Labor Issues, Audits Plague Italy’s Luxury Supply Chain

Italy’s luxury goods sector, home to iconic brands such as Dior, Armani, and Montblanc, is facing scrutiny over allegations of labor exploitation and inadequate oversight within its supply chain. Investigations by Italian authorities and accounts from workers reveal systemic issues, raising questions about the industry's commitment to social responsibility and sustainability claims.

Reports from Italian prosecutors and audit documents allege that subcontractors within the supply chains of major luxury brands often exploit workers despite undergoing and passing formal inspections. For example, AZ Operations, a subcontractor for LVMH-owned Dior, passed two audits in 2023 but was later found to be a front for another entity, New Leather Italy, accused of employing undocumented workers in sweatshop-like conditions.

Authorities placed Dior’s Italian production arm, Manufactures Dior, under court administration in June 2024, citing insufficient audits and failure to detect labor violations. The company admitted its checks were ineffective, stating: “Despite regular audits, these two suppliers had evidently succeeded in hiding these practices.”

The issue is not isolated to Dior. Armani and smaller luxury brands like Alviero Martini are also under judicial oversight. Investigations revealed instances where suppliers used subcontractors to cut costs while disregarding labor laws. Alviero Martini, known for its map-patterned leather goods, admitted to inadequate oversight of subcontractors.

Workers from Tuscany, a region responsible for much of the world’s luxury leather goods, reported being coerced into lying about their working conditions during audits. “We used to say we only worked four hours a day as per our contracts, but in reality, we worked 14 hours daily,” said a worker in Prato, Italy, to Reuters. 

Experts point to cost-reduction strategies as a significant driver of these practices. “The fashion business model is driven by cost-reduction tactics, leading fashion brands to switch suppliers,” says Hakan Karaosman, Associate Professor, Cardiff University.

The revelations have prompted some LVMH shareholders to demand stricter monitoring of contractors. In response, the company claimed it conducted over 2,600 global audits in 2023 and is committed to improving oversight. However, critics argue that these measures often lack depth, focusing on direct suppliers while ignoring subcontractors where violations are most prevalent.

Italy’s antitrust authority is also investigating Dior and Armani for potentially misleading consumers with claims about their sustainability and ethical practices. Armani expressed confidence in a favorable outcome, saying that it is fully cooperating with authorities.

Migrant laborers from Tuscany have protested outside Montblanc’s flagship store in Geneva, Switzerland. They accused the brand of severing ties with its supplier, Z Production, after the subcontractor improved working conditions and adhered to legal labor standards. “They just wanted slaves,” says Zain Ali, a former worker.

Montblanc denied the allegations, stating that it does not tolerate exploitation within its supply chain.

The lack of binding legal requirements in Italy for auditing suppliers complicates efforts to address these issues. Critics argue that the luxury industry must go beyond formal audits and implement comprehensive, unannounced inspections to uncover hidden violations.

In Mexico, the luxury goods market is projected to generate US$3.25 billion in revenue in 2025, with an expected annual growth rate of 2.30% (CAGR 2025-2029), according to Statista. The largest segment within this market is Luxury Fashion, which will account for US$840 million in 2025.