Italy’s competition watchdog has opened an investigation into Giorgio Armani Group and Christian Dior Italy for potentially engaging in unfair commercial practices following recent revelations by Milanese authorities that their direct and indirect suppliers trafficked in worker abuse and exploitation both in and outside the city.
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The antitrust regulator said Wednesday that the luxury houses may have employed factories that severely underpaid workers, a number of them undocumented migrants from Asia, to make some of their high-end leather bags and accessories. Those same workers, it said, had toiled illegally long hours in unhealthy and unsafe conditions, “in contrast to the boasted levels of production excellence” and “in violation” of Italy’s consumer code.
On Tuesday, the competition authority, with the cooperation of the Italian financial police’s special antitrust unit, carried out inspections at premises run by Armani and Dior Italy. The inquiry, it said, was informed by earlier probes by the public prosecutor’s office that uncovered evidence of human rights violations at the companies’ direct and indirect contractors—ones that prompted a Milanese court to place Giorgio Armani Operations and Manufacturers Dior under yearlong judicial administrations, albeit without criminal charges or fines, for the breakdowns in their due diligence.
The antitrust group said that both Armani and Dior may have issued “untrue statements” about their ethics and social responsibility, “in particular with regard to working conditions and compliance with the law by their suppliers,” which prosecutors said were able to use “particularly disadvantageous working conditions,” such as 14-hour workdays and wages as low as 2-3 euros ($2-$3) an hour, to charge the rarified retailers a fraction of the thousands of dollars their bags ultimately sell for.
The cases are likely to jar consumers’ perception of luxury goods, said Neil Saunders, managing director of market analytics firm GlobalData Retail, noting that it’s more embarrassing for a high-end brand to face these kinds of allegations than it is for a fast fashion one.
“The decision by the Italian authorities to investigate puts luxury firms on notice that they are not above regulations,” he said. “It also underlines the reputational damage that can be inflicted from not controlling and policing the supply chain adequately.”
But Armani said that it believes the allegations have no merit, even though it and its subsidiaries are “fully committed” to cooperating with authorities. The group said that it’s confident of a “positive result” following the investigation.
Dior made no such protest. The LVMH-owned company said that it is aware of the “gravity” of the violations and that they “do not reflect the reality of the work of its artisans and the long-lasting links which exist with Italy.” It said that it would place no new orders with the offending contractors, which despite regular audits “evidently succeeded” in hiding “unworthy acts” that contradict its values and supplier code of conduct.
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Even so, the issue is an old one, said Luca Solca, a senior analyst at Bernstein who covers global luxury goods. He pointed to a 15-year-old report about the rampant nature of subcontracting and how that has dented the responsible halo of “Made in Italy.” Despite the expectation that luxury goods are being cobbled together by fairly compensated craftspeople in artisanal workshops, the reality is less idyllic due to continually soaring production costs and the pressures of globalization. Italy doesn’t even have a national minimum wage that employers are required to pay. And the influx of unregulated factories, many of them Chinese-owned, has made oversight of the country’s supply chain more challenging over the years.
Indeed, high prices do not guarantee that products are made from ethically sourced or environmentally friendly materials, said Katrina Caspelich, chief marketing officer at fashion advocacy group Remake, whose latest Fashion Accountability Report rated luxury brands no higher than other categories when it came to progress on a raft of sustainability metrics, including traceability, wages, raw materials and environmental justice. (Chanel, for instance, scored just five out of a possible 150 points.)
“There’s definitely a common misconception that higher price correlates to higher quality, and that higher quality, therefore, must mean higher standards for sustainability and ethics,” Caspelich said. “But this is simply not true. The luxury fashion sector is not exempt from labor rights abuses. Many high-end premium brands produce in the same factories as fast fashion and lower-priced brands.”
If there’s a lesson to learn from this, it’s that luxury brands need to bolster trust-based supplier relationships, said Hakan Karaosman, assistant professor at Cardiff University, chief scientist at Fashion’s Responsible Supply Chain Hub and chair of the Union of Concerned Researchers in Fashion. Supplier expertise, he said, is “crucial” to maintaining the integrity of the “Made in Italy” imprimatur. Studies he’s conducted support that.
“When luxury brands provide knowledge support, emotional support, communication, and consistent orders, this leads to these brands receiving technically advanced production, supply chain knowledge, sustainability practices, process innovation and artisanal wisdom from lower-tier suppliers,” Karaosman said. “In return, suppliers feel supported and report interactional, procedural and distributive justice, which fosters a willingness to invest, innovate and go above and beyond for the brand.”
Dior said that it will “follow the evolution of its artisanal products,” notably by integrating production into its own ateliers, though how this will translate into practical terms remains to be seen, considering luxury’s intrinsically opaque nature and increasing demands by their employees for better pay and conditions . Still, it remained sanguine. “[We] will continue to offer the best working conditions to all who contribute, with immense commitment and remarkable know-how, to create the finest quality Dior products,” it added.
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