Luxury Fashion’s Dirty Secret: The Failure of Audits to Uncover Exploitation
The luxury fashion industry has long been synonymous with high-end quality and exclusivity. However, a recent investigation has revealed a darker side to this glamorous world. Behind the scenes, workers are being exploited, and audits are failing to uncover the truth.
Manufactures Dior, a production arm of LVMH-owned Dior, relied on formal inspections to assess working and safety standards inside its supply chain last year. But these certifications missed glaring problems, including the exploitation of workers by sub-contractors.
AZ Operations, a sub-contractor of Manufactures Dior, was accused by Italian prosecutors of being a front for an operation that exploited workers. Despite passing two environmental and social inspections in 2023, a police investigation found that AZ Operations was “de facto non-existent” and was a front for a separate business that exploited undocumented workers in sweatshop-like conditions.
The Failure of Audits
The audit papers, along with court documents, reveal the pervasiveness of ineffective checks of social and environmental standards inside Italy’s sprawling luxury supply chain. In the case of AZ Operations, a three-page assessment stated that the company did not have sub-contractors and listed no irregularities. A further audit also found “no non-conformities” and certified the work was carried out to a high standard.
However, police inspections in April 2024 alleged that AZ Operations was a front for a separate business that exploited undocumented workers in sweatshop-like conditions. This discovery was one of the factors that prompted Milan’s prosecutors to put Manufactures Dior under court administration in June.
Cost-Reduction Tactics
Global luxury groups, including LVMH, usually outsource most of their production to external contractors. This deliberate strategy is driven by cost-reduction tactics, leading fashion brands to switch suppliers. Despite the risks, insiders and experts say that relying on suppliers is a way to keep costs down and manage demand.
The fashion business model is driven by cost-reduction tactics, leading fashion brands to switch suppliers. Even though Dior did not directly abuse workers, the mechanism of labor exploitation “was culpably fueled by Manufactures Dior srl which… did not carry out effective inspections or audits over the years to ascertain the actual working conditions and environment,” Milan prosecutors said.
Skin-Deep Oversight
Brands dictate the depth of the checks and the auditors’ scope of action. Inspections are often limited to direct suppliers and not to sub-contractors, where the biggest problems usually lie. Audits tend to be planned in advance, allowing suppliers to paint a better picture by, for instance, clearing premises of workers without proper contracts.
On-site inspections are often too short to examine documents and interview employees. Five Tuscany-based luxury chain workers employed at separate workshops serving major brands confirmed to Reuters that workshop owners knew in advance of the audits and would clear their premises and prep staff on what answers to give monitoring teams on the day of an inspection.
The Consequences of Inaction
The investigations into Italy’s luxury supply chain have prompted some LVMH shareholders to ask the company to better monitor how its contractors treat workers. LVMH told a group of investors in November it was auditing all of its direct suppliers and immediate contractors.
Italy’s antitrust authority is investigating whether Dior and Armani have misled consumers. In July, Armani expressed confidence in a “positive result following the (antitrust) investigation”, saying in a statement that its companies were fully committed to cooperating with the authorities and that it believed the allegations had no merit.
The luxury fashion industry must take responsibility for the exploitation of workers in its supply chain. It is time for brands to invest in their control systems and to question the extremely cheap prices contractors offer to provide goods or services. Only then can we ensure that the luxury fashion industry is truly luxurious for all involved.
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