The NY Times had an interesting story yesterday (“A Clothing Clearance Where More Than Just the Prices Have Been Slashed”) about H&M and Wal-mart destroying clothes they were not about to sell.
“At the back entrance on 35th Street, awaiting trash haulers, were bags of garments that appear to have never been worn. And to make sure that they never would be worn or sold, someone had slashed most of them with box cutters or razors, a familiar sight outside H & M’s back door”.
This is related to two topics that we have been discussing here recently:
First, I guess that destroying cloth is like burning money. Why am I making this connection: Marty posted about the fact that many retailers “warned” their customers that they carry less inventory this season, trying to induce them to buy early (and in full price). Marty pointed out that this is equivalent to cheap talk and thus it is not so surprising that customers have not changed their behavior in response to this information (as indicated by surveys). It has been long debated in the economic literature whether costly talk can enhance the credibility of cheap talk. The debated lasted for a few years, until Navin Kartik showed that it is not. Even if you show how serious you are by burning money, you cannot enhance the credibility of the cheap talk. I am not sure whether that’s what H&M and Wal-Mart meant by destroying their clothes, but I thought the connection was interesting.
The second issue that is interesting here is the impact of twitter. Marty has posted several times on the impact of twitter on retailers and businesses, and this comes from a follow up on this story (“Unsold clothes destroyed at H&M — until Twitter roared“):
The New York Times contacted the two stores and asked, why? Walmart said it was a mistake, they didn’t know why it had happened; H&M didn’t return calls. At least, that is, until Twitter got wind of the problem. That wind has been blowing for two days, with criticisms running the gamut of limited-character negativity, “unbridled capitalism” to “am thoroughly appalled” to “horrifying!” to “unconscionable in this economy.” (I wonder what would have happened had Twitter existed in the Great Depression? Surely a whole new entry in the thesaurus under “disgusting” would have been required.) After spending a day in the number two “trending” spot in Twitter, H&M called the New York Times. “It will not happen again,” said spokeswoman Nicole Christie. “We are committed 100% to make sure this practice is not happening anywhere else, as it is not our standard practice.
As NY Times suggested – twitter will endure!