Milan, Italy – On June 10, an Italian branch of the renowned French luxury conglomerate LVMH, responsible for manufacturing Dior-branded handbags, was placed under court administration following an investigation alleging subcontracting to Chinese-owned companies accused of labor mistreatment.
This marks the third instance in 2024 where the Milan court overseeing preemptive measures has intervened. In April, a commissioner was appointed to oversee a company owned by Giorgio Armani, responding to allegations of inadequate oversight of suppliers within the fashion group.
The Armani Group has previously stated its commitment to minimizing abuses within its supply chain.
According to a copy of the June 10 decision seen by Reuters, prosecutors assert that the violation of labor regulations is not isolated but rather systemic among fashion companies with production operations in Italy, driven by profit motives.
The court described the issue as a “generalized and consolidated manufacturing method,” indicating a broader trend rather than isolated incidents.
The luxury industry’s supply chain practices have faced growing scrutiny from both consumers and investors in recent years.
To mitigate reputation risks, fashion brands have reduced reliance on subcontractors and shifted towards internal production, impacting Italy’s leather goods industry, predominantly located in Tuscany and historically comprised of many firms founded by Chinese immigrants.
Italy hosts thousands of small-scale manufacturers, accounting for 50% to 55% of global luxury goods production, as estimated by Bain consultancy.
Per the document viewed by Reuters, Manufactures Dior, a subsidiary fully owned by Christian Dior Italia, has been placed under judicial administration for one year by the Milan court. The company will continue operations during this period.
The investigation into Dior’s operations focused on four suppliers employing 32 workers in the vicinity of Milan, including two undocumented immigrants and seven individuals lacking proper work documentation.
Italian authorities conducted inspections at the suppliers named Pelletteria Elisabetta Yang, New Leather Italy, AZ Operations, and Davide Albertario Milano between March and April.
Pelletteria Elisabetta Yang and Davide Albertario Milano were identified as direct suppliers to Manufactures Dior.
The court noted that the workers were subjected to substandard hygiene and health conditions, falling below ethical standards.
Representatives for LVMH declined immediate comment. Following the court’s decision, LVMH shares experienced a decline, closing down by 2.2%.
Delphine Arnault, chair and chief executive of Dior, holds a significant stake in LVMH through her family’s 42% ownership. She is the eldest child of Bernard Arnault, who heads the LVMH empire and ranks among the world’s wealthiest individuals.
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