LVMH’s Dior unit under court administration in Italy over labor exploitation report

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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 appointed a commissioner to run a company owned by fashion group Giorgio Armani after it was “culpably failing” to adequately oversee its suppliers.

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The court said in a copy of the decision which was seen by Reuters that prosecutors alleged that the violation of rules was not a one-off, but systematic among fashion companies due to the need to pursue higher profits.

The investigations come amid increased consumer and investor scrutiny of the luxury industry’s supply chain. To reduce reputation risks in recent years fashion labels have curbed the number of sub-contractors and internalised production, hurting for example Italy’s leather goods industry which is based in Tuscany.

Italy is home to thousands of small manufacturers that cover 50 percent to 55 percent of the global production of luxury clothing and leather goods, 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 Chinese 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, Albertario Milano SRL, the document said.

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 immediate comment. Shares in LVMH extended earlier losses on news of the court’s decision to hit a session low. They closed down 2.2 percent.

Delphine Arnault 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. The Arnault family controls a 42 percent stake in LVMH.

‘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 the Dior PO312YKY model, 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,” it added.

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 probe also unveiled that suppliers of the Italian fashion brand included Chinese manufacturers that violated worker protection laws. Armani Group said at the time it had always sought to “minimize abuses in the supply chain.”

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