LVMH’s Italian gaffe: An Italian subsidiary of French luxury giant LVMH, responsible for producing Dior-branded handbags, was placed under court administration in Italy on June 10, 2024.
The decision came after an investigation revealed that the company had subcontracted work to Chinese-owned firms that mistreated workers.
Two of the workers were immigrants in the country illegally, while another seven lacked the required documentation.
This marks the third such ruling in 2024 by the Milan court, which oversees pre-emptive measures.
Earlier, in April 2024, the court appointed a commissioner to run a company owned by Giorgio Armani due to accusations that the fashion group had inadequately overseen its suppliers.
The violation of rules was not an isolated incident; rather, it was a systematic issue driven by the pursuit of higher profits.
The luxury industry’s supply chain has faced increased scrutiny from consumers and investors, prompting fashion labels to reduce subcontractors and internalize production.
However, this shift has also impacted Italy’s leather goods industry, primarily based in Tuscany and founded by Chinese immigrants.
The Milan court ordered Manufactures Dior, fully owned by Christian Dior Italia, to be placed under judicial administration for one year.
The investigation focused on four suppliers employing 32 staff members, some of whom worked without proper documentation or in substandard conditions.
LVMH’s shares declined following news of the court’s decision, highlighting the significance of ethical practices in the fashion industry.
Italy is home to thousands of small manufacturers that cover 50% to 55% of global luxury goods production.
While outsourcing manufacturing can be understandable during a boom, brands may have taken cost-saving measures too far, impacting profits.
