Is luxury off hook?
Not long ago, Italian prosecutors sent shockwaves through the industry when they linked Armani to a sweatshop outside Milan as part of an investigation into labor abuse in a luxurious supply chain. Dior was named a few months later.
What they revealed was a system of exploitation that was “established and proven to be so entrenched and proven that it was considered part of a wide range of business policies aimed at making profits.”
More investigations were expected to continue, with around 12 brands under the microscope. However, a few months later, no new cases have been submitted.
Insiders say the luxury sector has been a blind spot for a long time and they are stepping up to tackle issues that appear to be advancing brands tightening their surveillance of external suppliers.
The Armani unit was released from oversight last week by a court-appointed administrator after satisfying staff members with the necessary steps to improve supply chain control. The LVMH subsidiary responsible for creating Dior branded handbags is now underway in a few months.
Meanwhile, industry leaders and local officials say they are working on establishing new protocols in the Lombardy region where Milan is located, and will help prevent future abuse.
However, critics worry that the measures under discussion (voluntary and localized) simply add to the deficit without actually addressing the underlying issues of the sector.
“It is difficult to believe that the actions of the office (the Milan prosecutor) have caused widespread, generalized changes, and in such a short time.” “Effective measures to restrain… Exploitation in the sector is binding and should provide public reports on actual improvements in working conditions and apply not only to a single region or a single country, but to the entire supply chain.”
Take control
Luxury brands have argued that their supply chains do not have labour exploitation that plagues more mass market labels, thanks to their strong ties to Italian manufacturing. For years, they have waving the “Made in Italy” label as a badge of quality and craftsmanship that helps justify increasingly steep price tags and ensure responsible working conditions.
However, the Italian manufacturing industry is deeply fragmented. Large brands usually work directly with a small number of suppliers and work as needed, making it difficult to track where the product is actually produced. Decades of pressure to stay competitive in increasingly globalised markets have created a deeply entrenched shadow economy for cut-price makers. And, according to investigators, some luxury brands keen to boost profit margins without sacrificing “made in Italy” marketing halos, are not maintaining proper control of their supply chains.
Both Dior and Armani have previously stated that the investigators of the link, which they discovered between suppliers and Chinese-owned subcontractors who exploited workers, are the result of the otherwise isolated glitch of robust control systems. Dior declined to comment further.
The sanctions against Armani were “due to the actions of two many suppliers adopted by the company that betrayed the founding value of the Armani Group, in addition to violating the company’s code of ethics, which has never pursued profits as an end in itself and has never waived respect for workers and consumers.”
Prosecutors say these issues are embedded throughout the industry. Previous reports suggest that a survey in Italy could potentially seduce more brands. Investigators discovered that a bag of Jaquemas raided last year between Armani products at one of the factories they attacked last year. Jacquemus did not respond to requests for comment.
Without further investigation, the impact of the scandal is felt throughout the industry, says insiders. The brand has strengthened its auditing system and has placed strict restrictions on factories that suppliers can use as subcontractors.
“This has had a ripple effect on other brands. Caterina Occhio, sustainability advisor for the United Nations and luxury companies and co-founder of Ethical Supplier Network, said: “They all got scared.”
According to court documents, Armani updated its corporate governance structure under the supervision of the judicial administrator. We made progress in mapping and streamlining our supplier base and deployed business-wide compliance training. To ensure that supply chain controls are working effectively, we have established a new supervisory body to ensure that the issue works when it arises. The installation process for new suppliers is tightened, and manufacturers will be audited at least once every two years, according to the document.
The court praised Armani’s quick and collaborative approach, allowing the company’s manufacturing force to have an early release from the supervisor. The prompt remedies taken by the business were possible because of the already in place systems.
The province of Milan (the local branch of the Ministry of Home Affairs) is also consulting on ways to improve supply chain control across the industry. Working groups, including governments and law enforcement agencies, unions and trade organizations, are approaching laying out a common framework of best practices and figuring out details of new protocols aimed at promoting responsible actors.
The proposed system sets out guidelines for the inclusion of commitments to social welfare and labor standards in terms of contracts to reinforce regulatory requirements. It also aims to establish a centralized database where suppliers can upload documents that certify compliance with tax and labor laws. However, participation is voluntary and applies only to the Lombardy region where Milan is located.
“This protocol could be a tool to raise awareness and thus prevent abuse,” said Fabio Roia, president of the Milan Court of Justice.
Red tape and regulatory rollback
Change comes at moments of uncertainty for Italian manufacturing. The luxury recession is hitting the industry hard, with manufacturers saying they are already drowning in the regulatory deficit. More than 3,000 factories that manufacture clothing, textiles and leather products were closed last year, according to a portal from Infocamere, an Italian business register.
Supporters say the tool is an opportunity to streamline and simplify the increasingly expensive and burdensome entanglement of competing standards and audit systems. Despite the region’s scope and voluntary nature, they aim to set a precedent that can be deployed nationwide. Participation of major trade groups like Camera Nazionale Della Moda Italiana and Conf Listustration means widespread intake is likely, they say. CNMI and Confindustria Moda declined to comment.
“This is more than just an audit,” says Andrea Sianesi, professor of operations and supply chain management at Polytechnic University in Milan and a member of the Protocol Working Group. “The goal for everyone is to keep this as simple as possible.”
Critics worry that the system simply adds another layer of expensive bureaucracy to manufacturers without dealing with the underlying pressures that stem from the demand for lower agile production from major brands. Also, as one manufacturer said, questions remain as to how the process is policed to prevent uncruel actors from becoming simply “the ghost of the system.” Similar measures have done little to prevent abuse of other industries, such as agriculture.
New tensions can also bear the new strain as the European Union rethinks flagship regulations aimed at making large brands operating in the trade bloc more responsible for supply chain labor abuse. For Italian manufacturers, competitive means maintaining a pristine reputation, but fear is a system designed to protect itself too much of a burden.
“We are pleased to announce that we are committed to providing support for our customers with a wide range of services,” said Hakan Karaosman, assistant professor of sustainable supply chain management at Cardiff University. “Luxury should be remembered that what they’re doing today will be their legacy in 10-20 years from now, and heritage is one of the most important factors needed to succeed in the market.”
Disclosure: LVMH is part of a group of investors with minority interest in the fashion business. All investors have signed shareholder documents that guarantee the full compilational independence of BOF.
