🔮 Better than the Oracle? Our Fair Value found this +42% bagger 5 months before Buffett bought itRead More

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

Published 06/10/2024, 12:25 PM
Updated 06/11/2024, 12:10 PM
© Reuters. FILE PHOTO: Dior logo is pictured on the newly opened Dior boutique, designed by French architect Christian de Portzamparc, at the Rue du Rhone in Geneva, Switzerland, March 13, 2024. REUTERS/Denis Balibouse
LVMH
-

By Emilio Parodi

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

This is the third such decision this year 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 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".

The court said in a copy of Monday's decision which was seen by Reuters that 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 sub-contractors 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% to 55% of the global luxury goods production, consultancy Bain calculated.

The Milan court ordered Manufactures Dior SRL, fully owned by Christian Dior Italia SRL, 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 small 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 SRL, New Leather Italy SRLS, AZ Operations SRLS, and Davide Albertario Milano SRL, the document said.

Pelletteria Elisabetta Yang and Davide Albertario Milano were direct suppliers of Manufactures Dior SRL, the document said. Pelletteria Elisabetta Yang invoiced 752,881 euros to Manufactures Dior for the fiscal year 2023/24, Davide Albertario 737,623 euros for 2024, it added.

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

Representatives for LVMH had no comment. Shares in LVMH extended earlier losses on news of the court's decision on Monday, and closed down 2.2%. They were down 0.7% at 0921 GMT on Tuesday, against a flat blue-chip index.

Delphine Arnault, whose family controls a 42% stake in LVMH, is chair and CEO of Dior, LVMH's second largest fashion label. She is the eldest child of 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 euros 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 euros.

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.

© Reuters. FILE PHOTO: Dior logo is pictured on the newly opened Dior boutique, designed by French architect Christian de Portzamparc, at the Rue du Rhone in Geneva, Switzerland, March 13, 2024. REUTERS/Denis Balibouse

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 unveiled that suppliers of the Italian brand included Chinese-owned manufacturers in Italy that violated worker protection laws.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.