Luxury’s Italian Supply Chain Reckoning Isn’t Over
Two years after investigations revealed exploitative labor conditions at Italian factories supplying major luxury brands like Armani and Dior, the industry has implemented audits and supply chain controls, but labor advocates argue fundamental business practices remain unchanged and worker conditions have not significantly improved.
Summary
In early 2024, a Milan prosecutor launched investigations into luxury fashion brands discovering factories operating like sweatshops on the outskirts of Milan, with workers earning just a few euros per hour, unsafe conditions, and 15-hour workdays. Brands including Armani and Dior claimed ignorance of these conditions despite having representatives in the factories for quality control. The investigations revealed that Italy's luxury supply chain is highly complex, with work distributed across numerous micro-suppliers and sub-contractors, making visibility difficult but not impossible. Sarah Kent describes this exploitation as a "pulcinella secret"—an open secret everyone in the industry knew about but didn't openly discuss because the system was convenient for maintaining low costs and fast production timelines demanded by luxury brands. In response to judicial oversight, brands have implemented more frequent audits and consolidated suppliers with non-subcontracting requirements. However, the auditing system has become fragmented and costly for manufacturers, with each brand using different auditing standards and requiring separate compliance documentation. The industry has proposed the Milan Protocol, a voluntary database of "good suppliers," but its effectiveness is questionable given its limited geographic scope (Milan region only), voluntary participation, and historical precedent showing low uptake of similar databases in other Italian industries. Universal standards across brands have proven difficult to implement due to institutional inertia, ego, and the complexity of aligning multiple companies on both what standards to adopt and how to implement them. Government oversight remains politically contentious in Italy, with business leaders like Diego Delevalle of Tod's arguing that brands shouldn't be held responsible for all supply chain actors, while labor groups and left-wing politicians contend that brands at the top of the supply chain bear primary responsibility for conditions below them. Evidence suggests that despite these measures, actual working conditions on the ground have not meaningfully improved, partly due to external economic factors including a luxury market downturn and energy costs, but primarily because the fundamental structure of how luxury brands conduct business—demanding low costs and fast turnarounds—has not changed.
About this episode
<p>In 2024, Milan prosecutors uncovered sweatshop-like conditions within the Italian supply chains of major luxury brands, revealing that workers faced degrading living conditions, low pay, and 15-hour workdays. Nearly two years later, despite brands strengthening internal controls, increasing audits, and restricting subcontracting, labour groups report little fundamental change on the ground.</p><br /><p>This week, BoF’s Sarah Kent and Sheena Butler-Young explore whether the luxury sector's response has addressed the root causes of this exploitation, or merely added layers of compliance to the same flawed business model.</p><br /><p><strong>Key Insights:</strong></p><p><br /></p><ul><li><strong>Luxury’s supply chain problems are structural, not isolated.</strong> The 2024 investigations exposed more than a handful of bad factories. Kent says exploitative suppliers had become an “open secret” within parts of Italy’s manufacturing ecosystem, enabled by a fragmented supply chain and commercial pressure for low prices, speed and flexibility. “Everyone knows, no one tells because it is convenient to have them exist,” says Kent. “At its heart, when you really press people, they say it’s because of the price brands are willing to pay for products and the speed and flexibility at which they want them produced.”</li></ul><p><br /></p><ul><li><strong>Brands have tightened oversight but audits are creating new pressure on suppliers. </strong>Luxury companies have increased inspections, consolidated suppliers and restricted subcontracting. But because each brand often uses a different audit system, manufacturers can face overlapping checks and conflicting requirements at a time when margins are already under pressure. “It’s a time cost, a financial cost, and a big burden to have this quite diversified system of audits that’s hitting suppliers at the moment,” Kent says.</li></ul><p><br /></p><ul><li><strong>Despite tighter controls, there is little evidence that conditions have meaningfully improved for workers. </strong>According to Kent, labour groups report little change on the ground, while the luxury slowdown and falling orders are adding more pressure to manufacturers. “ From what I understand from labour groups, there is not a sense that a huge amount has changed on the ground, and I think that's partly because it's quite a complex situation that isn't only linked to luxury supply chains,” Kent says. Without changes to commercial practices that shape working conditions, improvements could remain limited.</li></ul><p><br /></p><ul><li><strong>Compliance alone cannot fix the economics that helped create the problem.</strong> For years, luxury positioned craftsmanship, quality and responsible production as part of what justified premium prices. The investigations exposed significant blind spots in that narrative, particularly where brands knew which factories were producing their goods but focused on product quality rather than labour conditions. “It is very interesting to me that for luxury in particular, which has long spoken about issues of labour abuse or environmental degradation as being a fast fashion issue, to have such apparent blind spots when it comes to its own supply chain,” Kent says.</li></ul><p><br /></p><ul><li><strong>Industry-wide solutions remain limited by fragmented standards and voluntary participation. </strong>Efforts such as the Milan Protocol aim to create common standards and a database of vetted suppliers. But participation remains voluntary and limited geographically, while brands have struggled to align around a single auditing framework. Kent questions: “If everyone’s not on it, and everyone’s not using it, and they don’t have to be on it and they don’t have to use it, how useful is it?”</li></ul><p><br /></p><p><strong>Additional Resources:</strong></p><ul><li><em><u><a href="https://www.businessoffashion.com/articles/sustainability/fashion-fixed-luxury-italian-sweatshops/" rel="noopener noreferrer" target="_blank">Has Fashion Fixed Its Italian Supply Chain Problems? | BoF</a></u> </em></li><li><em><u><a href="https://www.businessoffashion.com/articles/sustainability/luxury-sweatshops-italy-investigation-dior-armani/" rel="noopener noreferrer" target="_blank">Inside Luxury’s Italian Sweatshops Problem | BoF</a></u> </em></li><li><em><u><a href="https://www.businessoffashion.com/articles/sustainability/luxury-sweatshop-reckoning-armani-dior-italy-investigation/" rel="noopener noreferrer" target="_blank">Is Luxury Finally Set for a Sustainability Reckoning? | BoF</a></u> </em></li></ul><hr /><p style="color: grey; font-size: 0.75em;"> Hosted on Acast. See <a href="https://acast.com/privacy" rel="noopener noreferrer" style="color: grey;" target="_blank">acast.com/privacy</a> for more information.</p>
Key Insights
- Sarah Kent argues that the exploitation of Italian factory workers is an open secret within the industry because low-cost, fast production remains convenient for brands, creating financial incentives to overlook problematic suppliers rather than systemic inability to know about them.
- The luxury industry's auditing response has created a costly burden for manufacturers who must comply with 20+ different auditing systems from different brand clients, each with distinct standards and requirements, reducing efficiency without establishing consistent baseline conditions.
- Kent claims that the fundamental business practices of luxury brands—demanding low prices and fast production speeds—have not changed despite all new oversight measures, meaning structural incentives that created exploitation in the first place remain intact.
- The Milan Protocol's voluntary participation model is unlikely to be effective based on historical precedent of similar voluntary databases in Italian industries, which achieved only limited uptake because companies lack sufficient incentives to participate when enrollment is optional.
- Kent identifies a core unresolved debate about responsibility in supply chains: whether brands are only accountable for direct suppliers (industry position) or responsible for all actors in their supply chain due to their control over pricing and timelines (labor advocate position).
Topics
Transcript
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