Luxury fashion companies must ramp up their supplier checks to uphold labor laws, urges Milan's court of justice, following investigations into worker exploitation at LVMH and Giorgio Armani units. These proposals, though not legally binding, represent a significant move by magistrates in Italy's fashion epicenter to combat what they call "a generalized manufacturing method" endangering lives for higher profit margins.

For over a decade, Milan prosecutors have scrutinized illegal working conditions in logistics and cleaning services, now turning their focus to the luxury sector, where Italy produces half of the world's high-end goods. This year's supply chain probes revealed sweatshops near Milan where workers, often illegal immigrants, toiled in dire conditions—eating and sleeping on-site, working through nights and holidays, and operating unsafe machinery to boost output.

On Monday, a Milan court appointed a special commissioner to oversee an LVMH unit producing Dior-branded handbags. In April, a similar action was taken with an Armani unit.

Fabio Roia, president of Milan's court system, shared with Reuters that the proposed scheme was crafted with input from court-appointed commissioners who have assisted companies in rectifying supply chain issues in recent years. "On Tuesday, we sent the draft proposal to Milan's police chief. Then Italy's Chamber of Fashion and other associations, as well as every company in the sector, will need to adopt it. We aim to make this happen before the summer break," he said.

The measures aim to enforce effective supplier checks. "We've noticed companies don't invest enough in their control systems. It is, first and foremost, a problem of culture, like tax evasion," Roia remarked. "Business owners unfortunately don't normally question why certain goods or services cost so little. They simply seize the chance to maximize profit. You'd think ultra-low prices would ring alarm bells. If someone offered me a Rolex watch for 50 euros, I'd be wondering where it comes from."

Recent investigations reveal the stark reality: Milan prosecutors allege that one Chinese-owned supplier, by making staff work illegal 15-hour shifts, charged Dior as little as 53 euros for handbags retailing at 2,600 euros. Similarly, sub-contractors paid workers 2-3 euros an hour for 10-hour days to produce bags sold to Armani suppliers for 93 euros, then resold to Armani for 250 euros, and retailed at around 1,800 euros.

While LVMH has not commented, Armani maintains it has always sought to minimize abuses in its supply chain. Neither group is under investigation.

Unfair Competition

"The main issue is the mistreatment of people: applying labor laws, ensuring health and safety, hours, and fair pay. But there's also the problem of unfair competition, which drives law-abiding firms out of the market," Roia emphasized. "Eradicating labor exploitation would reduce profits but allow for fair competition among businesses."

Scandals over inhumane working conditions have long plagued the fashion industry, particularly in developing countries. Social media has heightened the reputational risks for brands, prompting many to bring some production in-house and reduce the number of sub-contractors.

"When we intervene, business owners always claim it's impossible to monitor sub-contractors. But if that's true, one could, for example, insert a clause in contracts prohibiting direct suppliers from further outsourcing," Roia suggested. Investigations into luxury supply chains often found either a lack of formal contracts or companies acting as intermediaries for actual manufacturers.

"We have limited resources but have made an impact not only on the companies we worked with but also on others, given the huge reputational risks and the demands a court-appointed commissioner can impose," Roia concluded.