Italian Court Reprimands Loro Piana Over Worker Abuse Allegations

Loro Piana store — New York, 4/27/2023: Loro Piana high end clothing store in Meatpacking District of Manhattan.
getty

An Italian court has placed the renowned luxury cashmere brand Loro Piana under judicial administration for a year after an investigation uncovered worker abuse and exploitation in its supply chain. The Court of Milan found that the company “culpably failed” to oversee its suppliers in order to pursue higher profits and cited a wider, systemic pattern of employing subcontractors that violate fair labor practices.

Loro Piana is the fifth luxury brand – and the second LVMH-owned brand after Dior – to be found in violation of Italian labor laws since the country began cracking down on subcontracting practices commonly used throughout the industry. Other brands that the court determined have allowed illegal and unethical labor conditions to persist throughout their supply chain include Giorgio Armani, Valentino and handbag company Alviero Martini.

This is not just a stain on the reputations of the brands involved, but a threat to the entire luxury industry. Bain estimates that about 50% of global luxury goods production is carried out by thousands of small manufacturers in Italy.

“Allegations of worker abuse can have a profoundly negative impact on the reputation of a high-end fashion brand,” said Stephen Hahn, chief reputation and strategy officer at RepTrak, a corporate reputation management firm.

“Perceptions of workplace is one of the seven key drivers of reputation within the consumer discretionary industry and is especially important to luxury goods,” he continued.

Allegations Of Mistreatment

The investigation carried out by the Carabinieri police labor protection unit began in May after a worker reported being physically assaulted by his employer, a workshop – more accurately described as a “sweatshop” – that produced Loro Piana men’s jackets. The company has since been shut down.

Investigators found workers were forced to work up to 90 hours a week, seven days a week and made less than $5 per hour. They also slept in the factory in illegally built rooms. Further investigation found ten workers were employed illegally, seven of whom were undocumented immigrants from China.

Complicating the investigation was the fact that Loro Piana didn’t contract directly with the offending company but went through two front companies that had no actual manufacturing capability. The front companies subcontracted to several different firms, all of which were rounded up in the investigation.

Loro Piana, not parent company LVMH, issued a statement to Fox Business, clarifying that it had not been made aware of the subcontractor relationships. The company emphasized that under both legal and contractual obligations, the company should have been informed of the arrangements.

“Loro Piana firmly condemns any illegal practices and reaffirms its unwavering commitment to upholding human rights and compliance with all applicable regulations throughout its supply chain,” the company stated. “Loro Piana is committed to ensuring that all its suppliers comply with the Maison’s highest quality and ethical standards in line with its Code of Conduct. In this perspective, Loro Piana has been constantly reviewing and will continue to strengthen its control and audit activities.”

However, it appears alleged unethical dealings have been going on for some time, even after many of Italy’s fashion brands signed an accord to fight worker exploitation in May.

The owner of the subcontractor said the company has been producing between 6,000 and 7,000 men’s jackets per year at prices between €118 and €128 ($137 to $149) depending upon the number ordered.

Loro Piana cashmere jackets sell for more than $4,000, though the company stated: “The reported cost figures are not representative of the amounts paid by Loro Piana to its supplier nor do they consider the full value of all the elements, including, among others, raw materials and fabrics.”

Tangled Web

Milan-based visiting international marketing professor at Università Cattolica, Alessandro Balossini Volpe, explained that the luxury fashion supply chain is an increasingly complex network involving multiple manufacturers, raw materials suppliers and numerous contractors and subcontractors, making it increasingly difficult to keep track of.

Added to that, the fashion industry is highly volatile with a growing demand for speed in deliveries, constantly revolving collections and diversification of product offerings.

“The luxury fashion manufacturing supply chain in Italy is notoriously fragmented,” he explained, with a majority of suppliers being family-run businesses with ten or fewer employees.

“Over the last several years, they have been under constant pressure on prices and shrinking volumes, which has put many small players out of business. As a consequence, if a brand has an increasing turnover of suppliers, control over them gets increasingly difficult,” he said, adding “We have a situation of unprecedented complexity in the management of the supply chain.”

Tip Of The Iceberg?

Balossini Volpe believes that a majority of luxury businesses and brands follow responsible business practices and have been rigorously trying to manage their supply chains. However, “I am also convinced that more than a few players, including some big names, have been chasing profits at all costs, sometimes turning their eyes away from disreputable situations that they could have fixed or changed.”

He suggested that the five luxury brands implicated in unethical supply chain practices are not isolated occurrences, but rather the tip of the iceberg in a deeper, systematic failure within the fashion industry.

“All of the luxury fashion brands could fall under suspicion of collectively engaging in unethical and unsustainable business practices,” he warned.

“It would mean questioning not only the tangible, intrinsic value of the products, but also their intangible value that includes their credibility and integrity,” he concluded.