LVMH’s unit put under court administration in Italy over labour exploitation

MILAN - An Italian subsidiary of French luxury giant LVMH that makes Dior-branded handbags was placed under court administration on June 10, after a probe alleged it had subcontracted work to Chinese-owned firms that mistreated workers.

This is the third such decision in 2024 by the Milan court in charge of pre-emptive measures, which in April named a commissioner to run a company owned by Giorgio Armani due to accusations that the fashion group was “culpably failing” to adequately oversee its suppliers.

Armani Group said at the time it had always sought to “minimise abuses in the supply chain”.

In a copy of the June 10 decision seen by Reuters, the court said prosecutors alleged that the violation of rules was not a one-off among fashion companies with manufacturing capacity in Italy, but systematic due to the need to pursue higher profits.

“It’s not something sporadic that concerns single production lots, but a generalised and consolidated manufacturing method,” the document said.

The luxury industry’s supply chain has come under increased scrutiny by consumers and investors in recent years.

To reduce reputation risks, fashion labels have curbed the number of subcontractors and internalised production, in a blow to Italy’s leather goods industry, which is mostly based in Tuscany and comprises many firms founded by Chinese immigrants.

Italy is home to thousands of small manufacturers that cover 50 per cent to 55 per cent of global luxury goods production, consultancy Bain calculated.

The Milan court ordered Manufactures Dior, fully owned by Christian Dior Italia, to be placed under judicial administration for one year, the document seen by Reuters showed. The company will continue to operate during the period.

The Dior investigation focused on four suppliers employing 32 staff who worked in the surroundings of Milan, two of whom were immigrants in the country illegally, while another seven worked without the required documentation.

Between March and April, Italian police carried out inspections at the suppliers, named Pelletteria Elisabetta Yang, New Leather Italy, AZ Operations and Davide Albertario Milano, the document said.

Pelletteria Elisabetta Yang and Davide Albertario Milano were direct suppliers of Manufactures Dior, the document said.

The staff lived and worked “in hygiene and health conditions that are below the minimum required by an ethical approach”, it added.

Representatives of LVMH had no immediate comment. Shares in LVMH extended earlier losses on news of the court’s decision to hit a session low. They closed down 2.2 per cent.

Ms Delphine Arnault, whose family controls a 42 per cent stake in LVMH, is chairwoman and chief executive of Dior, LVMH’s second-largest fashion label. She is the eldest child of Mr Bernard Arnault, who runs the LVMH empire and is among the world’s wealthiest people.

‘24 hours a day’

In the 34-page ruling, the judges said the workers were made to sleep in the workplace in order to have “manpower available 24 hours a day”.

Data mapping electricity consumption showed “seamless day-night production cycles, including during the holidays”.

In addition, safety devices had been removed from the machinery to allow them to operate faster, according to the document.

This allowed contractors to rein in costs and charge Dior as little as €53 (S$77) to supply a handbag, the document said, citing as an example a Dior model coded PO312YKY, which the fashion house then retailed in shops at €2,600.

The Dior unit did not adopt “appropriate measures to check the actual working conditions or the technical capabilities of the contracting companies”, failing to carry out periodic audits of its suppliers over the years, it added.

The owners of the contracting and subcontracting companies are under investigation by Milan prosecutors for exploiting workers and employing people off the books, while Dior itself faces no criminal probe.

The Armani investigation also revealed that suppliers of the Italian brand included Chinese-owned manufacturers in Italy that violated worker protection laws. REUTERS