Luxury brands face scrutiny over labour exploitation schemes
The Italian Competition Authority (AGCM) and Milan courts have placed Loro Piana, a luxury brand owned by LVMH, under judicial administration for one year following revelations of severe labor exploitation in its production network. This development follows a trend where five major luxury brands have faced similar penalties within 18 months, exposing systematic abuses in subcontracted manufacturing that contradict their public ethical claims.
An initial complaint from a worker about physical abuse led investigators to uncover 21 Chinese workers in two factories producing Loro Piana products. Of these, ten lacked employment contracts, and seven were undocumented in Italy. The brand had delegated production to Evergreen, which then subcontracted to Sor-Man snc, a firm that further outsourced work to Chinese-owned factories. Authorities shut down these facilities and arrested an owner in May.
Italian law imposes fines of up to €1,000 per exploited worker on brands for organizational failures, even when abuses occur through indirect suppliers. Loro Piana issued a statement to Fox Business denying awareness of the subcontractor’s practices, asserting its commitment to upholding human rights and compliance with all applicable regulations throughout its supply chain. The company stated it would continue to strengthen control and audit activities. However, internal records allegedly showed that $4,000 jackets were manufactured at a cost of just $137–$149 each, according to the subcontractor’s owner.
Loro Piana’s history of supply chain failures
This is not the first controversy for Loro Piana. A Bloomberg report last year accused the company of underpaying Indigenous workers harvesting vicuña, a South American camelid whose wool is central to its high-end collections. While the brand rejected the allegations, the recurring pattern of supply chain failures raises persistent questions about accountability.
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Luxury brands are losing market share amid broader economic challenges. US tariffs on European goods have reduced demand in America, a key revenue source for companies like Prada, LVMH, and Hermès, all of which have reported declining sales. Against this backdrop, Italian courts are tightening enforcement. Dior and Valentino have already faced judicial administration for similar violations, with Dior avoiding penalties in 2024 by agreeing to a €2 million commitment over five years for supply chain reforms.
Judicial administration was introduced after the murder of judges Paolo Borsellino and Giovanni Falcone in 1992 as an anti-mafia measure to protect brands from extortion and criminal interference. The process, comparable to receivership, can last up to two years. Milan prosecutors have spent over a decade investigating illegal hiring to evade taxes and welfare contributions, but the luxury sector’s cost-cutting practices have made it a priority for intervention.
In May 2025, the AGCM accepted Christian Dior’s voluntary commitments to avoid judicial administration. Labor attorney Jason Sprague has noted that terminating contracts with exploitative suppliers could worsen worker conditions by forcing them into less regulated operations. Instead, brands must collaborate with contractors to drive meaningful systemic change.
Milan’s crackdown and uneven industry reforms
In June, at the Palace of Justice in Milan, a non-binding Memorandum of Understanding for the Legality of Procurement Contracts in the Fashion Production Supply Chains was signed. The initiative seeks to standardize transparency across the industry. However, enforcement remains uneven. Milan’s crackdown is currently limited to the Lombardy region, while fashion production hubs in Tuscany, Veneto, Campania, and Emilia-Romagna operate without equivalent scrutiny.
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Pressure is mounting ahead of the EU Forced Labour Regulation (EUFLR), set to take effect in December 2027. Italian authorities are expected to broaden investigations and audits, compelling brands to reconcile their ethical branding with the realities of their production networks.
Armani’s €3.5 million fine demonstrates the financial risks of failing to align corporate actions with public ethical claims. The AGCM found that €1,800 leather bags were produced for just €93 by Chinese subcontractors, then resold for €250 before reaching retail. Workers in these facilities faced removed safety equipment, inadequate hygiene standards, and off-the-books employment—direct contradictions of Armani’s stated ethical policies.
The core issue for luxury brands extends beyond legal compliance to proving they can enforce ethical standards consistently. Without broader reforms beyond regional enforcement, the cycle of exploitation and financial penalties is likely to persist.
