Italian competition authorities have launched an investigation into luxury fashion companies Armani and Dior over unfair business practices related to the alleged exploitation of workers in their Italian supply chains.
The competition authority AGCM is investigating whether the two companies made "false ethical and social responsibility statements" about the working conditions at their subcontractors producing handbags and other high-end goods.
While both luxury brands emphasize "craftsmanship and excellence" in their public communications, it seems, according to AGCM, that the companies have relied on suppliers where workers were "insufficiently" paid and worked under poor health and safety conditions, including excessive overtime.
The agency stated that the groups are being investigated for potentially "unlawful behavior in advertising and selling clothing and accessories.
Officials of the Competition Authority and members of the Antitrust Unit of the Italian Guardia di Finanza searched the headquarters of Armani and Dior Italia, as well as other group companies, on Tuesday.
Dior, which belongs to the French luxury conglomerate LVMH, stated that the company is cooperating with Italian authorities in light of the "severity of the violations committed by these suppliers." "The House of Dior condemns these unworthy actions that contradict its values and the code of conduct signed by these suppliers," it said in a statement. No new orders will be placed with the two concerned manufacturers.
The Armani Group confirmed that it is under investigation, but emphasized that the companies involved are cooperating with the authorities and 'believe that the allegations are unfounded and will result in a positive outcome' once the investigation is concluded.
The high-profile AGCM investigation follows two recent rulings by the Milan court, which placed the Italian manufacturing subsidiaries of Dior and Armani under judicial administration due to concerns about abuses in their supply chains in Italy.
The authorities determined that the two subsidiaries — which are wholly owned by their parent companies — were employing Chinese subcontractors in Italy who abused their workers, many of whom were from China. Many workers lived in squalid makeshift accommodations above the business premises, often over improperly stored flammable chemicals. Some were employed illegally in Italy, making them even more vulnerable to exploitation.
When the court placed Giorgio Armani Operations under judicial administration for one year, a three-judge panel found that the company had tolerated a production system "obviously aimed at reducing costs and maximizing profits by circumventing criminal and labor regulations" and had not conducted minimal due diligence and audit procedures in its supply chain.
Last month, investigators determined that Dior was paying its Chinese supplier 53 euros for a handbag that was then sold for thousands of euros. Dior did not conduct basic due diligence checks and did not adequately monitor the suppliers.
Dior disputed some of these representations, stating that it conducted regular audits, but acknowledged that improvements in the procedures were necessary. It also said that the subcontractors were only involved in partial assembly of men's leather accessories and not handbags, and that the production costs mentioned in the media reports were "ridiculously low.
The high-profile investigations are damaging to the sector and the image-conscious brands that partly maintain their cachet by emphasizing that their products are made by French and Italian artisans to high standards.
Luxury companies have also emphasized that their products are inherently sustainable and ethical due to their craftsmanship, in contrast to fast fashion. However, the supply chains of the luxury industry have come under increased scrutiny in recent years, as consumers and investors become increasingly aware of the risks of substandard practices by subcontractors. Many groups, such as Chanel, have heavily invested in acquiring their suppliers and integrating them into their own company.
