A recent investigation by Italian authorities has shed light on the stark contrast between production costs and retail prices in the luxury fashion industry, focusing on industry giants Dior and Armani. According to a report by Business Insider, the probe has uncovered questionable labor practices and eye-opening profit margins in the production of high-end handbags.
Italian prosecutors in Milan conducted an extensive investigation into LVMH subsidiary Dior's use of third-party suppliers. The findings, as reported by Reuters, revealed that Dior paid a mere $57 to produce bags that retail for approximately $2,780. This figure excludes the cost of raw materials such as leather. The investigation extended beyond Dior to include Giorgio Armani contractors. Documents examined by Reuters showed that Armani paid contractors $99 per bag for products that sold for over $1,900 in stores.
Italian prosecutors just uncovered that Dior pays only $57 to produce bags retailing for $2,780!!!
Anyone buying "luxury" bags is an idiot 🤣 pic.twitter.com/vQWNmNlvjN
— Matt Wallace (@MattWallace888) July 3, 2024
These revelations have raised serious concerns about labor conditions and ethical practices within the luxury fashion supply chain. Prosecutors allege that the subcontractors, primarily Chinese-owned firms, exploited workers to maintain round-the-clock production. Evidence suggested that some workers were sleeping in the facilities, and electricity consumption data indicated work was being carried out during nights and holidays. The probe also uncovered potential safety violations. According to the investigators, safety devices on gluing and brushing machines were removed to increase production speed, putting workers at risk.
In response to these findings, judges in Milan have placed units of both Dior and Armani under judicial administration for one year. However, the companies will be allowed to continue operations during this period.
Fabio Roia, President of the Milan Court, emphasized the dual nature of the problem in a statement to Reuters. "The main problem is obviously people being mistreated: applying labor laws, so health and safety, hours, pay," Roia said. "But there is also another huge problem: the unfair competition that pushes law-abiding firms off the market." Court documents cited by Business Insider stated, "It's not something sporadic that concerns single production lots, but a generalized and consolidated manufacturing method" within the industry.
LVMH, Dior's parent company, did not immediately respond to Business Insider's request for comment. However, court documents show that Dior has submitted a memo highlighting improvements to its supply chain. An Armani Group spokesperson told Business Insider in a statement, "The company has always had control and prevention measures in place to minimize the risk of abuses in the supply chain," adding that they are collaborating with authorities.
This investigation comes at a time when the luxury fashion industry is under increasing pressure to ensure ethical practices throughout its supply chain. LVMH reported conducting 1,725 audits across its 2,062 suppliers and subcontractors last year, according to its environmental and social responsibility report.
