Why did this company destroy $823m on purpose?

Swiss company Richemont, which owns the Cartier and Montblanc brands, has bought back and destroyed countless designer timepieces over the past two years. Photo / AP

A luxury watchmaker has taken the bizarre step of destroying almost A$744 million ($823.5m) of its own unsold products rather than risk selling them to the masses.

Swiss company Richemont, which owns the Cartier and Montblanc brands, bought back and destroyed countless designer timepieces over the past two years to avoid them being marked down and sold to non-VIPs, due to fears it would ruin the brand's prestige.

The shocking policy was introduced by former Richemont chief executive Richard Lepeu in 2016.

At the time, Lepeu, who has since retired, said it was an "exceptional measure" in "exceptional circumstances".

According to the company's newly-released 2018 earnings report, A$743.98m was spent buying back high-end watches.

The move was also made to avoid the unsold watches ending up on an unofficial "grey market" where they are then sold at heavily discounted rates, which can in turn decimate the brand's luxury status.

But according to the Guardian, analyst Jon Cox from the European financial services company Kepler Cheuvreux said the company's decision led to a "messy result".

"Overall a messy result, with the watch buyback probably hurting the underlying business in the final part of the year," Cox said.

"Long term the company probably did the right thing in terms of the watch clean up.

"However, timing is unfortunate, given the watch market recovery."

The entire luxury watch sector has been hit by declining sales across the board in recent years, although that downturn has started to recover.

Richemont's chief financial officer Burkhart Grund said destroying stock was necessary to ensure "healthy inventory levels at trade partners" — but he said further buybacks would probably not be needed.

Richemont has previously sued Amazon, Alibaba, and eBay for selling knock-off versions of their watches.

The practice of destroying goods rather than see them snapped up at discount prices is apparently quite common in the luxury retail market, with brands like Chanel and Cartier employing the tactic to limit supply — and ensure their products remain exclusive and rare.