses that depend on scarcity, controlled distribution, and full-price sell-through. But what happens when products do not sell? The delicate economics of luxury mean that discounting can undermine pricing power, while sales through third-party retailers can compromise brands’ control over how their products are sold.
Historically, some luxury companies addressed that challenge by destroying excess stock to prevent unwanted merchandise from entering discount or secondary markets. However, a European Union prohibition that took effect this summer has narrowed that option, raising the possibility that brands could achieve the same result by moving unwanted merchandise outside the bloc.
The Offshore Equation
Since July 19, 2026, the EU’s Ecodesign for Sustainable Products Regulation (“ESPR”) has prohibited large enterprises from destroying unsold apparel, clothing accessories, and footwear, subject to specified exceptions. The prohibition – which will extend to medium-sized enterprises in July 2030 – covers more than incineration and landfill disposal. Deliberately damaging unsold merchandise or discarding it for recycling, for instance, can also constitute destruction under the ESPR. Exceptions permit destruction in certain circumstances, including where products are unsuitable for reuse or where specified efforts to resell or otherwise redistribute them have been unsuccessful.
For luxury brands seeking to maintain control over excess inventory, the ESPR raises questions about potential workarounds, including whether a company could export unsold clothing outside the EU and have it destroyed there without violating the law.
Addressing that question in a response to a European Parliament inquiry this summer, the European Commission distinguished between exports for genuine resale, which remain permissible, and exports intended solely for destruction. Companies exporting unsold products for destruction abroad must publicly disclose the quantities involved, the reasons for disposal, and how the products were handled. They may also face liability for circumventing the ESPR’s destruction ban. Such disclosures could also carry commercial and reputational risks by making information about unsold inventory and its disposal publicly available.
The Commission’s response, however, leaves a more complicated issue unresolved: What happens when a luxury brand exports merchandise for genuine resale, but the products remain unsold and are eventually destroyed? Consider the common practice of transferring excess inventory to distributors outside the EU, where the products are offered for sale at reduced prices. If some merchandise goes unsold, the distributor might eventually dispose of it rather than storing it or discounting it further.
A key factor would be who controls the merchandise and its disposal. An independent distributor that purchases inventory from the brand and later decides to dispose of it presents different circumstances from a non-EU entity acting on the brand’s instructions. Article 24 of the ESPR requires covered companies to disclose information about unsold products discarded directly or on their behalf, a requirement that could extend to some – but not all – overseas disposal arrangements.
The Limits of the Law
The ESPR also aims to prevent companies from evading the destruction ban by transferring products to other operators for disposal. However, it does not expressly address whether that restriction applies to entities operating entirely outside the EU or whether a luxury brand could be held liable for destruction carried out abroad.
A more fundamental question is whether the overseas resale effort was genuine. A luxury brand might transfer inventory outside the EU with a legitimate intention to sell it at a discount in a less commercially important market. Alternatively, an arrangement could be structured to appear commercially legitimate while effectively providing a route for destroying unwanted stock abroad.
The ESPR does not prescribe a specific test for distinguishing these circumstances, and the Commission’s July response does not establish that every overseas transfer followed by destruction constitutes circumvention. The parties’ intentions, contractual arrangements, and degree of control over the merchandise could therefore prove decisive in determining whether an overseas resale arrangement amounts to an attempt to evade the prohibition.
THE BOTTOM LINE: For luxury brands considering overseas resale of excess inventory, the key is ensuring that the arrangements reflect genuine commercial transactions rather than a means of circumventing the ESPR. Counsel should carefully assess the purpose of the transfer, the terms governing subsequent disposal, and the extent of the brand’s control over unsold products. Documentation of legitimate resale efforts and clear contractual arrangements could prove important if regulators scrutinize whether an overseas transfer was intended to evade the destruction ban.
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